Investing.com -- Moody’s Ratings has upgraded the senior unsecured rating of Vontier Corporation (Vontier) to Baa3 from Ba1. Alongside this, the company’s Ba1 corporate family rating, Ba1-PD probability of default rating, and SGL-1 speculative grade liquidity rating have been withdrawn. The outlook for the company, previously positive, has been adjusted to stable.
The upgrade to investment grade, coupled with a stable outlook, is a reflection of Vontier’s strong performance, particularly its consistent earnings, robust free cash flow, and impressive EBITA margin since its spinoff from Fortive (NYSE: FTV ) Corporation (Baa1 stable) in 2020. Moody’s projects that Vontier will generate between $350 million and $400 million of free cash flow in 2025, backed by modest revenue growth. The company’s Debt/EBITDA is expected to be around 3.0x as it shifts its focus from debt reduction to shareholder returns, having met its net debt/EBITDA target of between 2.5x and 3.0x. Vontier’s EBITA margin is predicted to reach close to 22% over the next 12 to 18 months.
The Baa3 senior unsecured rating of Vontier is supported by the company’s strong positions across a wide range of products offered through its three business segments. Since its spinoff in 2020, Vontier has grown its revenue by over 10%, diversified its business with the expansion of its Mobility Technologies segment, increased its recurring revenue as a percentage of total revenue, and maintained a strong EBITA margin above 20%.
However, the ratings are limited by the relatively narrow range of Vontier’s product offerings compared to other manufacturing peers. Almost 80% of the company’s 2024 sales came from two of its business segments, Mobility Technologies and Environmental & Fueling Solutions, which cater to the automotive fueling and ancillary service station business sectors. The Matco Tools segment, which accounts for about 20% of sales, provides only a limited degree of diversity. The company’s smaller scale, with about $3 billion of revenue in 2024, also constrains its ratings.
As of December 31, 2024, Vontier had strong liquidity with cash of about $356 million and full availability under its $750 million committed revolving credit facility that expires in 2030. The company expects to generate between $350 million and $400 million of free cash flow in 2025. Vontier has $500 million of notes due in April 2026 and $1 billion of term loan debt and notes due in 2028. The refinancing of the 1.8% notes due 2026 will result in higher interest expense.
The ratings could be upgraded if Vontier successfully grows revenue while maintaining its EBITA margin above 20% and free cash flow/debt above 15%. A higher rating would also require the company to maintain prudent financial policies. The ratings could be downgraded if operating performance weakens, possibly exposing weakness in the company’s operating model from its exposure to the fueling markets, resulting in debt/EBITDA sustained around 3.5x. Any deterioration in liquidity or an EBITA margin sustained below 15% could also result in a downgrade.
Vontier Corporation is an industrial company that focuses on transportation and mobility technologies. The company provides a wide range of industrial applications in fueling systems, point-of-sale and payment systems, vehicle fleet tracking management solutions and franchised professional tools. Revenue for fiscal 2024 was about $3.0 billion.
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