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Investing.com -- Moody’s Ratings has confirmed the Baa2 senior unsecured notes ratings of HEICO (NYSE:HEI) Corporation, also known as Heico. The company’s Baa2 long-term issuer rating was also upheld. The ratings outlook for Heico has been shifted to positive from its previous stable status.
Moody’s Senior Vice President, Eoin Roche, stated that the positive outlook speaks to Heico’s robust business profile and the expectation of solid earnings growth. This growth is projected to uphold a strong set of credit metrics. Heico is anticipated to keep its debt-to-EBITDA ratio around 2 times while also generating substantial levels of free cash flow, leading to excellent financial flexibility.
The Baa2 rating is a reflection of Heico’s strong credit metrics, good standing in niche markets, and its conservative financial policy. The company offers a broad range of value-added products and services to a diverse array of markets, including commercial aerospace, defense, space, and other industrial sectors. Heico’s high EBITDA margin, expected to remain above 25%, is a testament to its value to customers. This high margin, coupled with low capital expenditure requirements and modest working capital needs, supports a strong free cash flow, providing significant financial flexibility.
Heico’s aftermarkets and equipment manufacturing customers are expected to provide a steady stream of earnings and cash generation. Moody’s adjusted debt-to-EBITDA ratio for Heico as of January 31, 2025, stood at 2.3 times, a full turn down since the debt-funded acquisition of Wencor in August 2023. Heico is expected to maintain a conservative financial policy, despite its active acquisition strategy, which may occasionally result in modest increases in leverage and ongoing draws on its revolver.
Heico is projected to uphold strong liquidity, with an anticipated cash balance of between $100 million to $200 million. The company has no near-term principal obligations and no debt amortization. External liquidity is provided by a $2 billion revolving credit facility that expires in 2028. As of January 31, 2025, $1.1 billion had been drawn under the facility.
Factors that could lead to a ratings upgrade include an increase in size and scale and a debt-to-EBITDA ratio sustained at or below 2 times. A robust liquidity and strong execution on acquisitions could also contribute to an upgrade. Conversely, weak operating performance or cash generation, or a growing reliance on revolver borrowings could lead to a ratings downgrade. A more aggressive financial policy with a debt-to-EBITDA ratio sustained near 3 times could also result in a downgrade.
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