UBS downgrades ASR Nederland to “neutral,” cites full valuation

Investing.com -- UBS raised its target on the S&P 500 from 5,800 to 6,000 and initiated a June 2026 target of 6,400.  The move follows better first-quarter earnings results and expectations of higher GDP growth in the second half of 2025.  The new targets represent 2.7% upside through year-end and 9.6% upside through mid-year next year.

The firm’s CIO, David Lefkowitz, made the move despite downgrading U.S. equities from Attractive to Neutral on May 12^th, following the sharp bounce-back in stocks following the tariff de-escalation.  Despite the downgrade, the firm is not negative on stocks and believes the bull market is intact.

“We believe the bull market is intact, and stocks will likely rise further over the next year,” Lefkowitz said. “But the economy will have to adjust to higher tariffs, and this could lead to a period of weaker economic data, which could be a modest headwind for equities.”

Stocks are far from cheap, however, the strategist notes. The S&P 500’s forward price-to-earnings ratio now stands above 21 times, surpassing its five-year median, signaling potentially stretched valuations.

Despite the higher market levels, tariffs have been reduced across all major trading partners as the U.S. enters a phase of negotiation. This reduction in tariffs suggests that trade-related upside catalysts may be diminishing. However, there is also the potential for trade tensions to re-escalate during these talks. Moreover, the economy is expected to experience a period of adjustment to the higher tariffs that remain in place.

Lefkowitz notes that while the economy may face some softening in the coming months due to these adjustments, they do not foresee a significant downside risk to U.S. equities, rather a possible modest headwind. They maintain that the bull market is still in progress and anticipate that stock prices will continue to rise over the next year. Economic data is expected to improve later in the year, bolstered by real wage growth, clarity on tax policy, deregulation, and possible Federal Reserve rate cuts.

The conclusion of the first quarter earnings season has also shed light on the ongoing strength of AI investment. Companies like Meta (NASDAQ:META) have increased their capital spending plans for 2025, while Microsoft (NASDAQ:MSFT) reported exceptional cloud revenue growth and confirmed increasing data center capital expenditures. Industrial and power companies serving data centers have echoed this positive sentiment.

In light of a strong earnings season and a slightly more optimistic GDP growth forecast for the latter half of the year, analysts have revised their S&P 500 earnings per share (EPS) estimates. They have increased the 2025 EPS forecast from $250 to $260, reflecting a 4% growth, and the 2026 estimate from $275 to $280, an 8% growth. These adjustments reflect confidence in continued investment spending and AI adoption as key factors driving U.S. equities forward.

Investing.com -- Fitch Ratings has upgraded the Long-Term Issuer Default Rating (IDR) and senior unsecured debt of Ingersoll Rand Inc. (NYSE:IR) to ’BBB+’ from ’BBB’ on May 22, 2025. The rating outlook for the company is stable.

The upgrade comes after IR successfully managed leverage following the debt-funded acquisition of ILC Dover (NYSE:DOV) in 2024. The company’s business portfolio, focused on high-growth markets where it holds strong positions, and its EBITDA and FCF margins, which are notably strong compared to ’BBB’ category peers, contributed to the upgrade. Fitch anticipates that IR will continue to manage its capital in a credit-conscious manner, keeping gross EBITDA leverage below the mid-2x range, with limited exceptions above the company’s net leverage target of under 2x.

The ’BBB+’ credit profile takes into account IR’s effective execution of its financial, operating, and acquisition strategies. Fitch expects EBITDA margins to remain in the high 20% range, with potential for further expansion due to the company’s focus on new product development, cost efficiency, and synergies among IR’s existing and acquired businesses.

Even though IR’s acquisition activity may occasionally lead to higher leverage, Fitch expects any increase above its negative sensitivity to be temporary. Following the acquisition of ILC Dover in 2024, IR’s gross EBITDA leverage was 2.4x as of March 31, 2025, and EBITDA net leverage was 1.6x.

IR’s business portfolio and increasing scale position the company to capitalize on secular growth trends and expand its presence in fragmented, niche markets with attractive demand and margin growth. The company is also positioned to benefit from long-term secular tailwinds around energy transition, sustainability, and digitization, despite variability in government policy.

IR’s acquisition model, higher pricing, and cost management have offset recent organic sales declines and changes in trade policies that create disruptions in the supply chain and uncertainty around near-term demand. The company estimates tariff cost at approximately $150 million, all of which it expects to offset over time through pricing, changes to the supply chain, and operating adjustments.

IR’s EBITDA and FCF margins compare well with other industrial companies and support the company’s financial flexibility. The company’s margins reflect the technology content and essential nature of its products for customer applications as well as the relatively high proportion of IR’s aftermarket sales that typically support favorable pricing.

