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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Southwest Gas Holdings, Inc. (NYSE:SWX), with a market cap of US$4.8b, are often out of the spotlight. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. This article will examine SWX’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 information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into SWX here.
SWX’s Debt (And Cash Flows)
SWX's debt levels surged from US$2.0b to US$2.3b over the last 12 months , which accounts for long term debt. With this growth in debt, SWX's cash and short-term investments stands at US$97m , ready to be used for running the business. On top of this, SWX has generated cash from operations of US$536m in the last twelve months, resulting in an operating cash to total debt ratio of 23%, indicating that SWX’s operating cash is sufficient to cover its debt.
Does SWX’s liquid assets cover its short-term commitments?
At the current liabilities level of US$974m, it appears that the company may not be able to easily meet these obligations given the level of current assets of US$830m, with a current ratio of 0.85x. The current ratio is the number you get when you divide current assets by current liabilities.
Does SWX face the risk of succumbing to its debt-load?
With debt reaching 96% of equity, SWX may be thought of as relatively highly levered. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. 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 SWX's case, the ratio of 3.78x suggests that interest is appropriately 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.
Although SWX’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. But, 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 SWX has been performing in the past. I suggest you continue to research Southwest Gas Holdings to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SWX’s future growth? Take a look at our free research report of analyst consensus for SWX’s outlook.
- Historical Performance: What has SWX'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.
- 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 firstname.lastname@example.org. 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.