Stocks with market capitalization between $2B and $10B, such as Enable Midstream Partners LP (NYSE:ENBL) with a size of US$6.70b, do not attract as much attention from the investing community as do the small-caps and large-caps. 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 ENBL’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 ENBL here.
How much cash does ENBL generate through its operations?
ENBL’s debt levels surged from US$3.05b to US$3.71b over the last 12 months , which comprises of short- and long-term debt. With this growth in debt, ENBL currently has US$7.0m remaining in cash and short-term investments for investing into the business. Moreover, ENBL has produced US$857.0m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 23.1%, signalling that ENBL’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In ENBL’s case, it is able to generate 0.23x cash from its debt capital.
Can ENBL meet its short-term obligations with the cash in hand?
At the current liabilities level of US$1.26b liabilities, the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.34x, which is below the prudent industry ratio of 3x.
Does ENBL face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 49.0%, ENBL can be considered as an above-average leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether ENBL 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 ENBL’s, case, the ratio of 4.07x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as ENBL’s high interest coverage is seen as responsible and safe practice.
ENBL’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. Keep in mind I haven’t considered other factors such as how ENBL has been performing in the past. I suggest you continue to research Enable Midstream Partners to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ENBL’s future growth? Take a look at our free research report of analyst consensus for ENBL’s outlook.
- Valuation: What is ENBL 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 ENBL 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 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 firstname.lastname@example.org.