In August 2011, just a few years after the financial crisis, Standard & Poor’s downgraded the U.S. credit rating from AAA (the highest rating) to AA+ (the second highest). Then, in August 2023, Fitch followed suit, lowering the U.S. from AAA to AA+. Both S&P and Fitch still see the U.S. as having an extremely low risk of default, but that top-tier status is undeniably gone.
Many U.S. companies have faced a similar fate. Back in 1980, around 60 publicly traded companies held AAA credit ratings. After more than four decades of acquisitions, mergers, bankruptcies, innovation, and economic shifts, only two companies still hold this perfect rating: tech giant $Microsoft(MSFT)$ and healthcare powerhouse $Johnson & Johnson(JNJ)$ .
J&J’s AAA Rating Holds Despite Challenges
In April this year, S&P reaffirmed J&J’s AAA rating, albeit with a negative outlook. S&P pointed out that J&J’s acquisitions of Abiomed, Laminar, and Shockwave Medical have increased its long-term debt, pushing adjusted net leverage slightly above the typical AAA threshold. Yet, S&P noted J&J’s ability to quickly bring leverage back down, keeping the rating intact.
S&P is also keeping an eye on J&J’s legal troubles. Although the company has stopped selling talc-based baby powder, lawsuits are still ongoing, with two previous settlement proposals rejected by the courts. These legal uncertainties often cast a shadow over Wall Street's view of J&J.
A Cash-Flow Machine and Strategic Shifts
Despite these concerns, J&J has remained a cash-flow juggernaut for decades. The management team is steadily shifting focus toward the pharmaceutical sector, which offers stronger pricing power and impressive margins compared to medical devices or Kenvue, its recently spun-off consumer health division.
Looking ahead, J&J’s long-term future in medical technology also seems promising; as one of the largest medical device companies in the world, it’s well-positioned to benefit from an aging population and increasing demand for healthcare globally.
One reason for J&J’s steady growth is its remarkable leadership stability. Since its founding in 1886, J&J has only had a handful of CEOs, allowing for a consistent execution of growth strategies over time.
Finally, healthcare is inherently defensive. No matter the state of the U.S. or global economy, healthcare remains essential, providing J&J with reliable, stable cash flow.
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