Moody’s changes Flex’s outlook to positive on improved metrics

Investing.com -- Moody’s Ratings has affirmed Flex Ltd.’s Baa3 senior unsecured rating and P-3 commercial paper rating while changing the outlook to positive from stable.

The rating action reflects Flex’s improved operating and financial metrics, including growing operating margins and strong free cash flow generation, according to Moody’s analyst Mariya Moore.

Flex’s Baa3 rating is supported by its position as one of the largest global EMS (Electronic Manufacturing Services) providers with good diversification across products, end markets, and geography.

The company has strategically reduced lower margin businesses and invested in higher margin verticals such as healthcare, cloud, and automotive. Flex has also enhanced its manufacturing services with in-house products and technology solutions, including liquid cooling and power systems.

These strategic moves have helped Flex achieve record high operating margins of 4.9% (Moody’s adjusted) in the last twelve months ending June 2025. Moody’s expects this strategy to continue driving margin expansion, projecting operating margins to reach 5.6% in fiscal 2026.

For fiscal 2026, Moody’s anticipates low-to-mid single-digit revenue growth for Flex. The cloud and data center infrastructure segment is expected to maintain very strong growth, driven by increased capital expenditures from hyperscalers and a transition towards liquid-cooled infrastructure and higher power capacity demands.

Moody’s expects leverage to remain under 3x debt/EBITDA (Moody’s adjusted), consistent with historical levels.

Flex’s liquidity position is robust, supported by $2.2 billion of cash as of June 2025 and an expected free cash flow of about $0.9 billion in fiscal 2026. Additional liquidity comes from a $2.75 billion committed unsecured revolving credit facility maturing July 15, 2030, and a $1.75 billion commercial paper program with no outstanding borrowings as of June 27, 2025.

The positive outlook reflects Moody’s expectation for continued profitability growth over the next 12 to 18 months, driven by very strong growth in the higher margin data center portfolio and stable healthcare solutions and lifestyle segments.

Ratings could be upgraded with continued improvement in diversification for core businesses along with stronger operating and financial metrics, including operating margins maintained above 4% and adjusted total debt to EBITDA sustained below 2x.

Conversely, ratings could be downgraded if Flex experiences substantial revenue erosion or suffers material customer/program losses resulting in operating margins approaching 2% or adjusted total debt to EBITDA being sustained above 3x.

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