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Region: US
T-Mobile US
- Sector: Technology Media and Telecommunications
- Sub Sector: Telecommunications
- Region: US
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Fundamental View
AS OF 18 Mar 2025We expect T-Mobile will maintain its position as the industry leader in postpaid phone net additions, service revenue and EBITDA growth in 2025. We think the company has significant subscriber runway remaining in the suburban/rural and enterprise markets.
Adjusted net leverage (2.4x at 4Q24) is 0.3x/0.5x lower than AT&T/Verizon. Relatively strong EBITDA growth and a modest dividend commitment results in greater financial flexibility than peers.
T-Mobile benefits from the strongest spectrum position in the industry, including an average of 181 MHz in the 2.5 GHz band, which results in better 5G network coverage than AT&T and Verizon.
Business Description
AS OF 18 Mar 2025- TMUS is the one of the top 3 U.S. wireless carriers and is owned ~50% by Deutsche Telekom (DT). On April 1, 2020, TMUS and S completed an all-stock merger, valuing S at an EV of approximately $59.7 bn.
- TMUS ended 4Q24 with ~130 mn customers, including 104 mn postpaid and 25 mn prepaid.
- TMUS reaches 330+mn POPs with its Extended Range 5G network (using the 600 MHz spectrum) and reaches 300mn customers with its Ultra Capacity 5G.
Risk & Catalysts
AS OF 18 Mar 2025Converged wireless/broadband offers from cable operators raises the risk of pricing pressure in the mature consumer wireless market.
The company has not shied away from acquisitions. T-Mobile recently acquired Mint Mobile and announced deals for US Cellular and two FTTH JVs (Lumos and MetroNet). So far, M&A has not had much impact on T-Mobile’s credit metrics, but further moves into FTTH may be received poorly by investors.
With T-Mobile’s credit rating now comfortably in the mid-BBB area and leverage in the vicinity of the group’s mid-2x target area, we expect the company’s capital allocation to shift toward shareholder returns.
Key Metric
AS OF 18 Mar 2025| $ mn | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Revenue | 68,397 | 80,118 | 79,571 | 78,558 | 81,400 |
| Organic Revenue Growth | 5.8% | 7.3% | (0.7%) | (1.3%) | 3.6% |
| EBITDA | 24,557 | 26,924 | 27,821 | 29,428 | 31,864 |
| Adj. EBITDA Growth | 4.3% | (64.0%) | 33.9% | 5.8% | 8.3% |
| Adj. EBITDA Margin | 35.9% | 33.6% | 35.0% | 37.5% | 39.1% |
| CapEx % of Sales | 16.1% | 15.4% | 17.6% | 12.5% | 10.9% |
| Total Debt | 76,660 | 79,574 | 78,425 | 83,586 | 84,255 |
| Net Debt | 66,275 | 72,943 | 73,918 | 78,451 | 78,846 |
| Gross Leverage | 3.5x | 3.4x | 3.0x | 2.9x | 2.7x |
| Net Leverage | 0.0x | 3.0x | 2.7x | 2.6x | 2.4x |
| Interest Coverage | 9.0x | 7.2x | 8.0x | 8.3x | 8.7x |
| FCF as % of Debt | 14.1% | 13.7% | 13.2% | 19.2% | 23.0% |
CreditSight View Comment
AS OF 25 Apr 2025We expect TMUS will once again lead the Big 3 in major KPIs in 2025, including ~5% EBITDA growth. We view earnings/growth visibility as higher than peers, with the outlook supported by its leading 5G mid-band coverage (over 300 million PoPs with ~200 MHz) and historical under-penetration in rural and enterprise markets. T-Mobile also boasts the lowest leverage (~2.3x) and strongest FCF/debt ratio amongst the Wireless Big 3, while its rising FCF generation and comparatively low dividend commitment provide flexibility for selective M&A. Despite the rising focus on convergence, we believe TMUS will stick with its off-balance sheet strategy for FTTH JVs and view the risk of a transformational broadband acquisition (ILEC or cable) as extremely low.
