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With a market capitalization of US$42b, Allergan plc (NYSE:AGN) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there’s plenty of stocks available to the public for trading. These companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Using the most recent data for AGN, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
Does AGN Produce Much Cash Relative To Its Debt?
AGN’s debt levels have fallen from US$27b to US$24b over the last 12 months , which also accounts for long term debt. With this debt repayment, AGN currently has US$1.8b remaining in cash and short-term investments to keep the business going. Additionally, AGN has generated US$5.4b in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 23%, meaning that AGN’s operating cash is sufficient to cover its debt.
Does AGN’s liquid assets cover its short-term commitments?
At the current liabilities level of US$8.8b, it appears that the company may not be able to easily meet these obligations given the level of current assets of US$6.3b, with a current ratio of 0.71x. The current ratio is calculated by dividing current assets by current liabilities.
Is AGN’s debt level acceptable?
With debt at 39% of equity, AGN may be thought of as appropriately levered. AGN is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with AGN, and the company has plenty of headroom and ability to raise debt should it need to in the future.
AGN’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. Furthermore, its lack of liquidity raises questions over current asset management practices for the large-cap. I admit this is a fairly basic analysis for AGN’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Allergan to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AGN’s future growth? Take a look at our free research report of analyst consensus for AGN’s outlook.
- Valuation: What is AGN 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 AGN 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.
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 email@example.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.