Mid-caps stocks, like Henry Schein, Inc. (NASDAQ:HSIC) with a market capitalization of US$9.2b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Today we will look at HSIC’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into HSIC here.
HSIC’s Debt (And Cash Flows)
Over the past year, HSIC has ramped up its debt from US$1.7b to US$2.0b , which accounts for long term debt. With this rise in debt, HSIC currently has US$80m remaining in cash and short-term investments , ready to be used for running the business. Moreover, HSIC has produced cash from operations of US$685m in the last twelve months, leading to an operating cash to total debt ratio of 35%, signalling that HSIC’s operating cash is sufficient to cover its debt.
Can HSIC pay its short-term liabilities?
With current liabilities at US$3.2b, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.3x. The current ratio is calculated by dividing current assets by current liabilities. For Healthcare companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
Can HSIC service its debt comfortably?
With debt reaching 51% of equity, HSIC 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. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In HSIC’s case, the ratio of 15.52x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Although HSIC’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for HSIC’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Henry Schein to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HSIC’s future growth? Take a look at our free research report of analyst consensus for HSIC’s outlook.
- Valuation: What is HSIC 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 HSIC 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 firstname.lastname@example.org. 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.