Mid-caps stocks, like NuStar Energy LP. (NYSE:NS) with a market capitalization of US$3.07B, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Today we will look at NS’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 NS here. See our latest analysis for NuStar Energy

How does NS’s operating cash flow stack up against its debt?

NS has sustained its debt level by about US$3.07B over the last 12 months – this includes both the current and long-term debt. At this constant level of debt, NS’s cash and short-term investments stands at US$35.94M for investing into the business. Moreover, NS has produced cash from operations of US$436.76M over the same time period, resulting in an operating cash to total debt ratio of 14.22%, signalling that NS’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In NS’s case, it is able to generate 0.14x cash from its debt capital.

Can NS meet its short-term obligations with the cash in hand?

At the current liabilities level of US$289.40M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$377.18M, with a current ratio of 1.3x. Usually, for Oil and Gas companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.

Can NS service its debt comfortably?

NS is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether NS is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In NS’s, case, the ratio of 2.21x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.

Next Steps:

At its current level of cash flow coverage, NS has room for improvement to better cushion for events which may require debt repayment. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for NS’s financial health. Other important fundamentals need to be considered alongside. You should continue to research NuStar Energy to get a more holistic view of the stock by looking at:

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

• 2. Valuation: What is NS 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 NS 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 pass 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.