Recommendation Reviewed: April 25, 2025
Recommendation Changed: March 18, 2021
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Search topics about wealth insights and investments.Netflix Inc.
- Sector: Media
- Sub Sector: Technology
- Region: US
- Bond: NFLX 4.875 30
- Indicative Yield-to-Maturity (YTM): 4.700%
- Credit Rating : Baa1/A/-
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Fundamental View
AS OF 18 Mar 2025- Netflix is one of the few clear winners in the industry’s transition to streaming, and we believe the group’s leading position will be bolstered in 2025 as legacy media companies continue to rein in spending and international ambitions.
- From a financial perspective, we expect Netflix will deliver 20+% EBITDA growth in 2025 driven by a mix of subscriber growth, price hikes and margin expansion.
- Netflix’s financial policy is relatively conservative. While the company no longer targets $10-15 billion of gross debt, we view Netflix’s new financial policy as an evolution rather than a revolution and expect credit metrics to remain best in class.
Business Description
AS OF 18 Mar 2025- NFLX is the world's leading subscription streaming entertainment service with ~302 mn paid streaming subs in 190+ countries around the world. NFLX's programming includes original & acquired TV series, documentaries and feature films.
- NFLX began expanding internationally with the launch of services in Canada (Sep 2010), followed by LatAm (Sep 2011), and the UK and Ireland (Jan 2012). NFLX launched services in 17 more markets at a measured pace through the end of 2015 before launching in the rest of the world in Jan 2016 (ex-China, N Korea, Syria, Crimea).
- As of FY24, Netflix's regional subscriber breakdown was as follows: (1) EMEA - 101.1 mn; (2) UCAN - 89.6 mn; (3) APAC - 57.5 mn and (4) LATAM - 53.3 mn.
- Ted Sarandos and Greg Peters are Co-CEOs, with Mr. Sarandos appointed to the position in July 2020 and Mr. Peters in January 2023. Co-founder Reed Hastings was appointed as executive chairman of the Board in January 2023.
Risk & Catalysts
AS OF 18 Mar 2025- Market Saturation: Netflix is highly penetrated in the US market, so future growth will become increasingly dependent on price increases, uptake of the ad tier and success on the password sharing crackdown. The recent WWE and NFL deals also opens the door to higher-priced sports programming.
- Increased Competition: Several large competitors including Amazon and Apple are increasingly leaning into DTC video offerings on a global basis. Heightened competition may result in rising churn & declining gross additions for NFLX.
- M&A Risk: Netflix is in the early stages of an expansion into video games and has already acquired several studios. Additionally, several legacy media companies are weakly positioned and are actively considering asset sales. We believe Netflix has no interest in linear TV assets, but could be open to a studio purchase under the right circumstances.
Key Metric
AS OF 18 Mar 2025| $ mn | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Revenue | 24,996 | 29,698 | 31,616 | 33,723 | 39,001 |
| Revenue YoY % | 24.0% | 18.8% | 6.5% | 6.7% | 15.6% |
| EBITDA | 5,116 | 6,806 | 6,695 | 7,650 | 11,019 |
| EBITDA Growth | 64% | 33% | (2%) | 14% | 44% |
| Cash Content Expense | 12,537 | 17,469 | 16,660 | 13,140 | 17,003 |
| CFO - CapEx | 1,929 | (132) | 1,619 | 6,926 | 6,922 |
| Dividends/CFO-Capex | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% |
| LTM CFO-CapEx to Debt | 11.8% | (0.9%) | 11.3% | 47.6% | 44.4% |
CreditSight View Comment
AS OF 18 Apr 2025We believe Netflix’s premium valuation is justified given the group’s leading scale, operating momentum and credit metrics, which stand in stark contrast to the pressures facing legacy media peers. Netflix is one of the few clear winners in the industry’s transition to streaming, and we believe the group is on track to extend its leading position during a period of rising macro uncertainty since its legacy media competition is much more exposed to advertising market pressures. The company’s gross leverage is already best in class at ~1.3x, and we expect Netflix can generate ~$8+ billion of FCF in FY25 with a FCF to debt ratio in the ~60% area. Netflix is also positioned to maintain its double-digit top line and profit growth in 2025.
