CHICAGO, Feb. 20, 2013—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today published its quarterly list of “Bonds to Avoid,” including analyst commentary about corporate credits.
Morningstar’s Bonds to Avoid list represents the debt of companies that its analysts believe are unattractive, based on Morningstar’s corporate credit rating and other factors including event risk, such as an impending acquisition, special dividends, or share repurchases; deteriorating fundamentals, including those driving a negative Morningstar® Moat TrendTM Rating; poor management; or a poor Distance to Default score.
Companies on the list of 18 corporate credits include:
• Walgreen, Morningstar Corporate Credit Rating BBB
Morningstar doesn’t believe the bond market is adequately pricing in the risks associated with Walgreen’s option to purchase the rest of Alliance Boots, which could significantly lever up the balance sheet, or the firm’s weakening position in the drug supply chain, which is highlighted by its negative Economic Moat Trend rating.
• Directv, Morningstar Corporate Credit Rating BBB
Morningstar believes that management's consistent adherence to a leverage target of 2.5 times EBITDA and the potential for change in the television business over the next several years could cause cash flow and credit metrics to deteriorate, pulling spreads wider still.
• Pitney Bowes, Morningstar Corporate Credit Rating BBB-
In late 2011, Morningstar downgraded its credit rating on Pitney Bowes to BBB- following its decision to lower the Economic Moat rating on the company from Narrow to None, and believes that continued investments in Pitney's no-moat business lines may further dilute the company's remaining competitive advantages over time, leading to steadily declining credit fundamentals.
“Our list includes companies in continually declining industries with eroding moats, or competitive advantages, such as Pitney Bowes, to names in which we see meaningful event risk, like Walgreen,” said Rick Tauber, Morningstar’s director of corporate bond research. “We aim to offer investors an objective assessment of a company’s financial health through a unique perspective as our analysts evaluate companies across the credit spectrum. Our list highlights companies that present excessive risk for which we believe investors are not appropriately rewarded.”
The company updates its Bonds to Avoid list and commentary quarterly. Morningstar began publishing a list of Bonds to Avoid for corporate credit in August 2012. Morningstar’s corporate credit analysts also publish their “Best Ideas” across investment grade, high-yield, and convertible bonds monthly, in addition to new issue notes, credit notes related to earnings and other news, and sector reports across their coverage universe.
Morningstar has about 120 global equity and credit analysts who cover approximately 1,700 companies; 700 of those companies have a corporate credit rating. The company launched corporate credit ratings in 2009, and assigns the ratings on a letter scale from AAA, which indicates extremely low default risk, to D, which indicates payment default.
Morningstar’s corporate credit ratings are available on Morningstar.com®, the company’s individual investor website. More information about Morningstar’s corporate credit research offerings and methodologies are available at http://corporate.morningstar.com/us/asp/subject.aspx?xmlfile=6961.xml. The complete list of 18 Bonds to Avoid in corporate credit is available through Morningstar Select, the company’s institutional equity research portal. For access, institutional investors may contact firstname.lastname@example.org.
About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individuals, financial advisors, and institutions. Morningstar provides data on approximately 416,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 9 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its registered investment advisor subsidiaries and has approximately $149 billion in assets under advisement and management as of Dec. 31, 2012. The company has operations in 27 countries.
Morningstar’s corporate credit ratings are assigned by equity and credit analysts at Morningstar, Inc., which is not registered as a Nationally Recognized Statistical Rating Organization (NRSRO). Opinions expressed above are subject to change and should not be considered a guarantee or a solicitation to buy or sell securities of any of the above issuers.
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