That’s a question Ashwin Virk of Simply Wall St. asks, as mid-cap stocks such as TEGNA “rarely draw attention from the investing community.”
Nevertheless, “commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts,” Virk notes.
With that, Virk took a deep dive into TEGNA’s debt concentration to access its financial liquidity and got a good sense of the company formerly known as Gannett’s ability to fund strategic acquisitions and grow through cyclical pressures.
Does TEGNA generate an acceptable amount of cash through operations?
TEGNA’s debt levels have fallen from $4.04 billion to $3.01 billion over the last 12 months , which is made up of current and long term debt. With this debt payback, the current cash and short-term investment levels stands at $98.80 million, ready to deploy into the business.
Moreover, TEGNA has generated $386.21 million in operating cash flow in the last 12 months, leading to an operating cash to total debt ratio of 12.84%.
This signals that TEGNA’s operating cash is not sufficient to cover its debt, Virk concludes. “This ratio can also be a sign of operational efficiency as an alternative to return on assets,” he says. “In TEGNA’s case, it is able to generate 0.13x cash from its debt capital.”
Does TGNA’s liquid assets cover its short-term commitments?
With current liabilities at $325.35 million, it seems that the business has been able to meet these obligations given the level of current assets of $636.92 million, with a current ratio of 1.96x. “Generally, for media companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment,” Virk concludes.
Is TEGNA’s debt level acceptable?
TEGNA, says Virk, “is a highly leveraged company with debt exceeding equity by over 100%.”
But, he’s quick to add that this isn’t unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses.
“We can check to see whether TEGNA is able to meet its debt obligations by looking at the net interest coverage ratio,” Virk says. “A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In TEGNA’s, case, the ratio of 2.62x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.”