IR’s discretionary spending is largely directed toward acquisitions and share repurchases, and capital expenditures are within the normal range for IR’s industrial peers, while the company makes investments to support growth. Pension funding is minimal, and IR expects to contribute approximately $12 million to pension plans in 2025.

IR uses acquisitions to grow its core business, expand in adjacent industrial markets, and increase its size to improve operating efficiency and profitability. The large $2.3 billion acquisition of ILC Dover in 2024 increased IR’s presence in the life sciences market and in aerospace and defense, further diversifying its revenue base.

IR’s focus on higher-value products, well-established competitive position, and consistent financial performance are similar to mid-to-high ’BBB’ category peers in the industrial sector. The company’s scale and diversification are not as broad as some large industrial peers, but IR compares well with respect to EBITDA and FCF margins, and its business portfolio is effectively positioned in attractive, higher-growth end markets.

Fitch’s key assumptions for IR include sales increase each year by low-to-mid-single digits including organic growth and acquisitions, active acquisition spending is maintained near historical averages and is directed toward adjacent end-markets that support margin growth and market share, EBITDA margins as calculated by Fitch are sustained in the high 20% range, the impact of tariffs is offset by pricing actions and adjustments to IR’s operations and the supply chain, FCF margins are in the mid-to-high teens, reflecting low capital intensity and effective working capital management, and gross EBITDA leverage is sustained below the mid-2x range although temporary increases could occur following acquisitions.

The factors that could lead to a negative rating action or downgrade include increased cash flow volatility or reduced financial flexibility as a result of a shift in acquisition and capital allocation policies, or mid-cycle EBITDA leverage sustained above 2.5x. Meanwhile, factors that could lead to a positive rating action or upgrade include a continued commitment to acquisition and capital allocation policies that retain financial flexibility through the cycle, contribute to low FCF variability, and enhance IR’s operating profile, effective integration of acquisitions, and mid-cycle EBITDA leverage sustained below 2x.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Investing.com -- Moody’s Ratings has announced an upgrade in Grifols (BME:GRLS) S.A.’s corporate family rating (CFR) and probability of default rating (PDR) from B3 to B2. The instrument ratings of the backed senior secured instruments issued by Grifols, Grifols World Wide Operations Ltd., and Grifols World Wide Operations USA, Inc. have also been upgraded from B2 to B1. Additionally, the instrument ratings of the backed senior unsecured instruments issued by Grifols Escrow Issuer, S.A.U. have been upgraded from Caa2 to Caa1. The outlook for all entities remains positive.

The upgrade is a reflection of Grifols’ strong operating performance, robust revenue, and profitability growth, and improved management execution, which has led to an improvement of its key credit metrics. Moody’s expects Grifols’ gross leverage to trend below 6.5x by the end of 2025 from 7x for the last twelve months to March 2025, and its EBITDA to interest expense to be around 3x in 2025. The company’s free cash flow (FCF) is forecasted to be about €250-270 million over the next 12-18 months and continued good liquidity.

The positive outlook is based on expectations that Grifols’s operating performance and credit metrics will continue to improve over the next 12-18 months. Specifically, its gross leverage is forecasted to trend towards 5.5x, with an EBITDA to interest expense above 3x, and increasing cash generation.

The B2 rating also reflects Grifols’ strong market position, scale, and vertical integration in human blood plasma-derived products, which are relevant for the industry. The rating also considers the company’s current high leverage, high capital intensity of the business, and working capital requirements which can have large swings during the fiscal year, and are important drivers of FCF.

Grifols’ liquidity is seen as good, supported by €753 million of cash balances at the end of March 2025, and a fully available revolving credit facility (RCF) of $938 million due in May 2027. The company’s next debt maturities are about €3 billion due in 2027.

The rating could be upgraded if there is a continued improvement to operating, financial performance, profitability, and cash flow generation. However, the rating could be stabilized if the expected gradual improvement of key credit metrics does not materialize over the next 12-18 months. Conversely, the rating could be downgraded if Grifols’ operating performance weakens, leading to a worsening of credit metrics.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Investing.com -- Moody’s Ratings has today adjusted its outlook on Norway-based Kongsberg Automotive ASA (KA), a supplier of automotive parts, from stable to negative. The group’s B2 long term corporate family rating (CFR) and B2-PD probability of default rating (PDR) have been affirmed.

The change in outlook was triggered by KA’s weaker than expected financial results for Q1 2025. The group’s performance was hindered by a slow demand and a reduction in production in its primary passenger car and commercial vehicle markets. Consequently, KA’s group sales dropped by 10.4% year-over-year in Q1 2025 and its reported EBIT decreased by 78%, further impacted by increased restructuring and warranty costs.

Moody’s decision was also influenced by lowered economic growth expectations for this year and the likely continuation of sluggish consumer sentiment due to increased trade protection measures in the US and China. This adds significant uncertainty to the forecast at this stage.

