Triple-Rated Companies: What Makes Them Thick

Triple rated companies

The credit rating of a company has been compared to a person’s credit score since the 80s. A good credit rating not only means low borrowing rates but also indicates superior financial strength, operating performance, and reliability. The rating assigned by Credit Rating Agencies (CRAs) strongly influences the cost of borrowing for the issuer, with a higher rating resulting in lower borrowing costs. The highest credit rating that can be assigned to a company is AAA, while the lowest is D. Therefore, most companies strive to achieve a triple-A rating, even if it takes several years.

However, in recent times, many companies have given up their pursuit of the highest score and aim for an investment grade rating, even if it means settling for a BBB- rating, which is only a notch above a “high-yield” or “junk” rating.

Apple Inc. is in the league of elite club of companies with a “AAA” rating with a stable outlook from one of the prominent CRAs. The agency took into consideration the tech giant’s exceptional liquidity and robust earnings in upgrading the company’s long-term credit rating. The rating puts Apple in the same league as Microsoft and Johnson & Johnson (J&J), among others.

According to the Rater, Apple’s strong business profile reflects its substantial operating scale, large installed base of products and users of its services, strong customer loyalty, and premium brand positioning. Despite the Covid pandemic, Apple was able to increase its earnings by about 65%, while revenue rose by 33% due to strong demand for its products and services. Its stock has also surged nearly 30% in 2023, bringing the iPhone maker close to becoming the world’s first company to reach $3 trillion in market value. The company’s rating outlook is stable, and its earnings are expected to grow over the next two to three years.

However, the rating agency also noted that Apple faces execution risks from short product cycles, the need to adapt to shifting consumer preferences, and managing a large and complex supply chain with frequent product upgrades.

(Please Note that the credit rating view expressed in this write-up was only adapted and not that of DataPro.)


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