With interest rates on the rise, the fundamental risks of companies relying on a great deal of debt for their operations increases significantly. You should want your publicly traded businesses to minimize or eliminate debt altogether under these conditions. The three companies below possess zero debt on their balance sheets, and subsequently, lower fundamental risk.
Investment research anyone?
Morningstar, Inc. (NASDAQ:MORN) is one of the most well-known investment research companies in the world. It provides everything from analyst research reports and mutual fund ratings to retirement planning tools.
Naturally, if you want to invest in an investment research company, you would want it to demonstrate financial leadership by keeping its own house in order.
Last year, Morningstar, Inc. (NASDAQ:MORN) increased revenue 4%; however, free cash flow declined due to an expansion in accounts receivable and an increase in capital expenditures. Its operating margins increased one percentage point to 23% last year from 22% in 2011. Return on equity clocked in at 15% as of the end of 2012.
Morningstar, Inc. (NASDAQ:MORN) did better in its most recent quarter with revenue and free cash flow growing 6% and 80%, respectively. Morningstar maintains a pristine balance sheet with cash and investments equating to 44% of stockholder’s equity as of the most recent quarter.
Also, in the most recent quarter, Morningstar, Inc. (NASDAQ:MORN) paid out 9% of its free cash flow in dividends. It currently pays $0.50 per share per year and yields 0.60%.
As more and more individuals turn to the investing world for retirement security, as pensions increasingly go by the way side, investment research provided by firms such as Morningstar, Inc. (NASDAQ:MORN) will only increase in relevance.
Bread, soup, and Wi-Fi
Panera Bread Co (NASDAQ:PNRA) sells high end soup, sandwiches, and beverages while bringing a superior experience to its customers through an internet café like atmosphere. Even if you don’t want a sandwich, you can go there and order a beverage and read internet articles on your tablet or computer.
Panera Bread Co (NASDAQ:PNRA) performed wonderfully last year with sales and free cash flow increasing 17% and 6%, respectively. Operating margins improved from 12% in 2011 to 13% last year and return on equity came in at 21%.
In Panera Bread Co (NASDAQ:PNRA)’s most recent quarter, revenue increased 11% while free cash flow declined 20% due to increased capital expenditures. Panera Bread also possesses an excellent balance sheet with cash making up 38% of its stockholder’s equity during its most recent quarter.
Panera Bread Co (NASDAQ:PNRA)’s same-store sales increase of 3.8% came in below management expectations. In addition, management lowered their guidance, serving as a catalyst for a stock price correction. This could indicate market saturation for Panera’s stores. Currently, the stock still trades at 27 times earnings, well above the S&P 500’s average of 19. Look for buying opportunities from any volatility resulting from these concerns.