Is Genesee & Wyoming Inc.'s (NYSE:GWR) Balance Sheet A Threat To Its Future?
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Stocks with market capitalization between $2B and $10B, such as Genesee & Wyoming Inc. (NYSE:GWR) with a size of US$5.7b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Let’s take a look at GWR’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of Genesee & Wyoming’s financial health, so you should conduct further analysis into GWR here.
See our latest analysis for Genesee & Wyoming
GWR’s Debt (And Cash Flows)
Over the past year, GWR has ramped up its debt from US$2.4b to US$2.6b – this includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$70m , ready to be used for running the business. On top of this, GWR has generated cash from operations of US$555m during the same period of time, leading to an operating cash to total debt ratio of 22%, indicating that GWR’s debt is appropriately covered by operating cash.
Can GWR pay its short-term liabilities?
With current liabilities at US$542m, the company has been able to meet these obligations given the level of current assets of US$635m, with a current ratio of 1.17x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Transportation companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does GWR face the risk of succumbing to its debt-load?
GWR is a relatively highly levered company with a debt-to-equity of 67%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In GWR's case, the ratio of 3.97x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving GWR ample headroom to grow its debt facilities.
Next Steps:
GWR’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around GWR's liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven't considered other factors such as how GWR has been performing in the past. I suggest you continue to research Genesee & Wyoming to get a more holistic view of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for GWR’s future growth? Take a look at our free research report of analyst consensus for GWR’s outlook.
Valuation: What is GWR 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 GWR 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
