We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Moody's (MCO) Trades Near 52-Week High: Time to Buy the Stock?
Read MoreHide Full Article
Moody’s (MCO - Free Report) shares are currently trading in the vicinity of a 52-week high of $465.30, touched on Aug 9. The stock has gained 17.9% this year against the industry’s decline of 0.5%.
The stock has outperformed peers like S&P Global Inc. (SPGI - Free Report) , Dun & Bradstreet Holdings, Inc. (DNB - Free Report) and MSCI Inc. (MSCI - Free Report) in the same period.
Price Performance
Image Source: Zacks Investment Research
Let’s first try to understand what’s behind this share price rise and then we discuss whether the MCO stock has the potential to rally further.
Results & Raised 2024 Guidance: Last year was marked by subdued bond issuances because of uncertain macroeconomic factors. The trend has since reversed and the global bond issuance volumes have been rising. This was reflected in Moody’s first-half 2024 performance.
Moody’s recorded half-yearly adjusted earnings of $6.65 per share on revenues of $3.6 billion. Earnings and revenues grew 25.7% and 21.6%, respectively, year over year. The jump was driven by the conducive operating backdrop – “higher issuance volumes and rising demand for the Moody’s Analytics (MA) segment’s innovative solutions and analytical insights.”
Year-to-Date Earnings
Image Source: Moody's
Year-to-Date Revenues
Image Source: Moody's
Driven by this improved performance, management raised its earnings and revenue guidance for 2024. Adjusted earnings are now projected to be in the $11.00-$11.40 per share range, higher than the previous guidance of $10.40-$11.00.
Moody’s now anticipates revenues to increase in the low-teens percent range. This is higher than the prior target of the high-single-digit to low-double-digit percent range.
The company also increased the share repurchase authorization for this year to approximately $1.3 billion from $1 billion, as previously mentioned.
Inorganic Expansion Initiatives:In July, Moody’s announced that it had fully acquired Global Credit Rating Company Limited (“GCR”). This move expands the company’s footprint in Africa’s domestic credit markets. The terms of the deal were kept under wraps. In 2022, Moody’s initially announced the acquisition of a majority stake in GCR Ratings.
Combining Global Credit Rating’s solid footprint in Africa’s market will bolster Moody’s presence in the high-growth markets. This strategic move will be immaterial to MCO’s 2024 earnings.
Also, Moody’s and MSCI agreed to establish a strategic partnership to capitalize on each other’s strengths to enhance transparency in ESG and sustainability in markets and make better decisions. The financial terms of the deal remain confidential.
Through access to MSCI data, Moody’s plans to migrate its existing ESG data and scores to offer MSCI’s sustainability content through a wide array of solutions serving its customers in the banking, insurance and corporate sectors.
Over the years, Moody’s has been strengthening its footprint and credit rating solutions through strategic acquisitions/partnerships. Last year, it acquired SCRiesgo to boost its presence in Central America and the Dominican Republic. In 2022, it acquired 360kompany AG to strengthen its Know Your Customer capabilities. Its inorganic growth efforts are expected to help diversify revenues.
Strong Balance Sheet & Liquidity: Moody’s diversifying efforts are well supported by a strong balance sheet position. As of Jun 30, 2024, it had total debt worth $6.9 billion, an undrawn revolving credit facility of $1.25 billion, and cash and cash equivalents and short-term investments of $2.64 billion. The company doesn’t have any significant debt maturities before 2024. These will enable it to continue pursuing growth opportunities.
For 2024, Moody’s expects cash flow from operations of $2.4-$2.6 billion and free cash flow in the range of $2-$2.2 billion.
Impressive Capital Distribution: In February 2024, Moody’s announced a 10% hike in quarterly dividend to 85 cents per share. The company increased its dividend five times in the past five years, and its payout has grown 11.6% over the same time. MCO's payout ratio currently sits at 30% of earnings.
Further, in February, the company announced an additional $1 billion in share repurchase authority. As of Jun 30, 2024, it had nearly $975 million worth of shares available. Driven by its earnings strength and a strong balance sheet position, Moody's is expected to continue efficient capital distributions.
Few Concerns Prevail
Mounting Costs: Moody’s has been witnessing a persistent rise in expenses. Operating expenses witnessed a five-year (2018-2023) CAGR of 8%, mainly due to a rise in selling, general and administrative costs. Costs are expected to remain elevated as the company continues to invest in franchises and grow inorganically. Inflation, too, is likely to contribute to the cost increase.
