Continental Resources Inc (NYSE:CLR), a large-cap worth US$24.93b, comes to mind for investors seeking a strong and reliable stock investment. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. However, the key to their continued success lies in its financial health. Let’s take a look at Continental Resources’s leverage and assess its financial strength to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into CLR here.
How much cash does CLR generate through its operations?
CLR’s debt levels have fallen from US$6.56b to US$6.17b over the last 12 months – this includes both the current and long-term debt. With this debt repayment, the current cash and short-term investment levels stands at US$130.0m for investing into the business. On top of this, CLR has generated US$2.80b in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 45.4%, signalling that CLR’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 CLR’s case, it is able to generate 0.45x cash from its debt capital.
Can CLR meet its short-term obligations with the cash in hand?
With current liabilities at US$1.48b, the company may not be able to easily meet these obligations given the level of current assets of US$1.44b, with a current ratio of 0.97x.
Can CLR service its debt comfortably?
With total debt exceeding equities, Continental Resources is considered a highly levered company. This is common amongst large-cap companies because debt can often be a less expensive alternative to equity due to tax deductibility of interest payments. Accordingly, large companies often have an advantage over small-caps through lower cost of capital due to cheaper financing. We can check to see whether CLR is able to meet its debt obligations by looking at the net interest coverage ratio. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For CLR, the ratio of 3.88x suggests that interest is well-covered. Strong interest coverage is seen as a responsible and safe practice, which highlights why most investors believe large-caps such as CLR is a safe investment.
Although CLR’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 lack of liquidity raises questions over current asset management practices for the large-cap. Keep in mind I haven’t considered other factors such as how CLR has been performing in the past. You should continue to research Continental Resources to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CLR’s future growth? Take a look at our free research report of analyst consensus for CLR’s outlook.
- Valuation: What is CLR 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 CLR 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 past 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. For errors that warrant correction please contact the editor at email@example.com.