Is Quanta Services, Inc.'s (NYSE:PWR) Liquidity Good Enough?
Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Quanta Services, Inc. (NYSE:PWR), with a market cap of US$5.7b, are often out of the spotlight. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Let’s take a look at PWR’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 PWR here.
See our latest analysis for Quanta Services
PWR’s Debt (And Cash Flows)
PWR's debt levels surged from US$672m to US$1.1b over the last 12 months , which includes long-term debt. With this growth in debt, PWR's cash and short-term investments stands at US$79m , ready to be used for running the business. Additionally, PWR has generated US$359m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 32%, signalling that PWR’s debt is appropriately covered by operating cash.
Can PWR pay its short-term liabilities?
Looking at PWR’s US$1.8b in current liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.84x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Construction companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Can PWR service its debt comfortably?
With debt at 31% of equity, PWR may be thought of as appropriately levered. This range is considered safe as PWR is not taking on too much debt obligation, which may be constraining for future growth. We can test if PWR’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 PWR, the ratio of 18.76x suggests that interest is comfortably 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:
PWR has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven't considered other factors such as how PWR has been performing in the past. I recommend you continue to research Quanta Services to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for PWR’s future growth? Take a look at our free research report of analyst consensus for PWR’s outlook.
Valuation: What is PWR 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 PWR 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.
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