For 2024, the company anticipates operating expenses to increase in the high-single-digit percent range.
Stiff Competition: Moody’s faces severe competition in most of the markets in which it operates. In the credit rating sector, it faces competition from Fitch, S&P Ratings Services (a division of S&P Global), Morningstar and many other regional providers. In the analytics segment, it faces competition from Dun & Bradstreet, Bloomberg, IBM and Fiserv, among others.
Further, in the risk management software market, MCO competes with large software developers like SAS, Oracle, IBM and Mysis. Stiff competition will likely continue to put pressure on pricing, which may hurt its profitability.
Upbeat Earnings & Sales Growth Projections
Earnings estimates for Mody’s have moved upward for both 2024 and 2025. The Zacks Consensus Estimate for 2024 earnings has risen from $10.92 per share to $11.34 over the past month. For 2025, earnings estimates have increased from $12.38 to $12.88 per share over the same timeframe.
MCO Estimate Movement
Image Source: Zacks Investment Research
Further, driven by upward estimate revision activity, the estimate for 2024 indicates year-over-year growth of 14.6% and the same for 2025 suggests 13.5% rise. MCO has a long-term EPS growth rate of 14.1%.
Likewise, the Zacks Consensus Estimate for sales of $6.72 billion and $7.25 billion for 2024 and 2025, respectively, implies a 13.6% and 7.8% year-over-year increase.
To Buy or Not to Buy?
As the operating environment continues to improve, issuance recovery looks more sustainable. Further, interest rate cuts are expected to support Moody’s financials next year and beyond as corporate refinancing needs rise. Also, demand for analytics (despite near-term headwinds) will likely support profitability driven by the company’s inorganic growth efforts.
Yet, elevated expenses and pricing pressure because of stiff competition across its businesses are major concerns. Nonetheless, Moody’s solid liquidity and balance sheet position and enhanced capital distributions are tailwinds.
With strong earnings projections, the company is well-poised to deliver sustained growth. We believe the MCO stock is an ideal candidate for investors' portfolio addition.
Image: Bigstock
Moody's (MCO) Trades Near 52-Week High: Time to Buy the Stock?
Moody’s (MCO - Free Report) shares are currently trading in the vicinity of a 52-week high of $465.30, touched on Aug 9. The stock has gained 17.9% this year against the industry’s decline of 0.5%.
The stock has outperformed peers like S&P Global Inc. (SPGI - Free Report) , Dun & Bradstreet Holdings, Inc. (DNB - Free Report) and MSCI Inc. (MSCI - Free Report) in the same period.
Price Performance
Image Source: Zacks Investment Research
Let’s first try to understand what’s behind this share price rise and then we discuss whether the MCO stock has the potential to rally further.
Results & Raised 2024 Guidance: Last year was marked by subdued bond issuances because of uncertain macroeconomic factors. The trend has since reversed and the global bond issuance volumes have been rising. This was reflected in Moody’s first-half 2024 performance.
Moody’s recorded half-yearly adjusted earnings of $6.65 per share on revenues of $3.6 billion. Earnings and revenues grew 25.7% and 21.6%, respectively, year over year. The jump was driven by the conducive operating backdrop – “higher issuance volumes and rising demand for the Moody’s Analytics (MA) segment’s innovative solutions and analytical insights.”
Year-to-Date Earnings
Image Source: Moody's
Year-to-Date Revenues
Image Source: Moody's
Driven by this improved performance, management raised its earnings and revenue guidance for 2024. Adjusted earnings are now projected to be in the $11.00-$11.40 per share range, higher than the previous guidance of $10.40-$11.00.
Moody’s now anticipates revenues to increase in the low-teens percent range. This is higher than the prior target of the high-single-digit to low-double-digit percent range.
The company also increased the share repurchase authorization for this year to approximately $1.3 billion from $1 billion, as previously mentioned.
Inorganic Expansion Initiatives: In July, Moody’s announced that it had fully acquired Global Credit Rating Company Limited (“GCR”). This move expands the company’s footprint in Africa’s domestic credit markets. The terms of the deal were kept under wraps. In 2022, Moody’s initially announced the acquisition of a majority stake in GCR Ratings.
