It may seem like a rare day when you get two different ratings agencies issuing opinions, and different opinions at that, on a company like Amazon.com Inc. (NASDAQ: AMZN). The calls have been made by Standard & Poor’s and by Moody’s on the heels of newly proposed senior unsecured notes being offered by the company.
24/7 Wall St. has been more critical of Amazon’s ratings due to Jeff Bezos trying to run Amazon’s endless growth ambitions at a level that feels more like nonprofit status rather than like a corporation with shareholders. Still, the ratings agencies are viewing the company as a whole and are evaluating its ability to pay bills and handle its obligations.
S&P has assigned a AA- issue level rating. The ratings agency has a AA- on existing debt, and the outlook remains stable. S&P’s view is based on a liquid asset base, negative working capital cycle and a lack of material secured borrowings or priority obligations.
S&P said:
Our ‘AA-‘ corporate credit rating and stable outlook on Amazon reflects our expectation for strong cash flow generation and that business conditions will remain favorable for online retailers over the next two years, with growth rates among the highest for the entire retail industry. Amazon’s conservative financial policies and good financial flexibility also support the rating and outlook. We anticipate leverage, pro forma for the proposed notes offering, to be below 1x on average for 2014 to 2016.
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Moody’s Investors Service is less positive than S&P. The ratings agency changed the outlook for Amazon to Negative from Stable, while it has affirmed the Baa1 senior unsecured rating. Still, Moody’s did note that Amazon’s Baa1 senior unsecured rating reflects its excellent liquidity and conservative financial policy relative to shareholder returns, which overcome a presently weak overall quantitative credit profile resulting from prodigious growth-oriented spending.
The Moody’s rating said:
The change in outlook to negative results from Amazon’s announcement this morning that it was issuing a sizeable, though amount to be determined, level of new senior unsecured notes. Proceeds are to be used for general corporate purposes in support of Amazon’s myriad growth initiatives, and it is Moody’s expectation that the funds will not be utilized for any form of shareholder returns. While the new debt will further exacerbate Amazon’s already weak interest coverage due to, among other things, the lack of visibility surrounding the cadence for deployment of proceeds, potential areas of future growth and investment utilizing these proceeds, and the timing of potential positive returns, Moody’s believes that the company’s excellent liquidity provides sufficient cushion to affirm the Baa1 rating.
Amazon shares were last seen down 3.2% at $327.62. While the consensus analyst price target is over $357, Monday’s ratings views from Moody’s and S&P are not exactly focused for the equity investor. Shares have traded in a 52-week range of $284.00 to $408.06.
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