Mid-caps stocks, like Nordstrom Inc (NYSE:JWN) with a market capitalization of $7.98B, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Today we will look at JWN’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 JWN here. Check out our latest analysis for Nordstrom
Does JWN generate an acceptable amount of cash through operations?
JWN’s debt level has been constant at around $2,774.0M over the previous year comprising of short- and long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at $1,007.0M for investing into the business. Moreover, JWN has produced $1,648.0M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 59.41%, meaning that JWN’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In JWN’s case, it is able to generate 0.59x cash from its debt capital.
Can JWN meet its short-term obligations with the cash in hand?
With current liabilities at $3,029.0M, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.07x. Generally, for Multiline Retail companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is JWN’s debt level acceptable?
Since total debt levels have outpaced equities, JWN is a highly leveraged 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 JWN 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 JWN’s, case, the ratio of 7.4x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as JWN’s high interest coverage is seen as responsible and safe practice.
JWN’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 JWN’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for JWN’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Nordstrom to get a better picture of the mid-cap by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for JWN’s future growth? Take a look at our free research report of analyst consensus for JWN’s outlook.
2. Valuation: What is JWN 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 JWN is currently mispriced by the market.
3. 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.