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Why Is Moody's (MCO) Up 17.6% Since Last Earnings Report?
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It has been about a month since the last earnings report for Moody's (MCO - Free Report) . Shares have added about 17.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Moody's due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Moody's Q3 Earnings & Revenues Top Estimates, Costs Up
Moody's reported third-quarter 2023 adjusted earnings of $2.43 per share, which handily beat the Zacks Consensus Estimate of $2.35. The bottom line also jumped 31% from the year-ago quarter figure.
Gradual improvement in global bond issuance volumes and steady demand for analytics supported Moody’s results. The company’s liquidity position was robust during the quarter. However, an increase in operating expenses was a headwind.
After taking into consideration certain non-recurring items, net income attributable to Moody's was $389 million or $2.11 per share, up from $303 million or $1.65 per share in the prior-year quarter.
Revenues Up, Costs Rise
Quarterly revenues were $1.47 billion, which outpaced the Zacks Consensus Estimate of $1.46 billion. The top line grew 15.5% year over year.
Total expenses were $937 million, up 9%. Foreign currency translation adversely impacted expenses by 2%. MCO recorded restructuring charges of $27 million during the quarter related to the 2022–2023 Geolocation Restructuring Program.
Adjusted operating income of $657 million was up 32%. Adjusted operating margin was 44.6%, up from 39% a year ago.
Solid Segment Performance
Moody’s Investors Service revenues grew 18% year over year to $696 million. The improvement was mainly driven by solid leveraged finance and infrequent banking issuer activity.
Moody’s Analytics revenues increased 13% to $776 million. This was mainly driven by double-digit growth in all lines of business.
Strong Balance Sheet
As of Sep 30, 2023, Moody’s had total cash, cash equivalents and short-term investments of $2.08 billion, up from $1.86 billion as of Dec 31, 2022.
The company had $6.9 billion in outstanding debt and $1.25 billion in additional borrowing capacity under the revolving credit facility.
Share Repurchase Update
During the quarter, Moody's repurchased 0.5 million shares at an average price of $337.46 per share.
2023 Guidance
Moody’s affirmed adjusted earnings to be in the range of $9.75-$10.25 per share. On a GAAP basis, earnings are projected within $8.60-$9.10 per share, a change from the prior target of $8.70-$9.20.
Moody’s projects revenues to increase in the high-single-digit percent range.
Operating expenses are expected to rise in the mid-single-digit percent range.
Net interest expenses are expected to be $250-$260 million, changed from the previous guidance of $260-$280 million.
Adjusted operating margin is expected to be 44-45%. The operating margin is likely to be nearly 37%.
Moody’s expects cash flow from operations of approximately $2.1 billion, changed from the prior guidance of $1.9-$2.1 billion. Free cash flow is projected to be $1.8 billion, changed from the previously guided range of $1.6-$1.8 billion.
The company will likely repurchase shares worth $500 million.
The effective tax rate is projected to be 16-18%.
Segment Outlook for 2023
MIS segment revenues are anticipated to increase in the mid-to-high-single-digit percent range, changed from the prior guidance of high-single-digit percent growth.
Adjusted operating margin is expected to be approximately 55%.
Coming to the MA segment, Moody’s anticipates revenues to grow 10%.
Adjusted operating margin is expected to be 30-31%, changed from the prior guidance of 31%. Further, the segment’s organic Annualized Recurring Revenue (ARR) is projected to rise in the low-double-digit percent range.
2022-2023 Geolocation Restructuring Program
Management expects the program to help the company further adapt to the new global workplace and talent realities. Also, the restructuring plan will accelerate a number of ongoing cost-efficiency initiatives, and includes real estate optimization and increased utilization of lower-cost operational hubs.
The program is expected to result in annualized savings of $145-$165 million per year.
The exit from certain leased office spaces is expected to result in $50-$65 million of pre-tax charges to either terminate or sublease the affected real estate leases.
The program is expected to include $130-$140 million of pre-tax personnel-related restructuring charges. This amount includes severance costs, expenses related to the modification of equity awards and related costs primarily determined under the company’s existing severance plans.
Cash outlays associated with the program are expected to be $130-$140 million, which are likely to be paid through 2024.
The program is expected to be substantially complete by the end of 2023.
Medium-Term Targets
Moody’s projects total revenue growth of at least 10%, with adjusted operating margin in the low-50s range. Adjusted earnings per share are anticipated to increase in the low double-digit percentage range.
MA segment revenues are projected to grow in the low-to-mid teen percentage range, with adjusted operating margin in the mid-30s range.
MIS segment revenues are anticipated to rise in the low-to-mid-single-digit percentage range, with adjusted operating margin in the low-60s range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, Moody's has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Moody's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Moody's is part of the Zacks Financial - Miscellaneous Services industry. Over the past month, Euronet Worldwide (EEFT - Free Report) , a stock from the same industry, has gained 10.5%. The company reported its results for the quarter ended September 2023 more than a month ago.
Euronet Worldwide reported revenues of $1 billion in the last reported quarter, representing a year-over-year change of +7.8%. EPS of $2.72 for the same period compares with $2.74 a year ago.
Euronet Worldwide is expected to post earnings of $1.75 per share for the current quarter, representing a year-over-year change of +25.9%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.5%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Euronet Worldwide. Also, the stock has a VGM Score of A.
