Medtronic-one of Minnesota’s major fortune 500’s-has seen an undesired effect from the economic slowdown. The Fridley, MN based company has been strong for many years but it’s not immune to the effects of a slow economy. Many analysts are moving the company from a "hold" to "sell" status on the rating changes coming from a major investor service organization.
Downgraded outlook
Moody’s Investor Services-a business and investment rating service-has recently changed their outlook on Medtronic’s status from stable to negative. The reason for the down grade looks to be due to the company’s central business units: the Cardiac Rhythm Disease Management (CRDM) and Spinal Services business has been trending downward.
Moody’s assessment
Moody’s feels that the current performance and estimates of future performance has lead to the decision that Medtronic will be unable to show a scalable increase in metrics that would allow the business to achieve a recovery strong enough for them to keep their A1 rating.
Some deciding factors in this decision were the fact that Medtronic has been taking on higher debt levels while the debt to cash flow percentages remain below that which would be considered a mid-“A” level rating. Currently the company has an operation cash flow to debt ratio of 45% and free cash flow to debt ratio of 30%. In order to be considered for a higher rating the company would have to see a change in ratios to 55% and 40% respectively. See details at Minnpost.
Moody’s is just one of several ratings organizations but several analysts have also downgraded the company based on current and future outlooks. A Moody’s analyst went as far as to say that they do not foresee the company recovering in the near future-however Medtronic CFO has recently told the media that the company has expected the current slump but expects it to be short term.
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