Performance Food Group Company (NYSE:PFGC): Time For A Financial Health Check
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Performance Food Group Company (NYSE:PFGC), with a market capitalization of US$3.40b, rarely draw their attention from the investing community. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. PFGC’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into PFGC here.
View our latest analysis for Performance Food Group
How much cash does PFGC generate through its operations?
PFGC has shrunken its total debt levels in the last twelve months, from US$1.30b to US$1.18b , which is made up of current and long term debt. With this debt repayment, PFGC’s cash and short-term investments stands at US$11.5m for investing into the business. Moreover, PFGC has generated US$367.0m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 31.0%, signalling that PFGC’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In PFGC’s case, it is able to generate 0.31x cash from its debt capital.
Can PFGC meet its short-term obligations with the cash in hand?
Looking at PFGC’s most recent US$1.47b liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.5x. Usually, for Consumer Retailing companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does PFGC face the risk of succumbing to its debt-load?
PFGC is a highly-leveraged company with debt exceeding equity by over 100%. 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 PFGC 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 PFGC’s, case, the ratio of 4.2x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as PFGC’s high interest coverage is seen as responsible and safe practice.
Next Steps:
Although PFGC’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. Since there is also no concerns around PFGC’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for PFGC’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Performance Food Group to get a more holistic view of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for PFGC’s future growth? Take a look at our free research report of analyst consensus for PFGC’s outlook.
Valuation: What is PFGC 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 PFGC 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.
