Fitch revises KUO's outlook to positive, affirms ratings at 'BB'

Investing.com -- Fitch Ratings has upgraded United Airlines’ Issuer Default Rating (IDR) from ’BB-’ to ’BB’ on Friday, with a positive outlook. The upgrade is primarily driven by United’s reduction of its adjusted debt balance by $3 billion in 2024, which is 8% of the previous year’s adjusted debt balance. The company’s EBITDAR leverage concluded 2024 at 3.7x, close to the positive rating sensitivity of Fitch.

The company’s net leverage fell to 2.1x as it continues to maintain high cash balances. Fitch is projecting that United’s gross leverage will decrease towards 3x in the coming years, in line with ’BB’ rating tolerances. The upgrade is further backed by higher-than-anticipated Free Cash Flow (FCF), propelled by reduced capital expenditure and increased profitability.

The positive outlook is based on Fitch’s expectation for ongoing debt repayment and strong financial performance compared to peers. Investments in United’s network and loyalty program offerings have strengthened its market position in its primary hubs, setting the stage for heightened profitability.

In addition, Fitch has upgraded or confirmed United’s enhanced equipment trust certificate (EETC) ratings. These include various certificates due in the next few years, with values ranging from $94.6 million to $549.4 million. These upgrades are mainly influenced by the one-notch upgrade of United’s IDR to ’BB’ from ’BB-’.

United’s credit metrics are improving due to debt repayment, positive results from strategic initiatives, lower fuel prices, and a healthy operating environment. The company’s liquidity remains high, which is driving net metrics roughly in line with higher-rated Delta Air Lines (NYSE:DAL). United is aiming to achieve adjusted net leverage below 2x in 2025, down from 2.9x at the end of 2023.

Fitch expects United to generate significant FCF in 2025, driven by a healthy operating environment and reduced capital spending due to delays in aircraft deliveries. United’s projected cash flow generation and elevated liquidity position are expected to well cover upcoming capital expenditures.

United’s investments in its network and loyalty program offerings have improved its market position in strategic hubs across the U.S. This allows the company to benefit from premium pricing compared to its peers. The company’s profit margins were flat in 2024 but have consistently performed well compared to peers. Fitch expects flat or slightly increasing margins in the next few years.

Fitch anticipates that demand for air travel will remain robust throughout 2025, as evidenced by recent reports of solid booking trends through the first quarter and the ongoing improvement in business and premium travel. United’s EETC transactions are secured by various aircraft types, and the tier classifications for each of these aircraft types remain unchanged from Fitch’s prior review.

Fitch has assigned the maximum notching of ’+2’ to subordinated tranches for affirmation. This maximum affirmation factor is driven by the collateral pools for these transactions, which are believed to be highly likely to be affirmed in a bankruptcy scenario. United’s upcoming debt maturities are sizeable but manageable, with principal repayments totaling $2.9 billion in 2025, $4.8 billion in 2026, and $2.3 billion in 2027.

United’s debt structure primarily consists of aircraft backed EETCs, secured term loan and notes backed by the company’s slots/gates/routes collateral, and a secured note backed by its loyalty program. The company also has a number of unsecured obligations that arose as part of the government Payroll Support Program.

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

Investing.com -- Raymond James downgraded Occidental Petroleum Corporation (NYSE:OXY) to "Outperform" from "Strong Buy" while it also lowered its price target by$17 to $64 given the weaker oil prices and the recent stock outperformance relative to peers.

While Occidental delivered a solid fourth-quarter performance, beating consensus earnings estimates by approximately 18%, the company’s relative strength in the face of sector-wide declines has the analyst a more cautious stance.

Occidental shares have gained around 13% over the past month, making it one of the few oil stocks still in positive territory during the recent sell-off.

Raymond James projects Occidental’s total production to reach approximately 1.39 million barrels of oil equivalent per day (Mboe/d) in the first quarter of 2025, in line with company guidance and consensus estimates.

Capital expenditures for the quarter are expected to be around $1.91 billion, about 2% below the Street’s prior forecast of $1.95 billion.

For full-year 2025, the firm estimates production will grow about 7% year-over-year to 1.415 Mboe/d, while capital spending is projected to be $7.5 billion. Free cash flow yield (FCF/EV) is estimated at roughly 6% for the year.

