Credit agency likes Tech Data’s financial trends

Moody’s Investors Service has changed its rating outlook for Tech Data Corp. to stable from negative.

Moody’s expects the Clearwater-based IT distribution company  will modestly expand operating margins while growing revenues.

The credit agency also affirmed its Baa3 senior unsecured rating for Tech Data (Nasdaq: TECD), the largest company in Florida based on $37 billion in revenue for its most recent fiscal year.

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Credit ratings impact the ability of companies to borrow money and how much interest they have to pay. A Baa3 rating is an investment-grade rating that indicates some speculative elements and moderate credit risk.

For Tech Data, the Baa3 rating reflects the company’s solid market position as a leading IT distributor of products and services in the Americas and in Europe, with a small presence in Asia, Moody’s said in a news release.

The 2017 acquisition of the Technology Services business from Avnet broadened the company’s business and geographic diversification, but the margin profile has not improved as much as Moody’s initially expected. Tech Data reported a 1.7 percent operating margin, as adjusted by Moody’s, for the fiscal year that ended in January, up just 0.1 percent from a year earlier.

However, operating margins have shown some positive momentum since Tech Data completed an 18-month integration of the acquired business. Without the distraction of that integration, margins are likely to continue to improve, at least modestly, Moody’s said, citing three factors: Tech Data management’s focus on growing its higher-margin advanced solutions business, its global optimization program and its portfolio optimization.

Tech Data also cut its debt levels by holding off on stock buy-backs, although it has since resumed those share repurchases.

“The stable outlook reflects Moody’s expectation that operating margins will modestly expand, free cash flow to debt will remain solid, and leverage will remain at current levels,” the news release said.

Tech Data stock was trading at $102.11 a share, up 1.9 percent, at mid-day Friday after the Moody’s report was released.