S&P 500: 13 major companies are drowning in debt in the coronavirus crash

Stock market crashes have a knack for revealing excesses. And the coronavirus bear market shows that corporate debt has reached huge levels, including at some giant S&P 500 companies.


Thirteen S&P 500 companies, including Boeing (BA), Ford (F) and Varco National Oil Well (NOV) carry eight times or more their total debt relative to their annual adjusted cash flow, according to an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. In this case, the cash flows correspond to earnings before interest, taxes, depreciation and amortization (EBITDA) for the last twelve months.

That’s more than double the 3.2 times debt to cash flow, on average, in the S&P 500, excluding financials. A debt to cash flow ratio of five or more is considered high. This means that it would take five years to pay off the debt. It might also be difficult to borrow more.

Such an accumulation of debt has worried investors for months. The coronavirus bear market is bringing fear to the fore. And that’s yet another reason savvy traders know get out of the market and stay out for now.

“In some ways, the world is now as indebted, if not more, than it was during the last major crisis,” wrote Ruchir Sharma, chief global strategist at Morgan Stanley Investment Management. in an opinion piece.

“But the biggest and riskiest pools of debt have shifted – from households and banks in the United States, which were limited by regulators after the crisis, to businesses around the world.

Corporate debt bubble

The coronavirus stock market crash is now pushing S&P 500 investors to consider leverage risk. Last year analysts sounded the alarm over corporate debt. At this point, corporate debt has already reached nearly 50% of US GDP, a record.

And meanwhile, incomes and incomes of many businesses and industries profit is about to fall. This will make paying off the debt all the more difficult.

Analysts now expect S&P 500 earnings down 1.2% in the first quarter, says John Butters, an analyst at FactSet. Ten of 11 S&P 500 sectors have lower growth rates for the quarter than December. Additionally, 72 S&P 500 companies have already issued Q1 warnings.

Lower incomes will make debt all the more difficult to pay.

Investors have understood this. The 13 most indebted S&P 500 companies have seen their shares plummet 44%, on average since the February 19 peak. Meanwhile, the S&P 500 is down almost 30%.

S&P 500 Debt Poster: Boeing

Nowhere is the debt bubble more pronounced in S&P 500 than with Boeing. The industrial debt now represents 57.6 times its cash.

And the cash flow is probably heading further south. Analysts believe the company will lose $1 billion in the first quarter alone. And while the company is expected to earn $2.3 billion in 2020, that’s also expected to drop. Boeing has $10 billion in cash and short-term equivalents. But it’s negative net cash because it also has $18 billion in debt.

Don’t be fooled by Boeing’s 4.9% return either. The IBD composite rating of 8 is a huge warning to avoid this stock.

Warning: S&P 500 Debt

Ford is another industrialist with so much debt that it is almost 14 times more indebted for cash flow. It is also one of the S&P 500 companies that should probably consider reducing its dividend. It is, however, a positive net cash position. It has $22 billion in the bank, exceeding its long-term debt by $13.6 billion.

But many companies in the S&P 500 energy sector aren’t so lucky. Energy company National Oilwell Varco has debt 11 times its cash flow. He is also on the hook for nearly $2 billion, more than the $1.2 billion he has in cash and short-term investments.

No wonder the S&P 500 stock is down 62% from the market high and has a composite rating of 1.

It looks like the debt bombshell that worries investors is now a problem.

S&P 500 companies with the highest debt loads

Company Teleprinter Total debt/EBITDA S&P credit rating composite score Sector % Stock ch. From 02/19
Boeing (BA) 57.6 BBB 8 Industrial -61.7%
Covenant data (ADS) 18.1 23 Computer science -64.4%
Ford engine (F) 13.5 BBB- 37 Consumer Discretionary -37.4%
Varco National Oil Well (NOV) 11.2 BBB+ 1 Energy -62.1%
western digital (WDC) 10.5 BB+ 16 Computer science -52.2%
CarMax (KMX) 9.1 58 Consumer Discretionary -45.1%
williams (WMB) 8.8 BBB 38 Energy -37.4%
SL Green Realty (SLG) 8.7 BBB- 48 Immovable -44.0%
Harley-Davidson (PORK) 8.7 BBB+ 31 Consumer Discretionary -40.8%
Vornado Real Estate (WNV) 8.7 BBB 61 Immovable -48.0%
Investment and management of apartments (VIA) 8.3 BBB- 75 Immovable -34.6%
SBA Communications (SBAC) 8.0 BB 87 Immovable -11.4%
General Motors (GM) 8.0 BBB 55 Consumer Discretionary -39.9%
S&P500 ^spx -29.5%
Source: IBD, S&P Global Market Intelligence, S&P ratings of BB+ and below are junk or speculative grade

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