What You Must Know About Pilgrim’s Pride Corporation’s (NASDAQ:PPC) Financial Strength
Mid-caps stocks, like Pilgrim’s Pride Corporation (NASDAQ:PPC) with a market capitalization of US$4.5b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Let’s take a look at PPC’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into PPC here.
Check out our latest analysis for Pilgrim’s Pride
Does PPC produce enough cash relative to debt?
PPC has built up its total debt levels in the last twelve months, from US$1.4b to US$2.7b , which comprises of short- and long-term debt. With this rise in debt, PPC’s cash and short-term investments stands at US$641m for investing into the business. Additionally, PPC has produced cash from operations of US$772m during the same period of time, resulting in an operating cash to total debt ratio of 29%, indicating that PPC’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In PPC’s case, it is able to generate 0.29x cash from its debt capital.
Can PPC meet its short-term obligations with the cash in hand?
With current liabilities at US$1.4b, it seems that the business has been able to meet these obligations given the level of current assets of US$2.6b, with a current ratio of 1.87x. For Food companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
Can PPC service its debt comfortably?
PPC is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if PPC’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For PPC, the ratio of 6.44x 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.
Next Steps:
PPC’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around PPC’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure PPC has company-specific issues impacting its capital structure decisions. I suggest you continue to research Pilgrim’s Pride to get a better picture of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for PPC’s future growth? Take a look at our free research report of analyst consensus for PPC’s outlook.
Valuation: What is PPC 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 PPC 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 editorial-team@simplywallst.com.
