Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Hubbell Incorporated (NYSE:HUBB), with a market cap of US$6.62b, often get neglected by retail investors. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. This article will examine HUBB’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending 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 HUBB here.
Does HUBB produce enough cash relative to debt?
HUBB’s debt levels surged from US$1.10b to US$1.99b over the last 12 months , which is made up of current and long term debt. With this growth in debt, HUBB’s cash and short-term investments stands at US$205.30m , ready to deploy into the business. Moreover, HUBB has generated US$400.10m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 20.12%, meaning that HUBB’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In HUBB’s case, it is able to generate 0.2x cash from its debt capital.
Can HUBB pay its short-term liabilities?
At the current liabilities level of US$871.40m liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.99x. For Electrical companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Does HUBB face the risk of succumbing to its debt-load?
With total debt exceeding equities, HUBB is considered a highly levered company. 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 HUBB 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 HUBB’s, case, the ratio of 9.95x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving HUBB ample headroom to grow its debt facilities.
HUBB’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. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure HUBB has company-specific issues impacting its capital structure decisions. I suggest you continue to research Hubbell to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HUBB’s future growth? Take a look at our free research report of analyst consensus for HUBB’s outlook.
- Valuation: What is HUBB 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 HUBB 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 email@example.com.