Recommendation Reviewed: April 18, 2025
Recommendation Changed: October 20, 2022
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Fundamental View
AS OF 14 Mar 2025WFC is a leading domestic bank with strong positioning across consumer and commercial lending asset classes and a top 3 deposit market share in the U.S.
The core credit risk profile remains solid; the company has actively shed non-core assets and business lines (including WFAM), both as a means of managing under the Fed’s asset cap and part of new-ish CEO Scharf’s streamline strategy.
The balance sheet is strong, but WFC continues to suffer from internal deficiencies across a range of compliance and risk mgmt. functions unearthed after the fake account scandal. Positively, WFC has been closing out consent orders over the past 6-12 months and there is increased optimism the company could be released from the asset cap sometime in 2025.
Business Description
AS OF 14 Mar 2025- Wells Fargo ranks as the U.S.'s 4th largest bank by total assets ($1.93 tn at 4Q24) and 3rd largest by total deposits ($1.37 tn).
- Wells Fargo ranks 3rd in terms of U.S. deposits with approximately $1.41 tn in deposits at YE23 and 4,248 branches across the U.S. in 2024(S&P Capital IQ). The company has leading market shares across its geographically diverse footprint, including in California (#3), South Dakota (#2), Florida (#2), Texas (#3), Minnesota (#2), and Georgia (#3).
- Wells Fargo's major business lines include U.S. retail banking, mortgage banking, consumer finance, corporate and middle market banking, and wealth management.
Risk & Catalysts
AS OF 14 Mar 2025The asset cap and associated regulatory remediation remains a millstone with an unknown timeframe, though recent reporting has the cap being lifted in 2025. There was some risk that Wells could bleed share and franchise value in an economic recovery if the company cannot fully capture the business opportunity due to the asset cap, though so far that has not been the case given freed up balance sheet capacity earlier in 2020-22 and the sharp slowdown in loan growth since.
Wells Fargo faces reputational risk tied to those misconduct and business practices scandals, though likely fading with time and remediation progress; at 4Q24, WFC high-end estimable loss above legal accruals was $2 bn, unchanged sequentially.
Wells has less fee income diversification as peers, largely due to the much smaller scale of the capital markets businesses and smaller presence in credit cards, both points of emphasis under Scharf as Wells embarked on aggressive card product refreshes and trading buildout.
Key Metric
AS OF 14 Mar 2025| $ mn | FY20 | FY21 | FY22 | FY23 | 4Q24 |
|---|---|---|---|---|---|
| ROAE (annual) | 1.8% | 11.4% | 7.3% | 10.5% | 10.8% |
| ROAA (annual) | 0.17% | 1.11% | 0.70% | 1.00% | 1.02% |
| PPNR / Avg. Assets | 0.72% | 1.26% | 0.91% | n/m | 1.44% |
| Efficiency Ratio | 81% | 70% | 78% | n/m | 66% |
| Net Interest Margin (Annual) | 2.27% | 2.05% | 2.63% | 3.05% | 2.74% |
| Net charge-offs (LTM) / Loans | 0.34% | 0.18% | 0.17% | 0.37% | 0.52% |
| Common Dividend Payout | 152% | 11% | 32% | n/m | 26% |
| CET1 Ratio | 11.6% | 11.4% | 10.6% | 11.4% | 11.1% |
| Supplementary Leverage Ratio (SLR) | 8.1% | 6.9% | 6.9% | 7.1% | 6.7% |
| Liquidity Coverage Ratio (LCR) | 133% | 118% | 122% | 125% | 125% |
CreditSight View Comment
AS OF 15 Apr 2025Our move to an Outperform view in 4Q24 was predicated on spread value among Big 6 peers. Though unlikely to move spreads, when WFC is finally released from the asset cap (rumored for 2025) it will have credible claim to the best-in-class risk management and compliance framework, which has real value for bondholders and should reduce headline/noise risk going forward. Regulatory-driven supply risk has abated with BISIII delay and softening, but could still be a headwind as WFC will look to grow capital markets post-asset cap. The strong fundamental risk profile is highlighted by 11%+ CET1, improved/improving profitability, and the right strategic moves under CEO Scharf.
