Global credit rating firm Moody's has upped the liquidity rating of consulting major The Corporate Executive Board Company (CEB) to Speculative Grade Liquidity-1 (SGL-1) from SGL-2. Notably, the rating firm has reaffirmed all other ratings with a stable outlook.
While raising the liquidity rating, Moody’s has considered Corporate Executive Board’s expansion in revolver availability, which had risen to $200 million from $100 million in a re-pricing transaction. Moody’s expects this amount to remain available to the company over the next four quarters.
Concurrently, Moody’s has reaffirmed Corporate Executive Board’s Corporate Family Rating (CFR) at Ba3 and Probability of Default Rating at B1-PD. Although the financial leverage of the company is expected to be near 3x in 2014 due to organic revenue growth and modest debt amortization, Moody’s believe that the leverage will be enough for a reiteration of CFR’s rating.
However, Moody’s declared that the current rating could be upgraded if the company reduces its debt to maintain the financial leverage ratio below 3.5x. At the same time, a downgrade is possible too if Corporate Executive Board experiences a decline in either revenues or liquidity with a rise in debt levels.
Moody’s expects the company’s current cash and cash equivalents of $82 million as on Jun 2013, to grow by a minimum amount of $80 million annually through free cash flow generation.
Corporate Executive Board’s subscription-based revenue model appears to be the key driver for its expected growth in free cash flow. The revenue model suggests that the company has a decent chance of delivering revenue growth, along with high profitability margins and low capital spending needs.
Despite the positives, Moody’s cautioned that Corporate Executive Board’s business is cyclical in nature and is vulnerable to macroeconomic challenges.
Headquartered in Arlington, VA, Corporate Executive Board uses advanced research methodologies and human capital analytics to senior leaders to facilitate decision-making. The company’s network is spread across the globe.
Corporate Executive Board currently carries a Zacks Rank #3 (Hold). Some other stocks worth considering include Stantec Inc. (STN), Information Services Group, Inc. (III) and Bureau Veritas SA (BVRDF). All of these stocks carry a Zacks Rank #1 (Strong Buy).
(We are reissuing this article to correct a mistake. The original article, issued Wednesday, Oct 9, 2013, should no longer be relied upon.)