Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Itron, Inc. (NASDAQ:ITRI), with a market capitalization of US$2.4b, rarely draw their attention from the investing community. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. ITRI’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Don’t forget that this is a general and concentrated examination of Itron’s financial health, so you should conduct further analysis into ITRI here.
How does ITRI’s operating cash flow stack up against its debt?
ITRI has built up its total debt levels in the last twelve months, from US$322m to US$1.0b , which accounts for long term debt. With this increase in debt, the current cash and short-term investment levels stands at US$112m for investing into the business. On top of this, ITRI has produced cash from operations of US$144m in the last twelve months, leading to an operating cash to total debt ratio of 14%, signalling that ITRI’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires a positive net income. In ITRI’s case, it is able to generate 0.14x cash from its debt capital.
Can ITRI pay its short-term liabilities?
Looking at ITRI’s US$616m in current liabilities, the company has been able to meet these obligations given the level of current assets of US$868m, with a current ratio of 1.41x. Generally, for Electronic companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Is ITRI’s debt level acceptable?
Since total debt levels have outpaced equities, ITRI is a highly leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since ITRI 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.
ITRI’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 ITRI’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 ITRI has company-specific issues impacting its capital structure decisions. You should continue to research Itron to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ITRI’s future growth? Take a look at our free research report of analyst consensus for ITRI’s outlook.
- Valuation: What is ITRI 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 ITRI 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.
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