Recommendation Reviewed: April 15, 2025
Recommendation Changed: October 14, 2024
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Fundamental View
AS OF 14 Mar 2025JPMorgan is one of the strongest and best positioned banks to navigate the current environment, with a well-diversified business model and good competitive positioning across a variety of lending and capital markets areas.
The company continues to deploy its considerable earnings power into reinvestment, specifically around technology where we are bullish on its ability to drive competitive advantages through strategic enhancements and efficiency gains.
Business Description
AS OF 14 Mar 2025- JPMorgan ranks as the largest U.S. bank by total assets ($4.0 tn at 4Q24) and deposits ($2.41 tn at 4Q24).
- JPMorgan ranks 1st in terms of U.S. deposits with approximately $2.08 tn in deposits at YE24 across 4,970 branches (S&P Capital IQ). JPMorgan's footprint includes New York (#1), Texas (#1), California (#2), Illinois (#1), Michigan (#1), Arizona (#1), Ohio (#5), and Florida (#4), among others.
- JPMorgan's major business lines include investment banking, retail banking, card services, treasury & securities services, commercial banking, and asset & wealth management.
Risk & Catalysts
AS OF 14 Mar 2025Succession planning at JPMorgan has a higher profile than many peers, with CEO Dimon (68 year-old) having held the top spot for over 15 years. Another recent round of shuffling top management yielded a little clarity, with Jennifer Piepsak taking herself out of the running and moving into the COO seat, with remaining candidates including Marianne Lake (CEO of Consumer), Troy Rohrbaugh (CEO of Commercial/Investment Bank), and Mary Erdoes (CEO of Asset/Wealth Management).
The sector remains exposed to reputational, legislative/administrative risk, and cyber threats, although the significant tech spend over the past few years should (theoretically) result in a stronger position for JPM to manage the security threats.
Although not likely a credit risk, JPMorgan may continue to be acquisitive around non-bank financial and ancillary services; but we would expect any deal to be conservatively funded and looking to further technology and fee income strategies (e.g. payments or asset management).
Key Metric
AS OF 14 Mar 2025| $ mn | FY20 | FY21 | FY22 | FY23 | 4Q24 |
|---|---|---|---|---|---|
| ROAE (annual) | 10.9% | 17.0% | 13.2% | 16.0% | 17.4% |
| ROAA (annual) | 0.9% | 1.3% | 1.0% | 1.3% | 1.4% |
| PPNR / Avg. Assets | 1.52% | 1.32% | 1.39% | n/m | 2.07% |
| Efficiency Ratio | 57% | 59% | 58% | n/m | 54% |
| Net Interest Margin (Annual) | 1.98% | 1.63% | 2.00% | 2.70% | 2.63% |
| Net charge-offs (LTM) / Loans | 0.52% | 0.26% | 0.25% | 0.48% | 0.63% |
| Common Dividend Payout | 38% | 24% | 32% | n/m | 24% |
| CET1 Ratio | 13.1% | 13.1% | 13.2% | 15.0% | 15.7% |
| Supplementary Leverage Ratio (SLR) | 6.9% | 5.4% | 5.6% | 6.1% | 6.1% |
| Liquidity Coverage Ratio (LCR) | 110% | 110% | 110% | 113% | 113% |
CreditSight View Comment
AS OF 14 Apr 2025Our Outperform view on JPM is all about defensive value: rightfully perceived as the industry bellwether, spread differentials among Big 6 peers have collapsed with investors now able to rotate into highest quality with only a nominal spread sacrifice. Defensive value has become more important given extreme policy uncertainty and we continue to like the value in JPM even after recent widening across IG and the bank peer group. Technicals may be mildly supportive, with larger JPM facing ~$25 bn in maturities/calls in FY25, below BAC with peer banks in the $21-22 bn range. Core credit strengths including capitalization may slide with the BISIII softening and delay, but from an extremely strong starting point.
