Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Whiting Petroleum Corporation (NYSE:WLL), with a market cap of US$2.05B, are often out of the spotlight. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Let’s take a look at WLL’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 information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into WLL here. See our latest analysis for Whiting Petroleum
Does WLL generate an acceptable amount of cash through operations?
WLL’s debt levels surged from US$3.54B to US$3.72B over the last 12 months – this includes both the current and long-term debt. With this growth in debt, WLL currently has US$879.38M remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can take a look at some of WLL’s operating efficiency ratios such as ROA here.
Can WLL meet its short-term obligations with the cash in hand?
Looking at WLL’s most recent US$1.55B liabilities, the company has not been able to meet these commitments with a current assets level of US$1.19B, leading to a 0.77x current account ratio. which is under the appropriate industry ratio of 3x.
Does WLL face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 95.01%, WLL can be considered as an above-average leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. But since WLL is currently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
WLL’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. Keep in mind I haven’t considered other factors such as how WLL has been performing in the past. I recommend you continue to research Whiting Petroleum to get a more holistic view of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for WLL’s future growth? Take a look at our free research report of analyst consensus for WLL’s outlook.
- 2. Valuation: What is WLL 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 WLL 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.