ICON PLC

S&P Global Ratings' stable outlook on Ireland-based CRO, ICON PLC, reflects our view that favorable business prospects will result in continued strong free cash flows. This will allow ICON to sustain adjusted debt to EBITDA significantly below 1.5x and adjusted funds from operations (FFO) to debt above 60% over the next 24 months. The stable outlook also reflects our belief that the group will fund share buyback activity with cash flows and rapidly deleverage following any debt-funded acquisitions. While we anticipate that ICON could engage in some M&A activity, the ratings could come under pressure if we expect leverage to remain elevated for a sustained period. Specifically, we could lower the rating if adjusted debt to EBITDA were to rise

...The company's positive net cash positions provide significant financial headroom to support potentially sizable acquisitions. We continue to expect the group to be debt-free on an S&P Global Ratings-adjusted basis in 2020, providing significant financial headroom at the current rating level, which we believe the group might utilize to make significant acquisitions. Strong free cash generation funds shareholder returns and debt repayment.High free operating cash flows (FOCF) are supported by strong EBITDA conversion and low capex requirements, despite high working capital requirements. The group annually generates sufficient FOCF to fund its share buybacks and has sufficient cash to fully repay its debt maturing in 2020. Limited clarity on long-term financial policy. ICON has not clearly and publicly articulated its leverage targets. The group could consider significant debt-funded M&A, with leverage potentially spiking up to 3.5x. The current ratings factor in a degree of M&A activity,...

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