What You Must Know About Huntsman Corporation’s (NYSE:HUN) Financial Strength
Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Huntsman Corporation (NYSE:HUN) with a market-capitalization of US$7.55B, rarely draw their attention. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. This article will examine HUN’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 commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into HUN here. See our latest analysis for Huntsman
How does HUN’s operating cash flow stack up against its debt?
HUN has shrunken its total debt levels in the last twelve months, from US$4.17B to US$2.30B , which comprises of short- and long-term debt. With this debt payback, HUN’s cash and short-term investments stands at US$470.00M , ready to deploy into the business. On top of this, HUN has produced cash from operations of US$1.22B over the same time period, leading to an operating cash to total debt ratio of 53.05%, indicating that HUN’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In HUN’s case, it is able to generate 0.53x cash from its debt capital.
Can HUN meet its short-term obligations with the cash in hand?
Looking at HUN’s most recent US$3.27B liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.83x. Usually, for Chemicals companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can HUN service its debt comfortably?
With debt reaching 68.17% of equity, HUN may be thought of as relatively highly levered. 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 HUN 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 HUN’s, case, the ratio of 5.42x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as HUN’s high interest coverage is seen as responsible and safe practice.
Next Steps:
Although HUN’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I’m sure HUN has company-specific issues impacting its capital structure decisions. I suggest you continue to research Huntsman to get a more holistic view of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for HUN’s future growth? Take a look at our free research report of analyst consensus for HUN’s outlook.
Valuation: What is HUN 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 HUN 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.
