CHICAGO, Feb. 20, 2013 /PRNewswire/ -- 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 Trend
™ Rating; poor management; or a poor Distance to Default score.
Companies on the list of 18 corporate credits include:
- Walgreen, Morningstar Corporate Credit Rating BBBMorningstar 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 BBBMorningstar 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."
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