Jefferies & Co. offered a list of the top 10 companies with low cash and high near-term debt maturities this week that it’s advising investors to avoid.
The top 10 are: Hewlett Packard Enterprise
HPE,
Stanley Black & Decker
SWK,
Evergy
EVRG,
McCormick
MKC,
NiSource
NI,
Sempra
SRE,
Celanese
CE,
Ameren
AEE,
Eversource Energy
ES,
and DTE Energy
DTE,
according to Jefferies global head of microstrategy, Desh Peramunetilleke.
The following chart provided by data provider BondCliQ highlights just how much debt is coming due in the near term for those companies. The list is ordered by ticker alphabetically with each name split into maturity buckets of their outstanding debt.
The blue bucket is debt that matures within a year.
Eversource Energy, the Boston, Mass.-based electric utility, leads the pack with $2.705 billion of debt maturing in the next year.
The company’s total long-term debt stood at about $21 billion as of March 31, according to the company’s first-quarter filing with the Securities and Exchange Commission.
The company had $36 million in cash on that date and negative cash flow of more than $1 billion.
Peramunetilleke’s note highlighted that companies with cold hard cash are currently an overlooked sweet spot.
“Rates and yields are rising sharply in the U.S. and Europe, with both interest income and interest expense set to rise, making cash the king,” he told clients in a note.
“After witnessing zero cash rates for most of the past decade, cash on balance sheet is starting to earn a healthy return. Indeed, cash-to-total asset has been the best long-short factor this year for global equities, led by U.S.,” he said.
Companies with cash-rich balance sheets also saw far better first-quarter results, while highly geared companies — those with higher leverage that could be at risk from financial troubles if profits fall or rates rise — have seen the biggest underperformance and likely will be hit by rising debt costs, said Peramunetilleke.
Looking across regions, the analyst found that the U.S. and Europe are the most-geared, with the least amount of cash on balance sheets.
“Yet given the significant difference in short-term debt (Europe 24% vs U.S. only 11%), we anticipate a circa 9% reduction in MSCI USA’s net interest cost (due to higher interest income) while expecting a circa 8% increase for DM [developed market] Europe,” he said.
The strategist also offered a list of “cash-rich” U.S. companies that are expected to benefit from that cushion.
They are: Activision Blizzard
ATVI,
ServiceNow
NOW,
General Electric
GE,
Amazon
AMZN,
Fortinet
FTNT,
Airbnb
ABNB,
VMware
VMW,
Keysight Tech
KEYS,
Bruker
BRKR,
and Costco
COST,
For more: 10 stocks that will benefit from higher earnings on company cash, and 10 that have a debt problem
Read the full article here
