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Investing.com -- S&P Global Ratings has revised the rating outlook for MasTec Inc (NYSE:MTZ). to stable from negative, based on improved credit metrics. MasTec’s earnings growth and debt reduction through 2024 have led to an improvement in credit protection metrics, which are expected to remain commensurate with the current rating.
The stable outlook reflects S&P’s expectation that MasTec will maintain its debt to EBITDA ratio at about 2x and a strong cash conversion that will support free operating cash flow (FOCF) to debt at about 25%.
In 2024, MasTec’s debt to EBITDA declined to 2.2x, down from 3.9x at the end of 2023, due to higher earnings and reduced debt. The company reported $12.3 billion in revenue and $1.2 billion in EBITDA in 2024, outperforming S&P’s base case.
Margins across nonpipeline segments are expected to grow in 2025, boosted by the Greenlink project, a nearly 700-mile high-voltage transmission line. However, lower volumes from the pipeline business due to the completion of the Mountain Valley Pipeline project are expected to offset this increase.
In 2024, MasTec prepaid over $700 million of net debt and refinanced most of its higher coupon senior notes, reducing its interest burden. The company’s leverage is now in line with its financial policy, and it has publicly stated its commitment to maintain leverage below 2x. According to the company’s calculations, debt to EBITDA was 1.8x at the end of 2024.
S&P expects MasTec’s capital allocation to prioritize investments in organic growth and to pursue opportunistic mergers and acquisitions (M&A) and share repurchases using excess cash. The company’s strong cash flow generation in 2025 is expected to support these initiatives, and S&P does not anticipate debt-funded investments that could materially alter expectations for credit metrics.
MasTec’s cash flows from operations increased substantially to $1.1 billion at the end of 2024, and its FOCF was $973 million, nearly a 100% cash conversion from EBITDA. This improvement reflects a strong focus on working capital management, including a significant reduction in days sales outstanding (DSO) to 60 days, down from 74 days a year before. S&P expects MasTec to maintain a DSO of about 65 days through 2025, driven by the company’s diversified backlog profile.
MasTec’s backlog was $14.3 billion at the end of 2024, nearly $2 billion larger than a year before, primarily driven by more than 30% backlog growth in the Clean Energy and Infrastructure and the Power Delivery segments. This provides good visibility of top-line performance in 2025.
S&P could lower its ratings on MasTec if the company’s credit metrics deteriorate with leverage exceeding 3x on a sustained basis and/or FOCF to debt contracted below 15%. This could occur from a more aggressive financial policy, operating inefficiencies that materially weaken profitability measures, or growing policy uncertainty that results in project delays or cancellations.
S&P could raise its ratings on MasTec if the company sustains its debt to EBITDA below 2.0x and FOCF to debt above 25%. In this scenario, S&P would expect the company to successfully execute its growth strategy and expand and maintain EBITDA margins of at least 10%.
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