Combining Global Credit Rating’s solid footprint in Africa’s market will bolster Moody’s presence in the high-growth markets. This strategic move will be immaterial to MCO’s 2024 earnings.
Also, Moody’s and MSCI agreed to establish a strategic partnership to capitalize on each other’s strengths to enhance transparency in ESG and sustainability in markets and make better decisions. The financial terms of the deal remain confidential.
Through access to MSCI data, Moody’s plans to migrate its existing ESG data and scores to offer MSCI’s sustainability content through a wide array of solutions serving its customers in the banking, insurance and corporate sectors.
Over the years, Moody’s has been strengthening its footprint and credit rating solutions through strategic acquisitions/partnerships. Last year, it acquired SCRiesgo to boost its presence in Central America and the Dominican Republic. In 2022, it acquired 360kompany AG to strengthen its Know Your Customer capabilities. Its inorganic growth efforts are expected to help diversify revenues.
Strong Balance Sheet & Liquidity: Moody’s diversifying efforts are well supported by a strong balance sheet position. As of Jun 30, 2024, it had total debt worth $6.9 billion, an undrawn revolving credit facility of $1.25 billion, and cash and cash equivalents and short-term investments of $2.64 billion. The company doesn’t have any significant debt maturities before 2024. These will enable it to continue pursuing growth opportunities.
For 2024, Moody’s expects cash flow from operations of $2.4-$2.6 billion and free cash flow in the range of $2-$2.2 billion.
Impressive Capital Distribution: In February 2024, Moody’s announced a 10% hike in quarterly dividend to 85 cents per share. The company increased its dividend five times in the past five years, and its payout has grown 11.6% over the same time. MCO's payout ratio currently sits at 30% of earnings.
Further, in February, the company announced an additional $1 billion in share repurchase authority. As of Jun 30, 2024, it had nearly $975 million worth of shares available. Driven by its earnings strength and a strong balance sheet position, Moody's is expected to continue efficient capital distributions.
Few Concerns Prevail
Mounting Costs: Moody’s has been witnessing a persistent rise in expenses. Operating expenses witnessed a five-year (2018-2023) CAGR of 8%, mainly due to a rise in selling, general and administrative costs. Costs are expected to remain elevated as the company continues to invest in franchises and grow inorganically. Inflation, too, is likely to contribute to the cost increase.
For 2024, the company anticipates operating expenses to increase in the high-single-digit percent range.
Stiff Competition: Moody’s faces severe competition in most of the markets in which it operates. In the credit rating sector, it faces competition from Fitch, S&P Ratings Services (a division of S&P Global), Morningstar and many other regional providers. In the analytics segment, it faces competition from Dun & Bradstreet, Bloomberg, IBM and Fiserv, among others.
Further, in the risk management software market, MCO competes with large software developers like SAS, Oracle, IBM and Mysis. Stiff competition will likely continue to put pressure on pricing, which may hurt its profitability.
Upbeat Earnings & Sales Growth Projections
Earnings estimates for Mody’s have moved upward for both 2024 and 2025. The Zacks Consensus Estimate for 2024 earnings has risen from $10.92 per share to $11.34 over the past month. For 2025, earnings estimates have increased from $12.38 to $12.88 per share over the same timeframe.
MCO Estimate Movement
Image Source: Zacks Investment Research
Further, driven by upward estimate revision activity, the estimate for 2024 indicates year-over-year growth of 14.6% and the same for 2025 suggests 13.5% rise. MCO has a long-term EPS growth rate of 14.1%.
Likewise, the Zacks Consensus Estimate for sales of $6.72 billion and $7.25 billion for 2024 and 2025, respectively, implies a 13.6% and 7.8% year-over-year increase.
To Buy or Not to Buy?
As the operating environment continues to improve, issuance recovery looks more sustainable. Further, interest rate cuts are expected to support Moody’s financials next year and beyond as corporate refinancing needs rise. Also, demand for analytics (despite near-term headwinds) will likely support profitability driven by the company’s inorganic growth efforts.
Yet, elevated expenses and pricing pressure because of stiff competition across its businesses are major concerns. Nonetheless, Moody’s solid liquidity and balance sheet position and enhanced capital distributions are tailwinds.
With strong earnings projections, the company is well-poised to deliver sustained growth. We believe the MCO stock is an ideal candidate for investors' portfolio addition.
At present, 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.