Long-established in the Utilities - Regulated industry, Avangrid Inc (AGR, Financial) has enjoyed a stellar reputation. However, it has recently witnessed a daily loss of 4.61%, juxtaposed with a three-month change of -22.84%. Fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Avangrid Inc.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 4/10
- Profitability rank: 7/10
- Growth rank: 3/10
- GF Value rank: 10/10
- Momentum rank: 2/10
Based on the above method, GuruFocus assigned Avangrid Inc the GF Score of 67 out of 100, which signals poor future outperformance potential.
Avangrid Inc: A Snapshot of Its Business
Avangrid Inc operates two business units, Networks and Renewables. Networks operates eight regulated electric and natural gas utilities across New York, Maine, Connecticut, and Massachusetts, serving over 3 million customers. Renewables has historically focused on developing onshore wind projects but is looking to make developments in solar and offshore wind over the next five years. It operates more than 8.6 gigawatts of renewable energy across the U.S. Spanish utility Iberdrola spun off Avangrid's predecessor, Iberdrola USA, in 2015. Iberdrola owns 81.5% of Avangrid.
Financial Strength Breakdown
Avangrid Inc's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 2.07 positions it worse than 77.67% of 430 companies in the Utilities - Regulated industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Score is just 0.6, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.01 indicates a struggle in handling existing debt levels. Furthermore, the company's debt-to-Ebitda ratio is 5.51, which is above Joel Tillinghast's warning level of 4 and is worse than 65.83% of 439 companies in the Utilities - Regulated industry. Tillinghast said in his book “Big Money Think's Small: Biases, Blind Spots, and Smarter Investing” that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Growth Prospects
A lack of significant growth is another area where Avangrid Inc seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by 0 per year over the past three years, which underperforms worse than 0% of 481 companies in the Utilities - Regulated industry. Stagnating revenues may pose concerns in a fast-evolving market. Lastly, Avangrid Inc predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
Given Avangrid Inc's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. While the company has a strong reputation in the Utilities - Regulated industry, its recent performance and future prospects suggest that it may struggle to maintain its historical success. Investors should consider these factors when making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