Raymond James also highlighted Occidental’s recent debt reduction and asset sales. The company met its $4.5 billion near-term debt repayment target in the fourth quarter and announced $1.2 billion in upstream asset divestitures in the first quarter of 2025.

These divestitures included 15 Mboe/d of production from non-core assets in the DJ and Permian basins.

On the operational front, Occidental expects continued efficiency gains in its recently acquired CrownRock assets. The company anticipates a 7% reduction in well costs and a 10% improvement in time-to-market in 2025, potentially saving over $1 million per well in its Midland Basin program.

Raymond also James noted Occidental’s ongoing environmental liability concerns. In December, the company received an unfavorable federal court ruling related to a superfund clean-up site, increasing its potential exposure by $925 million.

Occidental has filed an appeal, and the company expects any remediation costs to be spread over 10-20 years.

Investing.com -- Deliveroo (OTC:DROOF) shares edged up 1% as the company announced its plan to exit the Hong Kong market, a move that is expected to support its free cash flow (FCF) and EBITDA trajectory.

The decision comes after acknowledging intense competition in the region, particularly from rival Meituan, and a strategic choice not to engage in continuous promotions and discounts.

The company’s departure from Hong Kong, which accounted for approximately 5% of its Group and was adjusted EBITDA negative, is scheduled for 7 April 2025. In a strategic shift, Deliveroo will sell some of its assets to Delivery Hero’s foodpanda.

This transition will not only redirect Deliveroo’s customers and couriers to the foodpanda platform but also expand foodpanda’s merchant offering, as some restaurants and grocery businesses previously exclusive to Deliveroo will move over to foodpanda.

Morgan Stanley commented on the news, stating, "while the news was not expected, it is also not totally unsurprising in light of the situation not seemingly being sustainable."

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

Investing.com -- Fitch Ratings has upgraded the Long-Term Issuer Default Rating (IDR) and senior unsecured rating of Rolls-Royce (OTC:RYCEY) plc to ’BBB+’ from ’BBB-’, with a positive outlook on the IDR.

The upgrade is a reflection of the significantly improved financial profile of Rolls-Royce, including a Fitch-calculated EBITDA margin of 16.4% and a free cash flow (FCF) margin of 12% in 2024, along with a gross leverage of 1.2x and a net cash position. The company’s robust business profile is underscored by its leadership in the commercial aerospace engine market and solid positions in the defense and power systems segments.

Fitch sees a positive outlook for Rolls-Royce, anticipating further enhancement of its core profitability in the short to medium term. The company is expected to maintain a conservative capital structure and financial policies, including a prudent shareholder distribution policy.

Fitch anticipates that Rolls-Royce will continue to improve its operating margins in the short to medium term, aligning with its main sector peers and Fitch’s expectations of the ’A’ category for the aerospace & defense sector. The Fitch-calculated EBITDA margin is projected to rise above 17% in 2025 and approach 18% in 2026. These improvements are expected to be driven by strong demand for engines and related maintenance services in commercial aerospace, growth in the defense division, and ongoing improvement in the power systems segment’s cost position.

In 2024, Rolls-Royce achieved a strong FCF margin of 12%, up from 7.5% in 2023. This increase was driven by improvements in underlying earnings and continued growth in long-term service agreements (LTSA). Fitch anticipates the cash inflow from LTSA contracts to remain positive, albeit somewhat lower in the short to medium term. The FCF margin is expected to remain around 7% over the next three to four years, supported by the resilience and strength of underlying operating cash flows.

Rolls-Royce’s 2024 results exceeded previous upgrade sensitivities, with key ratios demonstrating stronger than expected performance. Revenue rose by over 15% to GBP17.8 billion, while the Fitch-calculated EBITDA margin increased to 16.4%, and the FCF margin rose to 12%. This improvement was driven by the largest commercial aerospace division, but earnings margins increased across all divisions, reflecting strong underlying demand for products and services and the benefits of ongoing efficiency measures.

Rolls-Royce’s balance sheet remains strong for the ’BBB+’ rating. Through strong FCF generation, Rolls-Royce achieved a GBP1.5 billion Fitch-calculated net cash position at the end of 2024, while EBITDA gross leverage improved to 1.2x from 1.7x at the end of 2023. Shareholder returns are expected to total GBP1.8 billion in 2025, including the recently announced GBP1 billion share buyback.

