Moody’s Changes Amazon Outlook to Positive

"The Whole Foods acquisition is an immediate credit positive for the company on a variety of fronts," the rating agency says.
Matthew HellerAugust 15, 2017

Moody’s Investors Service has indicated that it will upgrade Amazon’s credit rating, citing the financial benefits of the e-commerce giant’s pending takeover of Whole Foods.

Even though the $13.7 billion deal announced in June is expected to add significantly to Amazon’s debt, Moody’s on Monday revised Amazon’s credit outlook to positive from stable. The rating agency also affirmed Amazon’s Baa1 senior unsecured rating and assigned the same grade to a proposed $16 billion bond offering.

Amazon currently has $8.746 billion in debt, according to FactSet, $8.25 billion of which is in the form of notes and bonds. The company has said it expects to finance the Whole Foods deal with debt including senior unsecured notes.

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“The change in outlook to positive reflects our view that despite the increase in debt, the Whole Foods acquisition is an immediate credit positive for the company on a variety of fronts,” Moody’s Vice President Charlie O’Shea said in a news release.

“Whole Foods provides Amazon with greater scale and a crucial brick-and-mortar presence in a segment where it has been trying to grow, and the almost 500 existing Whole Foods locations can be utilized to expand food delivery, as well as provide pick-up points for online orders of any type,” he added.

Moody’s said Amazon’s Baa1 ratings reflect its leadership in multiple segments of online retail and improved operating performance, particularly at Amazon Web Services, which accounts for most of its operating income. It also cited Amazon’s “significant cash flow generation and excellent liquidity profile.”

Amazon’s ratings, Moody’s said, “could be upgraded if disclosures with respect to strategy, performance, and financial policy improve, improvements in operating performance are sustained, and liquidity remains excellent.”

Amazon last month reported a 77% profit decline for the second quarter and missed earnings estimates as as order fulfillment costs rose about 33% from a year ago and spending on technology and content increased by about 43%.

But Moody’s said the positive outlook “reflects the strength of Amazon’s business model and the overall operating performance of the company.”