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Will Rise in Bond Issuance Drive Moody's (MCO) Q4 Earnings?
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Moody's Corporation (MCO - Free Report) is scheduled to report fourth quarter and 2017 results on Feb 9, before the opening bell. The company is expected to witness a year-over-year rise in revenues in its Corporate Finance line, the largest revenue contributor at the Moody's Investors Service (“MIS”) division.
Backdrop for bond issuance (driven by tightening of credit spreads and a rise in long-term yield curve) during the fourth quarter was favorable. Hence, investment grade bond and leveraged loan issuances volume improved year over year, mainly in Asia.
So, Corporate Finance revenues are expected to increase. The Zacks Consensus Estimate of $313 million indicates 12.6% improvement from the last-year quarter.
Apart from this, quarterly issuance volume for commercial mortgage-backed securities, collateralized loan obligations and asset backed securities improved modestly. Therefore, Moody’s will likely witness a slight rise in Structured Finance revenues in the to-be-reported quarter. The Zacks Consensus Estimate is $132 million, reflecting marginal growth from the prior-year quarter.
Further, MIS division’s another revenue source — Financial Institutions — is anticipated to report $97 million of revenues, up 9% year over year. Public, Project and Infrastructure Finance unit revenues are projected to remain stable year over year at $103 million.
Overall, the MIS division is projected to witness year-over-year growth in the top line. The Zacks Consensus Estimate for the division’s revenues is $650 million, reflecting an increase of 6.9%.
Other Factors Influencing Q4 Results
Higher revenues from Moody's Analytics (“MA”) division: Moody’s continues to pursue growth in areas outside the core credit ratings service. Given the rise in demand for analytics, the company’s MA division is expected to show a rise in revenues. The division’s all three business units are anticipated to witness higher revenues in the to-be-reported quarter. So, the Zacks Consensus Estimate for its revenues of $418 million indicates an increase of 25.1% from the prior-year quarter.
Strategic deals/investments to support revenues: Moody’s is likely to show revenue growth on the back of its strategic acquisitions and investments. These have increased the scale and cross-selling opportunities across products and vertical markets. However, strength of the U.S. dollar is likely to impact quarterly revenues to some extent.
Overall, the Zacks Consensus Estimate for quarterly sales of $1.08 billion reflects 14.3% year-over-year growth.
For 2017, sales are expected to be $4.12 billion. Notably, Moody’s projects revenues to increase in the low-teens percent range in 2017.
Expenses to remain high: As Moody’s continues with its inorganic growth strategy, acquisition and restructuring costs are expected to remain high. So, overall expenses are anticipated to rise during the quarter.
For 2017, management expects adjusted operating expenses to rise in the low-double-digit percent range, while operating expenses are projected to decline in the range of 20-25%.
Now, let’s see what our quantitative model predicts.
According to our proven model, Moody’s has the right combination of two key ingredients — positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Notably, the Zacks Consensus Estimate for earnings the to-be-reported quarter has been revised 2.9% upward over the last 30 days to $1.43 reflecting a year-over-year improvement of 16.3%.
For 2017, Moody’s expects earnings per share to be $6.18 to $6.33, driven by strong underlying business performance. This includes CCXI gain of 31 cents, the purchase price hedge gain of 36 cents, net amortization of acquisition-related intangibles of 23 cents and net acquisition-related expenses of 11 cents. Excluding these, adjusted earnings are expected to be in the range of $5.85 to $6.00.
Both Ares Capital Corporation (ARCC - Free Report) and LendingClub Corporation (LC - Free Report) are expected to announce results on Feb 13, while Hercules Capital, Inc. (HTGC - Free Report) is slated to announce on Feb 22.
Zacks Top 10 Stocks for 2018
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2018?
Last year's 2017 Zacks Top 10 Stocks portfolio produced double-digit winners, including FMC Corp. and VMware which racked up stellar gains of +67.9% and +61%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
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Will Rise in Bond Issuance Drive Moody's (MCO) Q4 Earnings?
