3M's $1.1B Issue Gets Aa2 Rating from Moody's - Analyst Blog

By
A A A

3M Company's ( MMM ) note issuance of up to $1.1 billion of unsecured debt was assigned an Aa2 rating by Moody's along with a stable outlook. Moody's also assigned an Aa2 rating to the company's refreshed medium-term note (MTN) program. The unsecured notes are split between maturities of 5 and 30 years.

Aa2 is an investment grade rating, indicating high quality obligations with very low credit risk. The ratings are consistent with 3M's current Aa2 senior unsecured rating and Aa2 unsecured MTN program rating.

Debt Position

Though 3M maintained that the funds will be used for general corporate purposes, Moody's believes that a majority of the debt proceeds will be employed to term-out commercial paper borrowings of $452 million at the end of first-quarter 2014. The company also has notes worth €1.025 billion maturing in Jul 2014.

3M's funding needs are expected to rise as it boosts dividends, steps up share repurchase program and increases the pace of acquisitions. In first-quarter 2014, the company bought back around $1.7 billion of shares and has nearly $10.6 billion remaining under its share repurchase authorization.

Including the new issuance, 3M's total funded debt would approach $8.35 billion. The robust interest coverage ratio will retreat to some extent due to additional servicing costs on the incremental debt.

Funding needs after the first quarter stem from the company's April acquisition of Treo Solutions, a data analytics and intelligence firm providing services to the healthcare industry.

Ratings Validation

The Aa2 senior unsecured debt rating reflects 3M's strong competitive position across an extensive range of markets, with robust operating profitability, stable free cash flow generation and a relatively conservative capital structure. The company's broad spectrum of operations counteracts exposure to any particular industry, geography or business cycle, thus generating fairly stable revenues and cash flows.

3M has been conducting restructuring initiatives to transfer capital from low-prospect businesses to more lucrative opportunities, thus generating better return on capital. Furthermore, the company's continued investment in research and development enables it to generate organic growth by innovating products and applications that capture premium pricing in early stages of their life-cycle. This enables the company to improve margins consistently and capitalize on its brand value.

Outlook

The rating was accompanied by a stable outlook, reflecting Moody's expectation of 3M to continue generating resilient levels of profitability and free cash flow across business cycles. However, potential headwinds like macroeconomic conditions, foreign currency risks and raw material costs might restrict margins.

3M currently holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry that are worth considering include Icahn Enterprises, L.P. ( IEP ), Noble Group Ltd. ( NOBGY ) and CLARCOR Inc. ( CLC ), each sporting a Zacks Rank #1 (Strong Buy).


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

3M CO (MMM): Free Stock Analysis Report

ICAHN ENTERPRIS (IEP): Get Free Report

CLARCOR INC (CLC): Free Stock Analysis Report

NOBLE GROUP LTD (NOBGY): Get Free Report

To read this article on Zacks.com click here.

Zacks Investment Research



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: MTN , MMM , IEP , CLC , NOBGY

Zacks.com

Zacks.com

More from Zacks.com:

Related Videos

Stocks

Referenced

Most Active by Volume

43,723,719
  • $16.255 ▲ 0.59%
10,643,416
  • $101.08 ▲ 0.50%
8,095,469
  • $59.85 ▲ 7.43%
7,767,548
  • $32.42 ▲ 9.08%
6,301,008
  • $74.41 ▼ 0.21%
6,231,228
  • $99.08 ▲ 0.18%
6,033,308
  • $51.405 ▲ 0.66%
5,844,611
  • $45.15 ▼ 0.15%
As of 8/22/2014, 10:26 AM

Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com