Investing.com -- Carrier Global Corp (NYSE: CARR ). has been upgraded to ’BBB+’ from ’BBB’ by S&P Global Ratings on March 5, 2025, following the successful completion of its portfolio transformation and debt reduction efforts. The company’s stable outlook is based on the belief that its operating performance and financial policies will help maintain S&P Global Ratings-adjusted debt leverage in the mid-to-high 2x area over the next 12-24 months.

Carrier’s successful execution of a second deleveraging plan, which involved the closure of announced divestitures in 2024, and the use of over $6 billion from the proceeds to reduce debt, has led to this upgrade. The company’s efforts to reduce the debt further included the repayment of its $1.2 billion notes in February 2025.

The company’s financial policy is aimed at maintaining S&P Global Ratings-adjusted leverage below 3x. This is evident from Carrier’s track record of successful deleveraging initiatives. The company had reduced its S&P Global Ratings-adjusted leverage from about 4.3x at the time of its spin-off from United Technologies Corp (NYSE: RTX ). (now Raytheon Technologies) in 2020 to the low-2x area by the end of 2022.

Carrier Global Corp. intends to complete around $3 billion of share repurchases in 2025. The company’s capital deployment priorities for 2025, which also include dividend payments of around $775 million, $1.2 billion for debt repayment, and cash payments of around $70 million related to a previously announced settlement, exceed its forecast for free operating cash flow (FOCF). However, the company’s elevated cash balance entering 2025, which was nearly $4 billion as of Dec. 31, 2024, is expected to support these plans.

The company’s acquisition strategy could pose a risk for leverage and ratings, particularly if it pursues additional large debt-financed acquisitions. This is because the company would not benefit from sizable divestiture proceeds to accelerate debt repayment as it did following the Viessmann acquisition.

Carrier’s business position is viewed favorably due to its solid market position and the nondiscretionary nature of its products. The company generates roughly 60% from residential and light commercial HVAC markets, and about 25% of its revenue is generated from aftermarket parts and services. Carrier’s commercial HVAC backlog remains elevated and increased in the mid-teens percent area in 2024, providing solid revenue visibility for 2025.

S&P Global Ratings forecasts mid-single digit organic revenue growth in 2025, largely driven by continued demand for global commercial HVAC products and services. Carrier’s 2025 total revenue is forecasted to be up modestly, around 1%, year over year.

The company’s unadjusted FOCF is forecasted to improve to around $2.55 billion in 2025, from $1.1 billion in 2024, driven by the elimination of one-time tax payments, as well as the forecast for margin improvement and relatively flat capital expenditures (capex).

The rating could be lowered if S&P Global Ratings expects Carrier to sustain adjusted leverage above 3x. This could occur if demand for the company’s HVAC/R products and services weakens or if the company pursues more aggressive debt-funded capital deployment. Alternatively, the rating could be raised if Carrier adopts a more conservative financial policy, such that it would sustain S&P-Global Ratings-adjusted debt leverage comfortably below 2x.

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