Investment Thesis
Despite strong operating margins (24.9%) and solid balance sheet metrics, Otter Tail Corp faces critical cash flow deterioration with negative free cash flow of -$114.7M annually. The company's capital expenditures ($185.3M) vastly exceed operating cash flow ($70.6M), requiring external financing to sustain operations. Low returns on equity (3.8%) and assets (1.7%) indicate capital is not generating sufficient returns to justify the investment rate.
Strengths
- Strong operating margin of 24.9% and net margin of 21.2% demonstrate pricing power and operational efficiency in utility segment
- Conservative leverage with Debt/Equity ratio of 0.56x and strong interest coverage of 8.7x provides debt service cushion
- Adequate liquidity position with current ratio of 2.04x and $348.4M in cash reserves
Risks
- Severely negative free cash flow of -$114.7M indicates company cannot fund operations and capex from internal cash generation
- Capital expenditures exceed operating cash flow by 162%, requiring continuous external financing or cash depletion
- Extremely low returns on capital (ROE 3.8%, ROA 1.7%) suggest invested capital is not generating adequate returns relative to deployment rate
Key Metrics to Watch
- Operating cash flow trend and sustainability relative to capital expenditure requirements
- Free cash flow trajectory and source of financing for capex shortfall (debt vs equity)
- Return on equity and return on assets improvements to justify ongoing investment levels
Financial Metrics
Revenue
342.9M
Net Income
72.6M
EPS (Diluted)
$1.73
Free Cash Flow
-114.7M
Total Assets
4.2B
Cash
348.4M
Profitability Ratios
Gross Margin
N/A
Operating Margin
24.9%
Net Margin
21.2%
ROE
3.8%
ROA
1.7%
FCF Margin
-33.4%
Balance Sheet & Liquidity
Current Ratio
2.04x
Quick Ratio
1.64x
Debt/Equity
0.56x
Debt/Assets
0.0%
Interest Coverage
8.65x
Long-term Debt
1.1B
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-05-07T07:42:27.433153 |
Data as of: 2026-03-31 |
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