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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Curtiss-Wright Corporation (NYSE:CW), with a market cap of US$5.1b, 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. This article will examine CW’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Don’t forget that this is a general and concentrated examination of Curtiss-Wright’s financial health, so you should conduct further analysis into CW here.
Check out our latest analysis for Curtiss-Wright
Does CW produce enough cash relative to debt?
CW has shrunken its total debt levels in the last twelve months, from US$965m to US$814m , which includes long-term debt. With this reduction in debt, CW currently has US$246m remaining in cash and short-term investments , ready to deploy into the business. On top of this, CW has produced US$325m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 40%, meaning that CW’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In CW’s case, it is able to generate 0.4x cash from its debt capital.
Can CW pay its short-term liabilities?
At the current liabilities level of US$597m, the company has been able to meet these commitments with a current assets level of US$1.3b, leading to a 2.25x current account ratio. For Aerospace & Defense companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is CW’s debt level acceptable?
With debt reaching 50% of equity, CW may be thought of as relatively highly levered. 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 CW’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 CW, the ratio of 10.79x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving CW ample headroom to grow its debt facilities.
Next Steps:
CW’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around CW’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure CW has company-specific issues impacting its capital structure decisions. I suggest you continue to research Curtiss-Wright to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CW’s future growth? Take a look at our free research report of analyst consensus for CW’s outlook.
- Valuation: What is CW 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 CW 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.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.