Investing.com -- Fitch Ratings has raised the Short-Term Issuer Default Rating (IDR) and Commercial Paper (CP) ratings for Motorola Solutions (NYSE: MSI ), Inc. from ’F3’ to ’F2’ on February 27, 2025. The Long-Term IDR and senior unsecured ratings of Motorola remain affirmed at ’BBB’ with a stable outlook.

The upgrade is a reflection of Motorola’s growing balance sheet flexibility, influenced by consistent high single-digit revenue growth and an improved sales mix. The company’s 1.8x EBITDA Leverage at the end of 2024 and steady Free Cash Flow (FCF) generation also contribute to the ratings. Fitch anticipates that Motorola will continue to uphold financial discipline while considering acquisition prospects.

Motorola’s ratings are bolstered by geographical and product diversification, reducing concentration risk. The company’s backlog stood at $14.7 billion at the end of 2024, offering partial revenue visibility. About $4.1 billion of this backlog is expected to be realized in 2025.

The company’s supply chain could be affected by tariffs applied to Mexico and Canada. However, Motorola’s supply chain’s flexibility and the essential nature of many of its products would likely mitigate the impact. It’s worth noting that Motorola’s supply chain has minimal exposure to China.

Fitch expects Motorola’s leading positions in its key products to fuel low- to mid-single-digit revenue growth through the forecast period. The company’s EBITDA leverage is projected to remain around 2.0x over the rating horizon, supported by EBITDA margins of about 30%. These margins have improved over recent years due to a higher margin sales mix and cost controls.

Motorola’s U.S. pension was 87% funded at the end of 2024, up from 84% at the end of 2023, with a negative $506 million funded status. The company does not anticipate further funding requirements for the next several years. Its overall pension funding status has improved from a deficit of approximately $1.8 billion in 2017 and has become a minor consideration in Motorola’s credit profile.

Motorola is among the leading providers of two-way radios, associated systems and services to government, public safety and commercial end-users. Compared to L3Harris Technologies (NYSE: LHX ), Inc. (BBB+/Stable), a competitor in this market, Motorola’s EBITDA margins are approximately 30% while L3Harris’ margins are close to 20%. Motorola’s EBITDA leverage is roughly 0.5x-1x below L3Harris’, whose revenue scale is roughly double Motorola’s.

As of the end of 2024, Motorola had $2.1 billion in cash on its balance sheet, with liquidity supported by a $2.2 billion CP program that is fully backed and an undrawn $2.25 billion Revolving Credit Facility (RCF) maturing in 2026. Liquidity is further supported by Fitch’s expectation of approximately $1.4 billion of post-dividend annual FCF generation over Fitch’s rating horizon.

Motorola Solutions, Inc. provides mission-critical communications infrastructure, devices, accessories, software and services to a diversified set of public safety and commercial customers in over 100 countries.

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