What Investors Should Know About EnLink Midstream LLC’s (NYSE:ENLC) Financial Strength
Mid-caps stocks, like EnLink Midstream LLC (NYSE:ENLC) with a market capitalization of US$3.02B, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. This article will examine ENLC’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. Don’t forget that this is a general and concentrated examination of Amazon’s financial health, so you should conduct further analysis into ENLC here. See our latest analysis for EnLink Midstream
Does ENLC generate enough cash through operations?
ENLC has built up its total debt levels in the last twelve months, from US$3.07B to US$3.30B – this includes both the current and long-term debt. With this rise in debt, ENLC’s cash and short-term investments stands at US$204.80M , ready to deploy into the business. On top of this, ENLC has produced cash from operations of US$666.40M over the same time period, leading to an operating cash to total debt ratio of 20.22%, signalling that ENLC’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In ENLC’s case, it is able to generate 0.2x cash from its debt capital.
Does ENLC’s liquid assets cover its short-term commitments?
At the current liabilities level of US$887.50M liabilities, the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.87x, which is below the prudent industry ratio of 3x.
Is ENLC’s debt level acceptable?
ENLC is a relatively highly levered company with a debt-to-equity of 65.07%. 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 ENLC’s case, the ratio of 1.24x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
Next Steps:
ENLC’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. Furthermore, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. Keep in mind I haven’t considered other factors such as how ENLC has been performing in the past. You should continue to research EnLink Midstream to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for ENLC’s future growth? Take a look at our free research report of analyst consensus for ENLC’s outlook.
2. Historical Performance: What has ENLC’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
3. 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.
