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Is QIAGEN N.V.’s (NYSE:QGEN) Balance Sheet A Threat To Its Future?

Simply Wall St

Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like QIAGEN N.V. (NYSE:QGEN), with a market cap of US$9.0b, are often out of the spotlight. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Today we will look at QGEN’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 commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into QGEN here.

View our latest analysis for QIAGEN

Does QGEN Produce Much Cash Relative To Its Debt?

QGEN’s debt levels surged from US$1.8b to US$2.2b over the last 12 months , which includes long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$1.4b to keep the business going. Moreover, QGEN has produced US$359m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 16%, signalling that QGEN’s debt is not covered by operating cash.

Can QGEN pay its short-term liabilities?

With current liabilities at US$972m, it appears that the company has been able to meet these obligations given the level of current assets of US$2.2b, with a current ratio of 2.22x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Life Sciences companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.

NYSE:QGEN Historical Debt, March 17th 2019

Can QGEN service its debt comfortably?

QGEN is a relatively highly levered company with a debt-to-equity of 83%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if QGEN’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 QGEN, the ratio of 6.41x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving QGEN ample headroom to grow its debt facilities.

Next Steps:

Although QGEN’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 QGEN has company-specific issues impacting its capital structure decisions. You should continue to research QIAGEN to get a more holistic view of the mid-cap by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for QGEN’s future growth? Take a look at our free research report of analyst consensus for QGEN’s outlook.
  2. Valuation: What is QGEN 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 QGEN 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.