Recommendation Reviewed: April 14, 2025
Recommendation Changed: December 05, 2024
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Fundamental View
AS OF 10 Mar 2025We view Morgan Stanley’s credit profile positively, supported by high capital levels, diversification in revenues and continued progress on building out wealth/asset management both organically and through acquisition.
Morgan Stanley’s capital markets businesses have rebounded as capital markets conditions improved in 2024, and should continue to benefit from market conditions in 2025. Wealth Management also saw some slowdown in growth in 2023 but appears back on track as market conditions improved.
Business Description
AS OF 10 Mar 2025- The company is now the sixth largest bank holding company by assets in the U.S. with $1.21 tn of assets as of 4Q24, and is the fourth largest by market capitalization ($192.5 bn as of March 7th, 2025).
- Morgan Stanley maintains "significant market positions in each of its business segments," which include Institutional Securities, Wealth Management, and Investment Management.
Risk & Catalysts
AS OF 10 Mar 2025Ted Pick took over as CEO in 2024, and MS was able to retain other key managers under consideration for the role; we see no clear changes in strategy as a result of the handover.
Much of Morgan Stanley’s core business is tied to global macroeconomic trends and investor risk appetite. Additionally, it has significant trading risk and counterparty exposures, though such risk appears well-managed overall and is reflected in capital requirements which are governed by the annual DFAST and SCB regime. MS has typically run with capital levels at or near the highest among GSIBs given the trading losses included in the Fed’s model.
Rapid growth in the Wealth business in recent years at MS has had some publicized missteps in vetting clients; there remains a possibility of regulatory action, though we wouldn’t expect anything that alters the long-term strategy for the Wealth business.
Key Metric
AS OF 10 Mar 2025| $ mn | FY20 | FY21 | FY22 | FY23 | 4Q24 |
|---|---|---|---|---|---|
| ROAE (annual) | 12.4% | 14.3% | 10.8% | 9.1% | 13.2% |
| ROAA (annual) | 1.0% | 1.3% | 0.9% | 0.8% | 1.1% |
| PPNR / Avg. Assets | 1.40% | 1.64% | 1.22% | 4.41% | 1.42% |
| Efficiency Ratio | 69% | 66% | 72% | 298% | 70% |
| Net charge-offs (LTM) / Loans | 0.05% | 0.05% | 0.01% | 0.06% | 0.08% |
| Common Dividend Payout | 20.9% | 25.4% | 46.3% | 215.5% | 42.9% |
| CET1 Ratio | 17.4% | 16.1% | 15.3% | 15.2% | 15.9% |
| Supplementary Leverage Ratio (SLR) | 7.4% | 5.6% | 5.5% | 5.5% | 5.6% |
| Liquidity Coverage Ratio (LCR) | 129% | 134% | 132% | 129% | 131% |
CreditSight View Comment
AS OF 14 Apr 2025We maintain our Market perform recommendation for Morgan Stanley, with our positive view of fundamentals supported by another solid quarter in 1Q25, where Morgan Stanley’s trading results benefited from high levels of activity across all its equities trading businesses amidst shifting macro and policy narratives. We see slightly better valuation among some of the money center banks (increasingly WFC, as well as JPM) but continue to prefer MS relative to GS. Performance has rebounded in the Wealth segment from a difficult 2023.
Recommendation Reviewed: April 14, 2025
Recommendation Changed: March 14, 2016
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Fundamental View
AS OF 10 Mar 2025Goldman Sachs’ performance and market share in its core legacy businesses of investment banking and sales and trading have remained very solid, working through soft periods associated with rising rates; with market conditions improving into 2025 these businesses should continue to excel.
