Avangrid, Inc. (NYSE:AGR): Financial Strength Analysis
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With a market capitalization of US$15b, Avangrid, Inc. (NYSE:AGR) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there’s plenty of stocks available to the public for trading. In times of low liquidity in the market, these firms won’t be left high and dry. They are also relatively unaffected by increases in interest rates. Today I will analyse the latest financial data for AGR to determine is solvency and liquidity and whether the stock is a sound investment.
View our latest analysis for Avangrid
Does AGR produce enough cash relative to debt?
Over the past year, AGR has ramped up its debt from US$5.8b to US$6.2b – this includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$32m , ready to deploy into the business. Additionally, AGR has produced cash from operations of US$1.8b over the same time period, resulting in an operating cash to total debt ratio of 29%, meaning that AGR’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In AGR’s case, it is able to generate 0.29x cash from its debt capital.
Can AGR meet its short-term obligations with the cash in hand?
Looking at AGR’s US$2.9b in current liabilities, it appears that the company may not have an easy time meeting these commitments with a current assets level of US$2.0b, leading to a current ratio of 0.67x.
Does AGR face the risk of succumbing to its debt-load?
With debt at 40% of equity, AGR may be thought of as appropriately levered. AGR is not taking on too much debt commitment, which may be constraining for future growth. We can test if AGR’s debt levels are sustainable by measuring interest payments against earnings of a company. As a rule of thumb, a company should have earnings before interest and tax (EBIT) of at least three times the size of net interest. In AGR’s case, the ratio of 3.58x suggests that interest is well-covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like AGR are considered a risk-averse investment.
Next Steps:
AGR’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. But, its lack of liquidity raises questions over current asset management practices for the large-cap. I admit this is a fairly basic analysis for AGR’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Avangrid to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for AGR’s future growth? Take a look at our free research report of analyst consensus for AGR’s outlook.
Historical Performance: What has AGR’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
