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Investing.com -- Teledyne Technologies Inc (NYSE:TDY)., a global manufacturer of sensing, control instrumentation, and electronic components, has had its ’BBB’ ratings affirmed by S&P Global Ratings. The ratings agency cited the company’s deleveraging efforts and the revision of its financial risk profile upwards as reasons for the affirmation.
At the close of 2024, Teledyne managed to lower its leverage, as adjusted by S&P Global Ratings, to 1.5x. This was achieved through a steady operating performance and consistent reduction of debt. Despite the company’s acquisitive financial policy, S&P Global Ratings anticipates that Teledyne’s credit metrics will remain strong in the near future, thanks to a solid free operating cash flow (FOCF).
The ratings for Teledyne and its subsidiary, Teledyne FLIR LLC, were also affirmed at ’BBB’. The outlook for the company remains stable, with expectations of modest organic revenue and EBITDA growth over the next 24 months. S&P Global Ratings also expects the company to keep its adjusted leverage below 3x, taking into account acquisitions and shareholder rewards.
Following the acquisition of FLIR Systems Inc (NASDAQ:FLIR)., Teledyne has made significant strides in improving its adjusted leverage through solid operating performance and strong FOCF generation. By the end of the fiscal year on December 31, 2024, the company’s leverage stood at 1.5x, marking an improvement of approximately two turns since its merger with FLIR in May 2021.
Despite operating with leverage at the lower end of its guidance, Teledyne is expected to continue its acquisitive approach to stay competitive in the sensing and imaging instrumentation equipment markets. On February 3, 2025, the company completed its acquisition of select aerospace and defense electronics businesses from Excelitas Technologies Corp. for $710 million. The acquisition was funded with cash and availability on its $1.2 billion revolving credit facility.
Moving forward, S&P Global Ratings anticipates modest organic revenue growth and a stable margin profile for Teledyne in 2025. The company is expected to continue generating significant FOCF, having reported an adjusted FOCF of $1.15 billion in 2024. Of this, $600 million was used to repay debt, about $350 million to repurchase shares, and approximately $125 million on acquisitions.
The ratings agency could lower its rating on Teledyne over the next 24 months if leverage increases and stays above 3x, possibly due to a prolonged downturn in commercial aerospace or a decrease in defense spending that significantly weakens profitability and cash generation. Alternatively, an increase in the company’s financial policy aggressiveness could also lead to a ratings downgrade. However, if Teledyne maintains its adjusted leverage below 2x, including acquisitions and shareholder remuneration, the company’s rating could be raised.
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