HOLX – Base Case iCDS 92bps, Negative Case iCDS 109bps, 2028 4.625% Bond YTW of 5.641%, iYTW of 4.561%, Ba1 Rating from Moody’s, IG4 (equivalent to Baa1) Rating from Valens, Low Refinancing Need
January 27, 2023
- Credit markets are overstating HOLX’s credit risk with a YTW of 5.641% relative to an Intrinsic YTW of 4.561% and an Intrinsic CDS of 92bps. Furthermore, Moody’s is overstating the company’s fundamental credit risk, with its speculative Ba1 credit rating three notches lower than Valens’ IG4+ (Baa1) credit rating.
- Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. HOLX’s compensation framework incentivizes management to improve all three value drivers: revenue, margins, and asset utilization, which should drive Uniform ROA improvement and lead to increased cash flows available for servicing debt going forward. In addition, management members are material owners of HOLX equity relative to their annual compensation, indicating they may be well-aligned with shareholders to pursue long-term value creation for the company.
- Earnings Call Forensics™ analysis of the firm’s Q4 2022 earnings call (10/31) highlights that management is confident they used their strong free cash flow to repurchase shares, that Mobi Diag will contribute to their international growth, and that that do not foresee unusual spikes in sales as certainty returns to the market.
