Convatec outlook revised to positive by S&P on improved performance

Investing.com -- S&P Global Ratings revised its outlook on medical device maker Convatec to positive from stable on Friday, while affirming its ’BBB-’ credit rating.

The rating agency cited Convatec’s strong sales growth, significant profitability expansion, and resilient credit metrics as key factors behind the outlook change.

Convatec reported sales growth of 6.9% in 2024 and 6% in the first half of 2025, with growth across all product categories. The company’s adjusted EBITDA margin expanded by 180 basis points to 25% in 2024 and reached 25.5% by June 30, 2025.

S&P attributed the improved performance to Convatec’s "Focus, Innovate, Simplify, Build, Execute" (FISBE) strategy implemented since 2020, which has focused on delivering top-line growth through innovation while expanding margins through productivity measures.

The company’s adjusted leverage stood at 2.1x at the end of 2024, improving from 2.7x in 2023, while free operating cash flow (FOCF) increased to $274 million from $238 million in 2023.

S&P forecasts Convatec’s sales will grow by 5%-6% in 2025 and 2026, and 4.5%-5.5% in 2027. The rating agency expects the adjusted EBITDA margin to expand by about 100 basis points annually in 2025 and 2026, and by 50-100 basis points in 2027.

These improvements should lead to adjusted leverage of about 2.0x-2.3x over the next 12-24 months, with FOCF exceeding $250 million during the same period, according to S&P.

The rating agency noted that Convatec faces some challenges, including uncertainty about potential implementation of local coverage determinations in the U.S. in January 2026, which could impact its InnovaMatrix sales. About 3% of total revenue is exposed to this change.

Additionally, U.S. trade tariffs are expected to have a limited impact on Convatec, with a small decline of $5 million-$10 million in operating profit anticipated in 2025.

S&P indicated it could raise Convatec’s rating if the company continues to demonstrate improvement in earnings quality and business development supported by strong growth across its four categories, while maintaining solid cash flow generation and a conservative financial policy.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.