Abbott Laboratories (ABT) Acquire Credit-Rating Upgrade at S&P as Debt Levels Reduce After Dealmaking

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Abbott Laboratories (ABT) had its credit rating lifted at S&P Global Ratings on Tuesday after the maker of nutrition drinks and diagnostic tools has continued to cut its debt levels after making acquisitions in 2017.

The long-term issuer rating was raised to A- from BBB+ while the short-term A-2 rating was affirmed, the ratings firm said in a statement. The issue-level rating on its unsecured debt was lifted to A- from BBB+.

S&P said its stable outlook on Abbott is based on expectations that the company will continue to expand its earnings before interest, tax, depreciation and amortization margin, bringing free operating cash flow of more than $5 billion in 2020 to 2021.

Half of that cash flow is expected to be used on dividends and the rest is likely to go toward “tuck-in acquisitions and opportunistic share repurchases,” S&P said. Abbott is seen maintaining leverage of about two times.

Abbott cut its rolling 12-month leverage to 2.3 times by the end of September from 2.5 times in 2018 and 4.3 times in 2017, S&P said. The company paid down debt and made “minimal spending” on acquisitions and share repurchases, the agency said.

“This disciplined approach to capital deployment, coupled with Abbott’s strong pipeline of innovative products that are supporting its organic growth, gives us confidence that the company will remain committed to conservative financial policy and maintain leverage of firmly below 2.5 times over the long term,” S&P said.

Abbott closed its acquisitions of medical-device company St. Jude and Alere, which makes diagnostic tests, in 2017. In January, Abbott exercised its option to purchase Cephea Valve Technologies, which is developing heart-valve replacement technology for people with mitral valve disease.

“Should Abbott pursue acquisitions and/or share repurchases that collectively exceed $10 billion in 2020, causing its leverage to increase to the higher end of the two times to three times range, we would consider lowering our rating,” S&P said.

This post was originally published on Health Opinion

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