Yahoo Finance What Investors Should Know About The Howard Hughes Corporation’s (NYSE:HHC) Financial Strength
Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like The Howard Hughes Corporation (NYSE:HHC), with a market cap of US$4.9b, are often out of the spotlight. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Let’s take a look at HHC’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of Howard Hughes’s financial health, so you should conduct further analysis into HHC here.
See our latest analysis for Howard Hughes
How much cash does HHC generate through its operations?
Over the past year, HHC has maintained its debt levels at around US$3.1b – this includes both the current and long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at US$614m for investing into the business. Additionally, HHC has generated cash from operations of US$354m over the same time period, leading to an operating cash to total debt ratio of 11%, meaning that HHC’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In HHC’s case, it is able to generate 0.11x cash from its debt capital.
Can HHC meet its short-term obligations with the cash in hand?
At the current liabilities level of US$704m liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.63x. For Real Estate 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 HHC service its debt comfortably?
With debt reaching 100% of equity, HHC may be thought of as relatively highly levered. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if HHC’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For HHC, the ratio of 1.43x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as HHC’s low interest coverage already puts the company at higher risk of default.
Next Steps:
HHC’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. Though, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for HHC’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Howard Hughes to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for HHC’s future growth? Take a look at our free research report of analyst consensus for HHC’s outlook.
Valuation: What is HHC 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 HHC 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.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
