Triple Rated Companies: What Makes Them Thick (Part 2 of 5)

Triple Rated Companies: What Makes Them Thick (Part 2 of 5)

In the world of finance, receiving an AAA credit rating is a coveted achievement for any company or institution. However, in recent years, many companies have lost their AAA ratings due to the impact of globalization, emerging technologies, and other changes in the business environment. Exxon Mobil, Automatic Data Processing, Berkshire Hathaway, and General Electric are just a few of the companies that have lost their AAA ratings.

Despite this trend toward reduced credit quality, Microsoft has been able to sustain its AAA rating, much to the delight of its investors and lenders. This rating was reaffirmed by three global credit rating agencies, who cited the company’s well-positioning for cloud computing services and legacy strengths in software applications that benefit from strong network effects.

Microsoft’s cloud-based products, including Office 365, Dynamics 365, Azure, and server products, are expected to continue providing robust growth to mitigate the secularly weaker and cyclical PC-related products. The company has also adapted its Office suite of products to the cloud delivery model, which effectively decouples Office products from personal computers, enabling continued growth of Office products in spite of the secularly weaker PC industry.

The coronavirus pandemic has also boosted both software and hardware products for Microsoft, as remote work has increased demand for overall IT products. Microsoft has highly diversified revenue streams and also benefits from the network effect due to its broad installed base of Windows OS and Office products, which are de facto standards for computer software and productivity tools.

Furthermore, Microsoft’s outstanding debt is considered manageable, supported by the company’s adequate cash and equivalents and normalised annual cash flow. Rating agencies expects that the company has sufficient capacity to continue retiring Bonds at maturity, maintaining dividend payments, repurchasing shares, and making strategic acquisitions.

It is important to note that the credit rating view expressed in this write-up was adapted and not that of DataPro. However, we believe that this news about Microsoft’s sustained AAA rating and positive outlook is a testament to the company’s resilience and strategic positioning in the current business environment.


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