Agilent Technologies Inc. A $300 million senior notes, carrying an interest rate of 3.050% and due 2026, were assigned “Baa2” rating by Moody's Investors Service – the credit rating agency of Moody’s Corporation. The Baa2 rating carries a stable outlook.
The proceeds from this offering will be used to repay all amounts outstanding under its revolving credit facility.
Investors reacted positively to the news as the share price rose more than 1% in the subsequent trading session.
Rationale Behind Baa2 Rating
The rating agency has assigned the Baa2 rating based on the company’s continued growth and good scale of operations. The agency remains encouraged by the company’s strong competitive position, revenue base of over $4.1 billion and solid growth in all key markets, namely Life Sciences & Applied Markets Group (LSAG), Agilent Cross Lab Group (ACG) and Diagnostics and Genomics Group (DGG). The rating also reflects Agilent’s diversified geographic and industrial operations coupled with its highly differentiated product line. These indicate healthy growth, going forward.
However, the rating is restricted as Moody’s is cautious about Agilent’s dependence on revenues derived from the sale of costly equipment used in analytical laboratories. Sales of this equipment can be affected by economic fluctuations and capital expenditure budgets of customers, which can lead to fluctuating demand. The rating is also constrained as Moody’s expects Agilent to use most of its U.S. cash flow for dividends or share buybacks.
Moody’s assigned a stable outlook on the rating based on its expectation that the company’s revenues will continue to grow in the low- to mid-single-digit range over the next 12-18 months. The agency believes that its performance will continue to show improvement in the future.
Rating affirmations or upgrades from credit rating agencies play an important part in shaping investor confidence in the stock as well as in maintaining credit worthiness in the market. Moody’s Baa2 is an investment grade rating, indicating medium grade obligations which may possess speculative characteristics with moderate credit risk.
Agilent Technologies is a broad-based OEM of test and measurement equipment. The company reported decent fiscal third-quarter 2016 results, with the bottom line surpassing the Zacks Consensus Estimate while the top line matching the same.
Exiting the fiscal third quarter, Agilent had cash and short-term investments of approximately $2.20 billion compared with $2.14 billion in the previous quarter. The company’s long-term debt was $1.65 billion at the end of the quarter. Cash flow from operations was roughly $194 million and capex was $24 million.
We believe that the company has a strong balance sheet, which will help it to capitalize on investment opportunities and pursue strategic acquisitions, further improving its growth prospects.
Currently, Agilent has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Cognex Corporation CGNX, Itron, Inc. ITRI and Stamps.com Inc. STMP, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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