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Investing.com -- Moody’s Ratings has today revised Denso Corporation’s (Denso) outlook to stable from positive, while affirming its A2 issuer and senior unsecured ratings. This action follows the affirmation of Toyota Motor (NYSE:TM) Corporation’s A1 long-term ratings and outlook revision to stable from positive on June 4, 2025.
According to Ryohei Nishio, a Vice President and Senior Analyst at Moody’s Ratings, the outlook on Denso’s A2 ratings has returned to stable from positive due to the reduced prospect of significant improvement in credit fundamentals of Toyota Motor, which is Denso’s largest customer and shareholder.
Nishio also noted that Denso’s involvement in a series of transactions to delist Toyota Industries (OTC:TYIDF) Corporation (TICO, A2 review for downgrade) will not strain its credit quality. Denso’s ample cash balance and proceeds from cross-shareholding divestments will sufficiently cover the funding needs for buying back its own shares from TICO.
Denso, one of the largest tier 1 automotive suppliers globally, maintains a strong competitive position. The company capitalizes on the growing demand for technologies that enable electrification, enhance vehicle fuel efficiency, and safety. It also has a broad customer base that includes major automakers across the globe. Denso’s ratings are underpinned by its proprietary technologies, conservative financial policy with low leverage, and ample liquidity.
However, the company’s ratings are constrained by its concentration in the cyclical automotive industry, which requires substantial R&D expenses and capital investment to develop electrification and autonomous driving technology, and to address tightening emission and safety regulations.
Despite potential risks stemming from tariff and unpredictable trade policy in the US, Denso’s ample cash balance will help absorb these risks. The company’s competitive product portfolio will give it an edge in passing through a large part of potential costs increases to automakers.
The stable outlook reflects Moody’s expectation that Denso will maintain its well-established position in the global automotive supply. It is also expected that Denso will maintain its conservative financial policy and its solid relationship with Toyota Motor.
Denso’s ratings could be upgraded if Toyota Motor’s ratings are upgraded, provided that Denso maintains its strategic importance to the Toyota group and its strong standalone credit quality. Denso’s ratings could also be upgraded if the company gains solid competitive positions in the auto-parts industry while increasing the share of its earnings from advanced products with better growth prospects amid the industry’s transition towards electrification.
On the other hand, a downgrade of Denso’s ratings could occur if the company’s well-established market position deteriorates, or if it adopts an aggressive financial policy resulting in a sustained increase in leverage.
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