What You Must Know About Delek US Holdings Inc’s (NYSE:DK) Financial Strength
Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Delek US Holdings Inc (NYSE:DK) with a market-capitalization of US$4.33b, rarely draw their attention. 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. Today we will look at DK’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions 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 DK here. Check out our latest analysis for Delek US Holdings
Does DK produce enough cash relative to debt?
DK has built up its total debt levels in the last twelve months, from US$838.90m to US$0 , which is made up of current and long term debt. With this rise in debt, DK currently has US$931.80m remaining in cash and short-term investments , ready to deploy into the business. Additionally, DK has produced cash from operations of US$332.10m during the same period of time, resulting in an operating cash to total debt ratio of 21.59%, signalling that DK’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 DK’s case, it is able to generate 0.22x cash from its debt capital.
Does DK’s liquid assets cover its short-term commitments?
Looking at DK’s most recent US$2.67b liabilities, it seems that the business has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.98x, which is below the prudent industry ratio of 3x.
Does DK face the risk of succumbing to its debt-load?
With total debt exceeding equities, DK is considered a highly levered company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether DK 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 DK’s, case, the ratio of 2.38x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
Next Steps:
DK’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its lack of liquidity raises questions over current asset management practices for the mid-cap. I admit this is a fairly basic analysis for DK’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Delek US Holdings to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for DK’s future growth? Take a look at our free research report of analyst consensus for DK’s outlook.
Valuation: What is DK 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 DK 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.
