How Financially Strong Is PDC Energy Inc (NASDAQ:PDCE)?

Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as PDC Energy Inc (NASDAQ:PDCE), with a market cap of US$3.57b, often get neglected by retail investors. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. This article will examine PDCE’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 PDC Energy’s financial health, so you should conduct further analysis into PDCE here.

View our latest analysis for PDC Energy

How much cash does PDCE generate through its operations?

PDCE has built up its total debt levels in the last twelve months, from US$1.05b to US$1.18b – this includes both the current and long-term debt. With this growth in debt, PDCE’s cash and short-term investments stands at US$1.43m , ready to deploy into the business. Moreover, PDCE has generated cash from operations of US$696.97m during the same period of time, resulting in an operating cash to total debt ratio of 58.89%, meaning that PDCE’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires a positive net income. In PDCE’s case, it is able to generate 0.59x cash from its debt capital.

Does PDCE’s liquid assets cover its short-term commitments?

With current liabilities at US$609.32m, the company has not been able to meet these commitments with a current assets level of US$218.30m, leading to a 0.36x current account ratio. which is under the appropriate industry ratio of 3x.

NasdaqGS:PDCE Historical Debt August 15th 18
NasdaqGS:PDCE Historical Debt August 15th 18

Does PDCE face the risk of succumbing to its debt-load?

PDCE is a relatively highly levered company with a debt-to-equity of 50.57%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since PDCE is currently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.

Next Steps:

PDCE’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. Though its lack of liquidity raises questions over current asset management practices for the mid-cap. I admit this is a fairly basic analysis for PDCE’s financial health. Other important fundamentals need to be considered alongside. You should continue to research PDC Energy to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for PDCE’s future growth? Take a look at our free research report of analyst consensus for PDCE’s outlook.
  2. Valuation: What is PDCE 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 PDCE 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 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.