Mid-caps stocks, like Helmerich & Payne Inc (NYSE:HP) with a market capitalization of US$6.97b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. HP’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into HP here. View out our latest analysis for Helmerich & Payne
Does HP produce enough cash relative to debt?
HP’s debt level has been constant at around US$492.90m over the previous year made up of current and long term debt. At this constant level of debt, HP currently has US$565.87m remaining in cash and short-term investments , ready to deploy into the business. Moreover, HP has generated US$357.22m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 72.47%, indicating that HP’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 HP’s case, it is able to generate 0.72x cash from its debt capital.
Can HP pay its short-term liabilities?
With current liabilities at US$344.39m, it appears that the company has been able to meet these obligations given the level of current assets of US$1.24b, with a current ratio of 3.59x. Though, anything above 3x is considered high and could mean that HP has too much idle capital in low-earning investments.
Is HP’s debt level acceptable?
With debt at 10.96% of equity, HP may be thought of as appropriately levered. This range is considered safe as HP is not taking on too much debt obligation, which may be constraining for future growth.
HP’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure HP has company-specific issues impacting its capital structure decisions. I recommend you continue to research Helmerich & Payne to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HP’s future growth? Take a look at our free research report of analyst consensus for HP’s outlook.
- Valuation: What is HP 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 HP 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.