Moody's Corporation (MCO - Free Report) is scheduled to report fourth quarter and 2017 results on Feb 9, before the opening bell. The company is expected to witness a year-over-year rise in revenues in its Corporate Finance line, the largest revenue contributor at the Moody's Investors Service (“MIS”) division.
Backdrop for bond issuance (driven by tightening of credit spreads and a rise in long-term yield curve) during the fourth quarter was favorable. Hence, investment grade bond and leveraged loan issuances volume improved year over year, mainly in Asia.
So, Corporate Finance revenues are expected to increase. The Zacks Consensus Estimate of $313 million indicates 12.6% improvement from the last-year quarter.
Apart from this, quarterly issuance volume for commercial mortgage-backed securities, collateralized loan obligations and asset backed securities improved modestly. Therefore, Moody’s will likely witness a slight rise in Structured Finance revenues in the to-be-reported quarter. The Zacks Consensus Estimate is $132 million, reflecting marginal growth from the prior-year quarter.
Further, MIS division’s another revenue source — Financial Institutions — is anticipated to report $97 million of revenues, up 9% year over year. Public, Project and Infrastructure Finance unit revenues are projected to remain stable year over year at $103 million.
Overall, the MIS division is projected to witness year-over-year growth in the top line. The Zacks Consensus Estimate for the division’s revenues is $650 million, reflecting an increase of 6.9%.
Other Factors Influencing Q4 Results
Higher revenues from Moody's Analytics (“MA”) division: Moody’s continues to pursue growth in areas outside the core credit ratings service. Given the rise in demand for analytics, the company’s MA division is expected to show a rise in revenues. The division’s all three business units are anticipated to witness higher revenues in the to-be-reported quarter. So, the Zacks Consensus Estimate for its revenues of $418 million indicates an increase of 25.1% from the prior-year quarter.
Strategic deals/investments to support revenues: Moody’s is likely to show revenue growth on the back of its strategic acquisitions and investments. These have increased the scale and cross-selling opportunities across products and vertical markets. However, strength of the U.S. dollar is likely to impact quarterly revenues to some extent.
Overall, the Zacks Consensus Estimate for quarterly sales of $1.08 billion reflects 14.3% year-over-year growth.
For 2017, sales are expected to be $4.12 billion. Notably, Moody’s projects revenues to increase in the low-teens percent range in 2017.
Expenses to remain high: As Moody’s continues with its inorganic growth strategy, acquisition and restructuring costs are expected to remain high. So, overall expenses are anticipated to rise during the quarter.
For 2017, management expects adjusted operating expenses to rise in the low-double-digit percent range, while operating expenses are projected to decline in the range of 20-25%.
Now, let’s see what our quantitative model predicts.
According to our proven model, Moody’s has the right combination of two key ingredients — positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks ESP: Earnings ESP for Moody’s is +2.33%.
Zacks Rank: Moody’s carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Notably, the Zacks Consensus Estimate for earnings the to-be-reported quarter has been revised 2.9% upward over the last 30 days to $1.43 reflecting a year-over-year improvement of 16.3%.
For 2017, Moody’s expects earnings per share to be $6.18 to $6.33, driven by strong underlying business performance. This includes CCXI gain of 31 cents, the purchase price hedge gain of 36 cents, net amortization of acquisition-related intangibles of 23 cents and net acquisition-related expenses of 11 cents. Excluding these, adjusted earnings are expected to be in the range of $5.85 to $6.00.
Moody's Corporation Price and EPS Surprise
Moody's Corporation Price and EPS Surprise | Moody's Corporation Quote
Earnings Schedule of Other Stocks
Both Ares Capital Corporation (ARCC - Free Report) and LendingClub Corporation (LC - Free Report) are expected to announce results on Feb 13, while Hercules Capital, Inc. (HTGC - Free Report) is slated to announce on Feb 22.
Zacks Top 10 Stocks for 2018
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2018?
Last year's 2017 Zacks Top 10 Stocks portfolio produced double-digit winners, including FMC Corp. and VMware which racked up stellar gains of +67.9% and +61%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2018 today >>