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Fitch Affirms BBB+ Rating on Agilent's $2.8B of Debt

NEW YORK (GenomeWeb News) – Fitch Ratings today affirmed BBB+ ratings for about $2.8 billion of Agilent Technologies' debt, noting the firm's ongoing revenue diversification and conservative financial policies.

Fitch issued BBB+ ratings on Agilent's issuer default rating, senior unsecured revolving credit facility, and senior unsecured notes. The ratings affect about $2.8 billion of debt, including an undrawn $400 million revolving credit facility that expires in 2016, the ratings firm said.

It said that the ratings and Positive Outlook reflect Santa Clara, Calif.-based Agilent's "strengthening operating profile," adding that it expects mid-cycle annual free cash flow to near $1 billion.

Fitch said that it anticipates revenue growth for Agilent's Fiscal Year 2013 to be flat year over year, with emerging market demand and revenue contributions from the Dako acquisition offsetting lower US government spending, a soft European economy, and "more volatile communications order patterns."

The Dako deal, Fitch said, helps diversify Agilent's revenue portfolio "and strengthens the company's capabilities and customer reach in cancer diagnostics markets," while also increasing recurring revenues to 30 percent of total revenues from 25 percent.

Moving forward, M&A activity will likely be smaller in size, outside the US, and focused on the bio-analytical markets, which have high growth potential and would allow Agilent to further reduce its exposure to the more volatile Electronic Measurement segment. Fitch said that EMG revenues are expected to make up less than 45 percent of total revenues in FY 2013, down from about 55 percent five years ago.

Fitch also said that beyond the near term, revenues are expected to grow in the mid-single digits, driven by the emerging markets and improving recurring revenues.

FY 2013 productivity initiatives should drive almost $1 billion of free cash flow, while Agilent's reduction in flexible workforce, consolidation of manufacturing facilities, and streamlining order fulfillment should allow the company to keep operating margins near current levels, Fitch added.

Fitch also took note of Agilent management's conservative financial approach and said that it expects the company to maintain global cash levels above $1 billion, manage total leverage below 2x, and limit share repurchases to excess domestic cash levels.

Share repurchase activity, however, could increase as the company has $421 million remaining under its current $500 million stock buyback program.

Fitch said it believes Agilent will continue to invest about 10 percent of revenues on R&D, which would represent pullback from historical levels, but still higher than competitors.

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