The company’s recovery is supported by a strong order backlog across all three of its segments. In civil aerospace, the large engine order book reached 1,843 engines at the end of 2024, up from 1,632 at the end of 2023. In defense, the order backlog at the end of 2024 was GBP17.4 billion, up from GBP9.2 billion at the end of 2023. The order backlog for power systems was GBP4.8 billion at the end of 2024.

Rolls-Royce’s business profile reflects strong revenue and geographical diversification, and a high proportion of turnover sourced from service activities. The company’s financial risk profile has recently significantly improved relative to major peers and is now broadly consistent with strong investment-grade rated peers in the sector.

Rolls-Royce reported strong liquidity of GBP8.1 billion at the end of 2024, including GBP5.6 billion of cash on hand and an undrawn GBP2.5 billion revolving credit facility. Due to high levels of liquidity, the group repaid the EUR550 million bond and cancelled the remaining GBP 1billion UK export finance facility in 2024. A one-year extension option on the GBP2.5 billion undrawn revolving credit facility was exercised in October 2024, extending the maturity to November 2027.

Rolls-Royce is a leading UK-based multinational engineering business focused on the design, development, manufacture, and servicing of integrated power systems for use in the air, on land, and at sea.

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 Melrose Industries PLC (LON:MRON) fell by 12% Thursday as the market responded to the company’s second-half 2024 performance, which showed a significant sales miss compared to consensus estimates.

Despite reporting a slight increase in earnings before interest, taxes, and amortization (EBITA) and maintaining profit guidance for FY25, the lower-than-expected sales figures appeared to overshadow the positive aspects of the report.

In the second half of 2024, Melrose’s group sales amounted to £1.73 billion, falling short of the consensus estimate of £1.82 billion by 5.1%. Although the group’s EBITA before central costs came in at £306 million, surpassing the consensus by 2.7%. This achievement was not enough to mitigate investor concerns over the revenue shortfall.

The company’s EBITA margin for H2 2024 was reported at 17.7%, which was above the consensus estimate of 16.4%. Group earnings per share (EPS) stood at 14.5p, and the dividend per share (DPS) was reported at 4.0p.

Year-end net debt was in line with consensus and indicating leverage of 1.1 times.

Looking forward, Melrose has set ambitious five-year targets that surpass expectations, with projected revenue at £5 billion compared to a consensus of £4.88 billion and a profit post central costs of £1.2 billion, which would represent a 24% margin versus the consensus of 21%. The group’s free cash flow (FCF) guidance of £600 million also exceeded consensus estimates.

For FY25, the company’s management is maintaining its profit guidance before central costs at £700 million at the midpoint, consistent with consensus estimates.

However, due to lower Airbus volumes, revenue guidance has been adjusted to £3.625 billion at the midpoint, compared to a consensus of £3.765 billion, resulting in an anticipated margin of 19.3% versus the consensus of 18.5%.

"Despite an H2 rev. miss vs. cons, H2 EBITA pre central costs was +3% vs. cons, while FY25 EBITA guidance pre central costs at the midpoint has been maintained (margin ahead). 5-year targets are above consensus and equate to a strong EPS CAGR of >20% over the period," Barclays analysts wrote in a note.

Investing.com -- Shares of Bouygues (EPA:BOUY) (ENXTPA:EN) climbed 1.7% following the company’s announcement of a small fourth-quarter beat at the COPA level, primarily driven by its Construction and Colas segments, coupled with robust order momentum in Contracting.

The French industrial group also reported a significant free cash flow (FCF) beat, attributed to larger-than-anticipated net working capital inflows in Construction/Colas, contributing approximately €2 per share.

The company’s full-year 2025 guidance suggests continued growth in revenue and COPA at the Group level. However, the 2026 free cash flow guidance for Bouygues Telecom (BCBA:TECO2m) appeared somewhat conservative.

Despite this, the cash flow surplus has allowed Bouygues to propose a higher dividend per share (DPS) of €2.0, marking a 5.5% increase year-on-year (YoY).

Morgan Stanley commented on the results, stating that "stronger cash flow should drive share outperformance today."

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