Husky Energy Inc. (TSE:HSE): Financial Strength Analysis
Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Husky Energy Inc. (TSE:HSE), with a market cap of CA$11b, are often out of the spotlight. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. HSE’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. Don’t forget that this is a general and concentrated examination of Husky Energy's financial health, so you should conduct further analysis into HSE here.
See our latest analysis for Husky Energy
Does HSE Produce Much Cash Relative To Its Debt?
HSE's debt levels surged from CA$6.0b to CA$8.4b over the last 12 months , which accounts for long term debt. With this rise in debt, HSE's cash and short-term investments stands at CA$3.2b , ready to be used for running the business. Additionally, HSE has generated cash from operations of CA$4.2b over the same time period, leading to an operating cash to total debt ratio of 49%, signalling that HSE’s debt is appropriately covered by operating cash.
Can HSE pay its short-term liabilities?
Looking at HSE’s CA$5.6b in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.17x. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Oil and Gas companies, this is a suitable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is HSE’s debt level acceptable?
HSE’s level of debt is appropriate relative to its total equity, at 34%. HSE is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether HSE 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 HSE's, case, the ratio of 11.08x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
HSE has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for HSE's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Husky Energy to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for HSE’s future growth? Take a look at our free research report of analyst consensus for HSE’s outlook.
Valuation: What is HSE 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 HSE 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.
