Two important questions to ask before you buy Werner Enterprises, Inc. (NASDAQ:WERN) is, how it makes money and how it spends its cash. This difference directly flows down to how much the stock is worth. Operating in the industry, WERN is currently valued at US$2.4b. I’ve analysed below, the health and outlook of WERN’s cash flow, which will help you understand the stock from a cash standpoint. Cash is an important concept to grasp as an investor, as it directly impacts the value of your shares and the future growth potential of your portfolio.
What is Werner Enterprises’s cash yield?
Free cash flow (FCF) is the amount of cash Werner Enterprises has left after it pays off its expenses, including its net capital expenditures, which is what the company needs to spend each year to maintain or grow its business operations.
I will be analysing Werner Enterprises’s FCF by looking at its FCF yield and its operating cash flow growth. The yield will tell us whether the stock is generating enough cash to compensate for the risk investors take on by holding a single stock, which I will compare to the market index. The growth will proxy for sustainability levels of this cash generation.
Free Cash Flow = Operating Cash Flows – Net Capital Expenditure
Free Cash Flow Yield = Free Cash Flow / Enterprise Value
where Enterprise Value = Market Capitalisation + Net Debt
The business reinvests all its cash profits as well as borrows more money, to maintain and grow the company. This leads to a negative FCF, as well as negative FCF yield, in which case is not a very useful measure.
Is Werner Enterprises’s yield sustainable?
Can Werner Enterprises improve its operating cash production in the future? Let’s take a quick look at the cash flow trend Werner Enterprises is expected to deliver over time. Over the next few years, the company is expected to grow its cash from operations at a double-digit rate of 21%, ramping up from its current levels of US$361m to US$438m in two years’ time. Although this seems impressive, breaking down into year-on-year growth rates, WERN’s operating cash flow growth is expected to decline from a rate of 20% next year, to 0.8% in the following year. But the overall future outlook seems buoyant if WERN can maintain its levels of capital expenditure as well.
Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. I suggest you continue to research Werner Enterprises to get a more holistic view of the company by looking at:
- Valuation: What is WERN 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 WERN is currently mispriced by the market.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Werner Enterprises’s board and the CEO’s back ground.
- Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.
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