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Fitch affirms Thermo Fisher's rating on favorable business profile

Fitch Ratings affirmed Thermo Fisher Scientific Inc.'s long-term issuer default rating at BBB.

The outlook on the ratings is stable.

Fitch said the company's BBB rating takes into account its favorable business profile, with significant scale, good end-market diversification and favorable product mix.

The rating agency said the company's leverage tends to be higher than its peers owing to its more aggressive stance on capital deployment for M&A and shareholder returns, but it is similarly rated because the strength of the operating profile reduces the cyclicality of results due to sensitivity of demand in any one geographic or customer end market.

Fitch sees the capital deployment for acquisitions and shareholder payments as a key credit risk for Thermo Fisher. It noted that capital deployments for acquisitions and shareholder payments have historically contributed to higher debt levels and deterioration of credit metrics, resulting in reduced financial flexibility.

However, the agency noted that the Waltham, Mass.-based medical-device maker has shown a commitment and ability to repair the balance sheet by paying down large amounts of debt after deals.

Thermo Fisher's gross debt-to-EBITDA ratio was 2.9x at June 30, the agency noted. Fitch expects the company will bring down the leverage ratio to 2.7x by the end of the year, which would be more in line with its current BBB rating.

Fitch expects Thermo Fisher's free cash flow to exceed $3.5 billion in 2019, which will reduce some debt and fund share repurchases and dividends of about $1 billion in 2019.