Goldman’s results have been weighed in recent years by costs associated with exiting the unsuccessful foray into various consumer banking businesses; such costs are largely in the rearview mirror. Wealth and Asset Management are now the most likely areas of growth in the coming years, where Goldman can leverage its strengths in HNW and alternative asset management.
Business Description
AS OF 10 Mar 2025- Goldman Sachs is now the fifth largest bank holding company in the U.S. with approximately $1.68 tn in assets as of 4Q24 and a market capitalization of $185.0 bn as of March 7th, 2025.
- Goldman Sachs presents its activities through three business segments: Global Banking & Markets, Asset & Wealth Management, and Platform Solutions.
- Goldman's historical strengths include equity and FICC sales & trading, investment banking, institutional investment management including alternatives, and high net worth wealth management. It has been expanding its wealth management client base, and adding other stable fee income streams amid a sluggish capital market environment.
Risk & Catalysts
AS OF 10 Mar 2025The early 2020’s have been a mixed bag– the foray into consumer lending was costly and ultimately was reversed, diverting capital and management attention and providing a meaningful drag on profitability. Goldman has re-focused on its core businesses, though its profile will remain less diversified than large GSIB peers.
Goldman could participate in further M&A to achieve its long-term strategic goals, most likely through add-on deals related to asset/wealth management.
Goldman could be impacted by the lack of liquidity in the secondary markets during periods of market turmoil, but for the most part, has been positively impacted by bouts of volatility which tend to spur more client trading activity. Goldman is subject to significant market and counterparty risks though these are captured in the DFAST and SCB regime.
Key Metric
AS OF 10 Mar 2025| $ mn | FY20 | FY21 | FY22 | FY23 | 4Q24 |
|---|---|---|---|---|---|
| ROAE (annual) | 10.3% | 21.3% | 9.7% | 7.3% | 12.0% |
| ROAA (annual) | 0.8% | 1.5% | 0.7% | 0.5% | 0.8% |
| PPNR / Avg. Assets | 1.34% | 1.86% | 1.08% | 3.29% | 1.16% |
| Efficiency Ratio | 66% | 54% | 65% | 282% | 63% |
| Net charge-offs (LTM) / Loans | 0.70% | 0.19% | 0.30% | 0.68% | 0.61% |
| Common Dividend Payout | 19.0% | 10.6% | 28.4% | 158.9% | 26.6% |
| CET1 Ratio | 14.1% | 13.6% | 15.0% | 14.4% | 15.0% |
| Supplementary Leverage Ratio (SLR) | 6.9% | 5.5% | 5.8% | 5.5% | 5.5% |
| Liquidity Coverage Ratio (LCR) | 128% | 122% | 129% | 128% | 126% |
CreditSight View Comment
AS OF 15 Apr 2025We maintain our Market perform recommendation for Goldman Sachs; we remain quite comfortable with the name fundamentally but see better value at JPMorgan and Wells Fargo among money center banks, particularly in the context of our shift to a more defensive stance across the sector. Goldman should be back to a normal pace of issuance so technicals should not be quite as much of a tailwind going forward as they had been in 2023 and early 2024, though the fundamental picture continues to improve with improved capital markets conditions as well as reduced drag from exited businesses. Market conditions thus far have aligned well with Goldman’s strengths in trading, though market conditions will likely have to stabilize for investment banking to regain momentum.
Recommendation Reviewed: April 15, 2025
Recommendation Changed: January 12, 2022
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Search topics about wealth insights and investments.Amazon.com
- Sector: ConsumerTechnology Media and Telecommunications
- Sub Sector: Retail/GrocersTechnology
- Region: US
- Bond: AMZN 4.65 29
- Indicative Yield-to-Maturity (YTM): 4.151%
- Credit Rating : A1/AA/AA-
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Fundamental View
AS OF 25 Feb 2025- We continue to have confidence in CEO Andy Jassy and the company’s long-term business for both AWS and Stores. The recent operating trends reinforce our views particularly the margin improvement. We continue to believe that Amazon is an underappreciated winner in Generative AI given the breadth of its cloud business and offerings including custom silicon and its platform Bedrock.
