Equitrans Midstream Corp (ETRN): A Deep Dive into Its Performance Metrics
Long-established in the Oil & Gas industry, Equitrans Midstream Corp (NYSE:ETRN) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 2.95%, juxtaposed with a three-month change of -3.74%. However, fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Equitrans Midstream Corp.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
Financial strength rank: 3/10
Profitability rank: 6/10
Growth rank: 1/10
GF Value rank: 1/10
Momentum rank: 9/10
Based on the above method, GuruFocus assigned Equitrans Midstream Corp the GF Score of 56 out of 100, which signals poor future outperformance potential.
Equitrans Midstream Corp: A Brief Overview
Equitrans Midstream Corp, with a market cap of $4.001 billion, is a significant player in the Oil & Gas industry. The company, which reported sales of $1.382 billion, operates with a margin of 50.74%. Equitrans acquired EQM Midstream in mid-2020, consolidating the midstream family. Equitrans now owns EQM assets directly versus just unit ownership. EQM Midstream provides gathering, transmission, and water services to primarily Appalachian producers in Pennsylvania, West Virginia, and Ohio.
Financial Strength Analysis
Equitrans Midstream Corp's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 1.69 positions it worse than 87.63% of 760 companies in the Oil & Gas industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Score is just 0.05, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.02 indicates a struggle in handling existing debt levels.
The company's debt-to-equity ratio is 4.23, which is worse than 95.64% of 826 companies in the Oil & Gas industry. A high debt-to-equity ratio suggests over-reliance on borrowing and vulnerability to market fluctuations. Additionally, the company's debt-to-Ebitda ratio is 14.14, which is above Joel Tillinghast's warning level of 4 and is worse than 95.06% of 708 companies in the Oil & Gas industry. Tillinghast said in his book Big Money Think's Small: Biases, Blind Spots, and Smarter Investing that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Growth Prospects
A lack of significant growth is another area where Equitrans Midstream Corp seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -21.2 per year over the past three years, which underperforms worse than 90.23% of 860 companies in the Oil & Gas industry. Stagnating revenues may pose concerns in a fast-evolving market.
Conclusion
Given the company's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. While Equitrans Midstream Corp has a commendable history in the Oil & Gas industry, its current financial and growth indicators suggest that it may struggle to maintain its past performance. Investors should consider these factors when making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
This article first appeared on GuruFocus.