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Why Is Moody's (MCO) Up 17.6% Since Last Earnings Report?
It has been about a month since the last earnings report for Moody's (MCO - Free Report) . Shares have added about 17.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Moody's due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Moody's Q3 Earnings & Revenues Top Estimates, Costs Up
Moody's reported third-quarter 2023 adjusted earnings of $2.43 per share, which handily beat the Zacks Consensus Estimate of $2.35. The bottom line also jumped 31% from the year-ago quarter figure.
Gradual improvement in global bond issuance volumes and steady demand for analytics supported Moody’s results. The company’s liquidity position was robust during the quarter. However, an increase in operating expenses was a headwind.
After taking into consideration certain non-recurring items, net income attributable to Moody's was $389 million or $2.11 per share, up from $303 million or $1.65 per share in the prior-year quarter.
Revenues Up, Costs Rise
Quarterly revenues were $1.47 billion, which outpaced the Zacks Consensus Estimate of $1.46 billion. The top line grew 15.5% year over year.
Total expenses were $937 million, up 9%. Foreign currency translation adversely impacted expenses by 2%. MCO recorded restructuring charges of $27 million during the quarter related to the 2022–2023 Geolocation Restructuring Program.
Adjusted operating income of $657 million was up 32%. Adjusted operating margin was 44.6%, up from 39% a year ago.
Solid Segment Performance
Moody’s Investors Service revenues grew 18% year over year to $696 million. The improvement was mainly driven by solid leveraged finance and infrequent banking issuer activity.
Moody’s Analytics revenues increased 13% to $776 million. This was mainly driven by double-digit growth in all lines of business.
Strong Balance Sheet
As of Sep 30, 2023, Moody’s had total cash, cash equivalents and short-term investments of $2.08 billion, up from $1.86 billion as of Dec 31, 2022.
The company had $6.9 billion in outstanding debt and $1.25 billion in additional borrowing capacity under the revolving credit facility.
Share Repurchase Update
During the quarter, Moody's repurchased 0.5 million shares at an average price of $337.46 per share.
2023 Guidance
Moody’s affirmed adjusted earnings to be in the range of $9.75-$10.25 per share. On a GAAP basis, earnings are projected within $8.60-$9.10 per share, a change from the prior target of $8.70-$9.20.
Moody’s projects revenues to increase in the high-single-digit percent range.
Operating expenses are expected to rise in the mid-single-digit percent range.
Net interest expenses are expected to be $250-$260 million, changed from the previous guidance of $260-$280 million.
Adjusted operating margin is expected to be 44-45%. The operating margin is likely to be nearly 37%.
Moody’s expects cash flow from operations of approximately $2.1 billion, changed from the prior guidance of $1.9-$2.1 billion. Free cash flow is projected to be $1.8 billion, changed from the previously guided range of $1.6-$1.8 billion.
The company will likely repurchase shares worth $500 million.
The effective tax rate is projected to be 16-18%.
Segment Outlook for 2023
MIS segment revenues are anticipated to increase in the mid-to-high-single-digit percent range, changed from the prior guidance of high-single-digit percent growth.
Adjusted operating margin is expected to be approximately 55%.
Coming to the MA segment, Moody’s anticipates revenues to grow 10%.
Adjusted operating margin is expected to be 30-31%, changed from the prior guidance of 31%. Further, the segment’s organic Annualized Recurring Revenue (ARR) is projected to rise in the low-double-digit percent range.
2022-2023 Geolocation Restructuring Program
Management expects the program to help the company further adapt to the new global workplace and talent realities. Also, the restructuring plan will accelerate a number of ongoing cost-efficiency initiatives, and includes real estate optimization and increased utilization of lower-cost operational hubs.
The program is expected to result in annualized savings of $145-$165 million per year.
The exit from certain leased office spaces is expected to result in $50-$65 million of pre-tax charges to either terminate or sublease the affected real estate leases.
The program is expected to include $130-$140 million of pre-tax personnel-related restructuring charges. This amount includes severance costs, expenses related to the modification of equity awards and related costs primarily determined under the company’s existing severance plans.
Cash outlays associated with the program are expected to be $130-$140 million, which are likely to be paid through 2024.
The program is expected to be substantially complete by the end of 2023.
Medium-Term Targets
Moody’s projects total revenue growth of at least 10%, with adjusted operating margin in the low-50s range. Adjusted earnings per share are anticipated to increase in the low double-digit percentage range.
MA segment revenues are projected to grow in the low-to-mid teen percentage range, with adjusted operating margin in the mid-30s range.
MIS segment revenues are anticipated to rise in the low-to-mid-single-digit percentage range, with adjusted operating margin in the low-60s range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, Moody's has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Moody's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Moody's is part of the Zacks Financial - Miscellaneous Services industry. Over the past month, Euronet Worldwide (EEFT - Free Report) , a stock from the same industry, has gained 10.5%. The company reported its results for the quarter ended September 2023 more than a month ago.
Euronet Worldwide reported revenues of $1 billion in the last reported quarter, representing a year-over-year change of +7.8%. EPS of $2.72 for the same period compares with $2.74 a year ago.
Euronet Worldwide is expected to post earnings of $1.75 per share for the current quarter, representing a year-over-year change of +25.9%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.5%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Euronet Worldwide. Also, the stock has a VGM Score of A.