- Gross leverage declined to 0.4x and 0.9x on a lease-adjusted basis. While Amazon is increasing its capex spend (along with the other hyperscalers), we are encouraged by its debt reduction and zero shareholder returns. Also, Amazon’s equity cushion is ~$2.2 tn. There are risks related to the FTC suit although we expect those to be addressed by behavioral remedies, and we view a breakup as unlikely.
Business Description
AS OF 25 Feb 2025- Amazon is an e-commerce company which sells a wide range of its own products and those of 3rd party sellers. Amazon offers fulfillment services for 3rd party sellers (FBA) and sells cloud computing services (AWS). In 4Q24, 3rd party units were 62% of total paid units, and FBA units are a majority of 3rd party units.
- In LTM 4Q24, NA segment was 61% of sales, International was 22% of sales, and AWS was 17% of sales.
- Amazon disclosed it surpassed 200 mn Prime members in April 2021. The annual membership was increased in February 2022 from $119 to $139 in the US, although fees vary by country. In mid-2019, Amazon Prime began to transition from 2-day to 1-day shipping. Amazon Prime also offers Prime Video, streaming music, and other benefits.
- In 2006, Amazon launched AWS which remains the leader in cloud computing (IaaS/PaaS). Amazon sells its own devices (e-reader, smart speaker, streaming media player, etc.).
Risk & Catalysts
AS OF 25 Feb 2025- We think Amazon has moderate event risk given its large size (~$2.2 tn market cap).
- While Amazon is increasing its CapEx spend, we are encouraged by the $14 bn reduction in lease-adjusted debt from year-end 2022 through year-end 2024.
- Amazon continues to face regulatory scrutiny. In September 2023, the FTC and 17 states filed a lawsuit against Amazon and accused the company of (1) punishing sellers for offering lower prices elsewhere and (2) making Prime eligibility conditional on usage of fulfillment services. The biggest risk would be a breakup, although we view that as unlikely.
- Amazon’s $14 bn acquisition of Whole Foods has shown its proclivity for large M&A, although the regulatory environment could make large deals challenging.
Key Metric
AS OF 25 Feb 2025| $ mn | 2020 | 2021 | 2022 | 2023 | LTM 4Q24 |
|---|---|---|---|---|---|
| Revenue YoY % | 37.6% | 21.7% | 9.4% | 11.8% | 11.0% |
| EBITDA | 57,284 | 71,994 | 74,593 | 110,305 | 144,162 |
| EBITDA Margin | 14.8% | 15.3% | 14.5% | 19.2% | 22.6% |
| CapEx % of Sales | 12.1% | 13.3% | 11.5% | 8.5% | 12.3% |
| Sh. Ret. % of CFO-CapEx | 0% | 0% | (49%) | 0% | 0% |
| Net Debt | (50,497) | (44,771) | 7,316 | (19,598) | (43,202) |
| Gross Leverage | 0.6x | 0.7x | 1.0x | 0.6x | 0.4x |
| EV / EBITDA | 28.3x | 23.3x | 11.7x | 14.4x | 16.1x |
CreditSight View Comment
AS OF 19 Mar 2025Amazon is an e-commerce company that offers a wide range of products, both from its own inventory and third-party sellers. In addition to its retail operations, Amazon provides fulfillment services for third-party sellers and offers cloud computing services through its Amazon Web Services (AWS) division. The company is led by CEO Andy Jassy, and its business model spans across both AWS and its physical stores. Recent operating trends, including margin improvements, reflect its ongoing growth. Amazon’s cloud offerings, including custom silicon and its Bedrock platform, position the company as a key player in the emerging field of Generative AI. As of recent estimates, Amazon’s gross leverage has decreased to 0.4x, and 0.9x on a lease-adjusted basis.
