Friday, February 08, 2002

Companies Not Burdened With Debt

NEW YORK - Debt isn't evil. Prudent companies issue bonds to help pay for new plants and equipment, and invest in new products. But excessive debt can put enormous pressure on cash flow--particularly during an economic slowdown. In the current business environment, a good case can be made for investing in companies that aren't excessively burdened with debt.

Example: BJ Services (nyse: BJS - news - people ), an oil-field services company. Over the past four quarters, the Houston-based firm has reduced its long-term debt from $142 million to $79 million. BJ Services' long-term debt stands at just 5.4% of its total capitalization, versus a 28% average for an S&P index of industry peers.

With debt at such a manageable level, BJ Services should be able to ride out the current weakness in energy prices, particularly natural gas. Nevertheless, the decline in fuel prices has helped drive down BJ Services' stock, which is off 33% from its 52-week high.

Shares of BJ Services sell for 14 times latest 12-month earnings, and 20 times estimated profits for the coming 12 months. The 12-month forward price-to-earnings ratio for the S&P 500: 31.

Full story at