KA’s Moody’s adjusted credit metrics currently show weakness for its B2 rating, as illustrated by a 0.1% EBIT margin, gross debt EBITDA ratio of 7.0x, and a €13 million negative Moody’s adjusted free cash flow (FCF) for the last 12 months (LTM) ended March 2025. The ratios are expected to remain weak and FCF negative, albeit improving through the remainder of this year.

For fiscal year 2025, Moody’s forecasts KA’s sales to decrease in the mid-single-digit range. However, its profitability in terms of Moody’s adjusted EBIT margin should recover to over 2.0%, backed by savings from a cost reduction program launched in 2024, improved product mix, and lower warranty costs. The profit growth should also support a gradual reduction in KA’s leverage, which is expected to remain above the defined 5x maximum for a B2 rating in 2025. Moody’s also projects KA’s Moody’s adjusted FCF to remain negative in 2025, and possibly also next year.

The affirmation of KA’s B2 rating is supported by the group’s continued adequate liquidity, with a good cash balance and no significant debt maturities other than lease liabilities before 2028 when its €110 million bond will be due. The group’s profitability is expected to steadily strengthen and its leverage to reduce to more appropriate levels for a B2 rating in 2026.

Other factors supporting the B2 rating include KA’s diversification in non-automotive end markets, such as construction or agriculture, strong market positions in very profitable specialty products, good customer diversification, over €1.2 billion in order intake as of LTM March 2025, and its conservative financial policy.

However, the rating is constrained by KA’s exposure to the cyclical and competitive markets for trucks and passenger cars, its relatively small size compared to other automotive suppliers that Moody’s rates globally, and its exposure to volatile raw material prices.

As of 31 March 2025, KA’s liquidity remains adequate. The group had cash and cash equivalents of €74 million and full access to its €15 million revolving credit facility (maturing in 2028). Over the next 12 months, the group is expected to generate about €20 million funds from operations, which is insufficient to cover annual capital spending of around €27 million and a standard working cash assumption of 3% of group sales.

The negative outlook indicates a possible downgrade of KA’s ratings, if the group fails to significantly strengthen its current weak credit metrics to the defined ranges for a B2 rating over the next 12-18 months. A weakening of the group’s liquidity would also put negative pressure on the rating.

The rating could be downgraded if KA’s Moody’s-adjusted EBIT margin remains constantly below 3%, leverage exceeds 5x Moody’s-adjusted debt/EBITDA beyond 2025, Moody’s-adjusted EBITDA/interest remained below 3.5x, Moody’s-adjusted FCF failed to gradually improve and reach break-even by year-end 2025, or if its liquidity started to weaken.

The rating could be upgraded if KA’s Moody’s-adjusted EBIT margin sustainably exceeded 4.5%, Moody’s-adjusted gross debt/EBITA reduced sustainably to well below 4x, Moody’s-adjusted EBITDA/interest reaches 4.5x, Moody’s-adjusted FCF turned sustainably positive.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Investing.com -- Shares of QinetiQ Group PLC (LSE:QQ) climbed 5% on Wednesday after the company reported its fiscal year 2025 results, which largely met the consensus estimates compiled by the company.

The defense and security company’s sales hit £1,932 million, aligning with the £1,931 million consensus.

Adjusted earnings before interest and taxes (EBIT), excluding Research & Development Expenditure Credit (RDEC), were slightly below consensus at £185 million compared to the anticipated £186 million.

Adjusted earnings per share (EPS) increased by 1.6% to 26.1 pence, surpassing the 25.7 pence consensus.

Despite a slight decrease in free cash flow (FCF) post-leases, which fell by 6% to £102 million versus the £109 million estimated by RBC, the company’s net debt improved to £133 million, better than both the consensus of £162 million and RBC’s estimate of £149 million.

Dividend per share (DPS) was reported at 8.85 pence, edging above the 8.8 pence consensus.

The company’s order intake at £1.95 billion, with a book-to-bill ratio of 1.2x, exceeded the long-term average of 1.1x.

The funded order backlog stood robustly at £2.85 billion, approximately 1.5 times the sales, although this was a decrease from the 3-year average of 1.8 times.

The share buyback program remained unchanged with an allocation of £200 million set to commence in June, as previously announced on March 17.

Looking forward, QinetiQ has narrowed its FY26 outlook, projecting around 3% sales growth at an approximate 11% adjusted EBIT margin.

This is a more conservative forecast compared to the previous range of 3-5% sales growth at an 11-12% margin.

The FY26 consensus anticipates a 3.5% year-on-year (YoY) increase in sales to £2 billion and an adjusted EBIT (ex RDEC) of £219 million, with a margin of 11%.

RBC analysts provided a more cautious perspective on the company’s valuation.

"Our view remains that QinetiQ’s discount to the sector is justified based on below-sector multi-year earnings growth driven mainly by share buybacks and ongoing uncertainties in the US," RBC analysts said.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.