Fitch Ratings Upgrades Flex Ltd.’s Outlook to Positive, Affirms ‘BBB-‘ Rating

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Fitch Ratings Affirms Flex Ltd. with Positive Outlook

On June 9, 2025, Fitch Ratings affirmed the Long-Term Issuer Default Rating (IDR) for FLEX Ltd. at ‘BBB-‘ and maintained the rating for its senior unsecured notes and $2.5 billion revolving credit facility. Importantly, Fitch upgraded Flex’s outlook from Stable to Positive, indicating enhanced confidence in the company’s financial trajectory.

Reasons for Positive Outlook

• Flex’s financial profile has shown significant strengthening, driven by sound financial policies and enhanced profitability metrics.
• Consistent annual Free Cash Flow (FCF) and improved profit margins are anticipated to keep EBITDA leverage below Fitch’s critical threshold of 2.5x throughout the forecast period, despite potential macroeconomic and trade-related headwinds.

Financial Strength and Market Position

Flex’s robust market standing, diversified market exposure, and countercyclical working capital model have been pivotal to its improved financial strength. The company has demonstrated financial discipline and increased profitability, albeit without a publicly stated leverage target.

Debt levels are expected to remain in the range of $4.0 billion to $4.5 billion, with EBITDA leverage projected to stay below 2.5x, even as EBITDA margins fluctuate between 7% and 8%. Flex concluded FY2025 and FY2024 with EBITDA leverage ratios of 2.3x and 2.4x, respectively, notwithstanding reduced revenue following the sale of Nextracker.

Strategic Plans and Competitive Advantages

Flex intends to allocate its annual FCF towards strategic acquisitions and share buybacks. The company’s extensive global presence confers significant competitive advantages, facilitating market share gains from smaller rivals as customers consolidate their supplier base.

Flex’s worldwide operations position it to capitalize on supply chain regionalization trends, mitigating exposure to geopolitical and trade tensions, particularly between the US and China.

Profitability and Revenue Stability

While Flex’s profitability may appear modest compared to investment-grade peers, it aligns with electronic manufacturing services (EMS) peers and has seen structural improvements.

The company’s profitability is bolstered by increased contributions from higher-margin segments such as data centers and Healthcare Solutions, along with reduced reliance on lower-margin consumer devices and decreased fixed costs due to recent restructuring efforts.

Flex’s counter-cyclical working capital model, which limits FCF during growth cycles and boosts it during downturns, is expected to yield annual FCF of $500 million to $1 billion over the forecast period. Enhanced diversification across end-markets and customers, particularly in sectors with higher electronic content and longer product cycles, is driving more stable revenue growth.

Comparison with Competitors

Fitch considers Flex directly comparable to its chief competitor, Jabil Inc. (BBB-/Stable). Although Flex operates at a slightly smaller scale, it boasts greater end-market diversification and a stronger reliance on vertical integration compared to Jabil. Fitch anticipates Flex maintaining EBITDA leverage in the low 2x range, mirroring Jabil’s metrics.

Key Assumptions and Factors for Rating Changes

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