Stocks with market capitalization between $2B and $10B, such as Ciena Corporation (NYSE:CIEN) with a size of US$3.60b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Let’s take a look at CIEN’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into CIEN here. Check out our latest analysis for Ciena
Does CIEN produce enough cash relative to debt?
CIEN’s debt levels have fallen from US$1.29b to US$1.01b 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 US$919.65m , ready to deploy into the business. Additionally, CIEN has produced US$234.88m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 23.18%, meaning that CIEN’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In CIEN’s case, it is able to generate 0.23x cash from its debt capital.
Does CIEN’s liquid assets cover its short-term commitments?
Looking at CIEN’s most recent US$1.04b liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$2.01b, leading to a 1.93x current account ratio. Generally, for Communications 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.
Is CIEN’s debt level acceptable?
CIEN is a relatively highly levered company with a debt-to-equity of 54.04%. This is not 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 CIEN 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 CIEN’s, case, the ratio of 4.57x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as CIEN’s high interest coverage is seen as responsible and safe practice.
At its current level of cash flow coverage, CIEN has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how CIEN has been performing in the past. I recommend you continue to research Ciena to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CIEN’s future growth? Take a look at our free research report of analyst consensus for CIEN’s outlook.
- Valuation: What is CIEN 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 CIEN 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 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.