Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Western Gas Partners LP (NYSE:WES), with a market cap of US$6.71B, are often out of the spotlight. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Today we will look at WES’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. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into WES here. Check out our latest analysis for Western Gas Partners
How does WES’s operating cash flow stack up against its debt?
WES’s debt levels surged from US$3.09B to US$3.46B over the last 12 months , which is made up of current and long term debt. With this growth in debt, WES currently has US$78.81M remaining in cash and short-term investments for investing into the business. On top of this, WES has produced cash from operations of US$901.50M in the last twelve months, resulting in an operating cash to total debt ratio of 26.02%, meaning that WES’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In WES’s case, it is able to generate 0.26x cash from its debt capital.
Can WES meet its short-term obligations with the cash in hand?
Looking at WES’s most recent US$424.33M liabilities, it appears that the company has not been able to meet these commitments with a current assets level of US$254.06M, leading to a 0.6x current account ratio. which is under the appropriate industry ratio of 3x.
Is WES’s debt level acceptable?
WES is a relatively highly levered company with a debt-to-equity of 87.25%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether WES is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In WES’s, case, the ratio of 5.09x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as WES’s high interest coverage is seen as responsible and safe practice.
Although WES’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. But, its lack of liquidity raises questions over current asset management practices for the mid-cap. I admit this is a fairly basic analysis for WES’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Western Gas Partners to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for WES’s future growth? Take a look at our free research report of analyst consensus for WES’s outlook.
- Valuation: What is WES 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 WES 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.