Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Snyder’s-Lance Inc (NASDAQ:LNCE) with a market-capitalization of US$4.91B, rarely draw their attention. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Today we will look at LNCE’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into LNCE here. View our latest analysis for Snyder’s-Lance
Does LNCE generate an acceptable amount of cash through operations?
LNCE has built up its total debt levels in the last twelve months, from US$381.89M to US$1.30B – this includes both the current and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$35.41M , ready to deploy into the business. On top of this, LNCE has generated cash from operations of US$261.20M over the same time period, leading to an operating cash to total debt ratio of 20.10%, signalling that LNCE’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for loss making businesses since metrics such as return on asset (ROA) requires positive earnings. In LNCE’s case, it is able to generate 0.2x cash from its debt capital.
Can LNCE meet its short-term obligations with the cash in hand?
At the current liabilities level of US$295.55M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$591.86M, with a current ratio of 2x. For Food companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Can LNCE service its debt comfortably?
With debt reaching 61.21% of equity, LNCE may be thought of as relatively highly levered. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since LNCE is currently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
At its current level of cash flow coverage, LNCE has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how LNCE has been performing in the past. You should continue to research Snyder’s-Lance to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for LNCE’s future growth? Take a look at our free research report of analyst consensus for LNCE’s outlook.
- Valuation: What is LNCE worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether LNCE is currently mispriced by the market.
- 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 pass 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.