Bausch Health's Strategic Turnaround and Margin Expansion Potential: A Buy for the Long Haul

When a company can grow revenue by 5% year-over-year in a mature sector like healthcare while simultaneously reducing debt and expanding margins, it's time to sit up and take notice. Bausch Health (BHC) has done just that in Q2 2025, delivering a performance that suggests the company is not just stabilizing but accelerating its transformation into a leaner, more innovative player in the eye health space. For investors, the question isn't whether Bausch Health can grow—it's whether the market is underestimating the depth of its turnaround.

Post-Earnings Momentum: A Recipe for Resilience

Bausch Health's Q2 results were a masterclass in strategic execution. Consolidated revenue hit $2.53 billion, up 5% year-over-year, with the dry eye and contact lens segment (under Bausch + Lomb) leading the charge. The Vision Care segment alone grew 8% to $753 million, driven by blockbuster performers like Daily SiHy (36% growth) and LUMIFY. The dry eye portfolio, now generating $1 billion in trailing 12-month revenue, is a testament to the company's ability to tap into unmet patient needs with products like Blink Nourish and Blink Boost, which have redefined the OTC dry eye market.

But the real story here is margin expansion. Adjusted EBITDA rose 10% to $842 million, outpacing revenue growth. This wasn't just a one-off; it's the ninth consecutive quarter of year-over-year EBITDA growth (excluding Bausch + Lomb). The company's disciplined cost management—despite challenges like the enVista IOL recall—has kept gross margins resilient. At 60.6% in Q2, the adjusted gross margin may have dipped slightly from 2024, but this was a temporary hit from product mix shifts. The long-term trend? A clear upward trajectory.

Operational Resilience: Debt Reduction and Strategic Clarity

Bausch Health isn't just growing—it's cleaning house. The company announced plans to repay $900 million in debt using cash on hand, reducing leverage and freeing up capital for innovation. With $1.7 billion in cash and $475 million in revolving credit availability (excluding Bausch + Lomb), the balance sheet is no longer a drag on its valuation. This fiscal discipline is critical in a sector where R&D and regulatory hurdles can be costly.

Moreover, the acquisition of DURECT Corporation in July 2025 signals a bold move into hepatology, leveraging Bausch's expertise to commercialize DURECT's alcohol-induced hepatitis treatment. This isn't just a pipeline play—it's a diversification strategy that reduces reliance on any single therapeutic area.

Long-Term Catalysts: The Dry Eye and Contact Lens Revolution

The real fireworks are in the dry eye and contact lens segments. Bausch + Lomb's Vision Care business is a growth engine. Daily SiHy, the fastest-growing contact lens brand, is set to expand into multifocal and toric options in 2026, addressing a $4.5 billion U.S. market for premium lenses. Meanwhile, the launch of Lumify Preservative Free and Blink Nourish—a vitamin-enriched dry eye drop—has redefined what patients expect from OTC solutions. These products aren't just incremental upgrades; they're category leaders.

The November 13, 2025, investor day will be a litmus test for the company's innovation pipeline. Expect details on AI-driven AMD treatments via its partnership with Character Biosciences and prescription dry eye therapies in the pipeline. If history is any guide, Bausch Health's ability to blend consumer-friendly branding with scientific rigor could unlock new revenue streams.

Margin Expansion: The Quiet Engine of Value Creation

While revenue growth is impressive, margin expansion is where Bausch Health's value lies. The company's product mix is shifting toward high-margin offerings: preservative-free eye drops, premium contact lenses, and surgical technologies like the LuxLife IOL. These products command premium pricing while maintaining cost efficiency through global manufacturing.

Consider the math: Bausch + Lomb's Vision Care segment now accounts for 60% of the company's revenue (excluding Bausch + Lomb's standalone business). With a P/E ratio of 12.5x and a projected 5.5% revenue growth rate, the stock appears undervalued relative to its peers. The upgraded 2025 guidance—$5.05–$5.15 billion in revenue and $860–$910 million in adjusted EBITDA—suggests the company is on track to outperform expectations.

The Bottom Line: A Buy for the Patient Investor

Bausch Health isn't a flashy tech stock, but it's a textbook example of a company turning its house in order and investing in its future. The dry eye and contact lens segments are already driving growth, while the debt reduction and R&D pipeline set the stage for margin expansion. For investors who can stomach short-term volatility (like the enVista recall), the long-term case is compelling.

The key risks? Regulatory delays for DURECT's hepatitis treatment and the competitive landscape in contact lenses. But given the company's track record of innovation and its strong balance sheet, these are manageable hurdles.

Investment Takeaway: Bausch Health is a “buy” for investors who believe in the power of operational discipline and underappreciated innovation. With a P/E that's 20% below its five-year average and a guidance upgrade, now is the time to position for a margin-driven recovery. The dry eye and contact lens segments aren't just growth engines—they're the foundation of a healthcare company that's finally getting its groove back.