SMC, Summit Midstream Corporation

Will it survive?

• Can it pay its interest? 0.8×
  Does not cover its interest
  Operating income $72M ÷ interest expense $95M
  What this means

  A full year of operating profit didn't cover the interest bill. This is the zombie zone: the business depends on refinancing, asset sales, or forbearance to service its debt.

• How heavy is the debt, net of cash? $1.0B · 14.3× operating profit
  Heavy net debt
  Cash $9M − debt $1.0B
  What this means

  Netting $9M of cash and short-term investments against $1.0B of debt leaves $1.0B owed, about 14.3× a year's operating profit (14.4× on the gross debt, before the cash). Net debt is the leverage figure that matters: the cash is already set against the debt. Strategic or illiquid investments aren't counted here.

• How long is cash tied up? -32d
  Negative, funded by others
  DSO 45 + DIO 0 − DPO 77 days
  What this means

  Days cash is tied up between paying suppliers and collecting from customers. A negative cycle is a quiet moat: suppliers and customers fund the operation (Buffett's “float”), the company grows on other people's money. (Little or no inventory, a services / asset-light model, so the inventory leg is ~0.)

Is it a good business?

• Return on invested capital 4%
  Below average
  NOPAT $57M ÷ invested capital $1.6B (debt + equity − cash)
  Industry peers: median 6%
  What this means

  The rate the business earns on the money tied up in it, Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; a return below the cost of capital (~8%) erodes value as a business grows rather than building it — the test Buffett weighs most. Asset-light businesses (R&D expensed, little capital) read artificially high, pair this with Owner Earnings.

• Owner-earnings margin 8%
  Solid through the cycle
  3-yr median margin, range 2%–13%; latest $45M = operating cash $134M − maintenance capex $89M
  Industry peers: median 17%
  What this means

  What an owner could take out without starving the business: operating cash less the maintenance capital it must spend to hold its position — Buffett's owner earnings. That's 8% of revenue this year, a 8% median across 3 years. Treating stock comp as the real expense it is (less $8M of SBC) leaves $37M.

• Are earnings backed by cash? $134M
  Loss, but cash-generative
  Net income ($6M) · cash from operations $134M
  What this means

  The company reported a net loss, so a conversion ratio isn't meaningful. What matters then is whether operations still threw off cash, here, they did.

How is the cash used?

• Where do the earnings go? —
  Not enough data
  What this means

  The filing data didn't include the inputs for this check.

• Investing or harvesting? 0.78×
  Harvesting
  Capex $89M ÷ depreciation & amortization as filed $114M
  What this means

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth, or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency, or a melting asset base). The ratio won't tell you which; the filings will.

The promise and the pay packet

• Is the buyback buying ownership, or mopping up? 1.4%
  The count is rising
  Stock compensation $8M (fiscal 2025), 1.4% of revenue · no repurchases · diluted shares +17.4% since 2023
  What this means

  Stock handed to employees is a real cost paid in the owner's own currency: it is charged against profit, but the shares it creates are permanent. Many companies repurchase stock at the same time, which looks like a return of capital and often is not — if the count barely moves, the cash merely cancelled the pay packet and bought the owner nothing. The three states worth telling apart are a count genuinely shrinking, a count standing still despite large repurchases, and a count rising because the issuance was never offset at all.

Graham’s defensive tests · 1 of 2 met

Graham’s numerical criteria for the defensive investor (The Intelligent Investor, ch. 14), run on the filings. A floor of safety, not a buy signal; many fine modern businesses fail his strictest liquidity rules by design.

• Adequate size Miss
  Revenue ≥ $2B · $562M
  What this means

  Big enough to weather a storm. Graham's 1972 floor was ~$100M of sales (≈ $700M today); we use a $2B revenue line as a conservative modern stand-in.

• Strong liquidity —
  Current ratio ≥ 2× (waived for utilities) · exempt
  What this means

  Graham exempted public utilities from this test: their working capital “takes care of itself” through the continuous bond-and-share financing of growth, so a thin current ratio is the industry's structure, not a warning. His substitute test — debt no more than twice book equity — is the next line.

• Conservative debt Pass
  Debt ≤ 2× equity (Graham's utility test) · $1.0B vs $546M equity
  What this means

  Graham's own substitution for public utilities: debt not exceeding twice the stock equity at book value, in place of the working-capital tests an industrial faces. A utility finances its plant with bonds by design; the question is whether the borrowing stays inside the equity behind it.

• Moderate price —
  P/E ≤ 15 and P/E × P/B ≤ 22.5 · decided by the price
  What this means

  Graham's valuation gate, the wall he kept between a sound business and a sound investment. Three-year average earnings are $-5.62/share (latest year $-0.56), the averaged base the calculator's gate runs on, and book value is $51.29/share. Enter a price in “What the price implies” just below for the P/E, P/B, and whether it clears. But this is the rule Buffett outgrew: there's no hard P/E law, and a wonderful business can deserve a far richer multiple if the thesis holds, treat it as the bargain-hunter's floor, not a verdict on the price.