Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Nabors Industries Ltd (NYSE:NBR), with a market capitalization of US$2.23b, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Let’s take a look at NBR’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into NBR here.
How much cash does NBR generate through its operations?
NBR has sustained its debt level by about US$3.82b over the last 12 months made up of current and long term debt. At this constant level of debt, NBR’s cash and short-term investments stands at US$636.5m , ready to deploy into the business. Additionally, NBR has produced US$149.6m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 3.9%, indicating that NBR’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making companies since metrics such as return on asset (ROA) requires positive earnings. In NBR’s case, it is able to generate 0.039x cash from its debt capital.
Can NBR meet its short-term obligations with the cash in hand?
With current liabilities at US$873.8m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.04x. Generally, for Energy Services companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is NBR’s debt level acceptable?
NBR 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. But since NBR is presently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
At its current level of cash flow coverage, NBR has room for improvement to better cushion for events which may require debt repayment. Though, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for NBR’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Nabors Industries to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NBR’s future growth? Take a look at our free research report of analyst consensus for NBR’s outlook.
- Valuation: What is NBR 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 NBR 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 firstname.lastname@example.org.