) 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
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
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.
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.
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.
Noble Group Ltd.
), each sporting a Zacks Rank #1 (Strong Buy).
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