Recommendation Reviewed: March 19, 2025
Recommendation Changed: May 01, 2024
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Fundamental View
AS OF 24 Feb 2025SBUX operates and licenses Starbucks cafe locations. Management has historically targeted lease-adjusted leverage of under 3x and has expressed support for the current, high-BBB ratings profile.
Recent results showed headwinds from lower traffic across the company’s locations in the U.S. and weak results in its second-largest market, China, due to increased competition in the market and cautious consumer behavior in the region.
SBUX navigated a volatile 2024, which included activist investments and an abrupt CEO change. While new CEO Brian Niccol is an experienced operator, we have reservations about the company’s restaurant reimaging plans.
Business Description
AS OF 24 Feb 2025- SBUX is a leading coffee roaster and retailer. The company operates and licenses over 40,000 Starbucks locations worldwide where it sells premium coffee beverages as well as other specialty drinks and prepared foods. Slightly over half the locations are company operated (52%) and the rest are licensed to third party operators.
- In F2024, SBUX generated $36.2 bn in revenue and $7.0 bn in adjusted EBITDA. SBUX has three reporting segments: N. America (75% of F2024 revenue), which covers cafes in the U.S. and Canada; International (20%), which includes China, Japan, Latin America, and EMEA; and Channel Development (4.9%) which includes revenue from other branded products sold outside retail locations through partnerships with large consumer companies such as Nestle and PepsiCo.
- On a geographic basis, SBUX's two largest regions are the U.S. (42% of cafes), and China (19%).
Risk & Catalysts
AS OF 24 Feb 2025In response to the activist attacks, SBUX announced an unexpected change in CEO and hired Brian Niccol, a veteran of the quick service restaurant industry with a successful track record at Taco Bell and Chipotle.
Lower discretionary spending in the U.S. could continue to weigh on SBUX’s sales outlook. We view its premium-priced beverage offerings as having significant risk of consumer trade down into more value-oriented options.
SBUX faces activist pressure from both Elliott and Starboard Value. There have been reports that the company is considering strategic partnerships or alternatives for its locations in China, where SBUX has consistently reported weak results (China locations represent ~10% of total company operating income).
S&P has a negative outlook on its BBB+ rating, and said a downgrade could occur if adjusted total leverage is sustained above 3x in F2025.
Key Metric
AS OF 24 Feb 2025| $ mn | Y21 | Y22 | Y23 | Y24 | LTM 1Q25 |
|---|---|---|---|---|---|
| Revenue | 29,061 | 32,250 | 35,976 | 36,176 | 36,149 |
| EBITDA | 6,775 | 6,385 | 7,252 | 7,001 | 6,685 |
| EBITDA Margin | 23.3% | 19.8% | 20.2% | 19.4% | 18.5% |
| EBITDA-Capex to Revenue | 18.3% | 14.1% | 13.7% | 11.7% | 10.5% |
| Total Debt | 14,616 | 15,044 | 15,400 | 15,568 | 15,561 |
| Net Debt | 8,160 | 12,226 | 11,848 | 12,282 | 11,890 |
| Net Leverage | 1.2x | 1.9x | 1.6x | 1.8x | 1.8x |
| Lease Adjusted Debt to EBITDAR | 2.9x | 3.1x | 2.8x | 3.0x | 3.1x |
| EV / EBITDA | 20.4x | 17.1x | 16.1x | 17.6x | 17.3x |
CreditSight View Comment
AS OF 27 Feb 2025We maintain an Underperform view on SBUX. Recent results showed slower traffic across the portfolio of cafes amid tighter consumer spending patterns in the U.S. and an increasingly competitive coffee shop market in China. We think both headwinds could continue over the medium-term. While we do see a path for the company to keep leverage near management’s communicated sub-3x lease-adjusted target even with subdued results, we are wary of a potential shift to more shareholder-friendly capital allocation amid the current environment. To that end, SBUX has attracted activist attention in the form of Elliott Management. We see stronger relative value at high-BBB rated McDonald’s where we like the more franchised operating model and value-oriented menu options.
Recommendation Reviewed: February 27, 2025
Recommendation Changed: May 01, 2024
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