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Why Is Moody's (MCO) Up 9.6% Since Last Earnings Report?
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A month has gone by since the last earnings report for Moody's (MCO - Free Report) . Shares have added about 9.6% 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 catalysts.
Moody's Q2 Earnings Beat on Solid Bond Issuance Volume
Moody's reported second-quarter 2024 adjusted earnings of $3.28 per share, which handily outpaced the Zacks Consensus Estimate of $3.06. The bottom line surged 43% from the year-ago quarter figure.
Robust 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 posed a headwind.
After considering certain non-recurring items, net income attributable to Moody's was $522 million or $3.02 per share, up from $377 million or $2.05 per share in the prior-year quarter.
Revenues Up, Costs Rise
Quarterly revenues were $1.82 billion, which beat the Zacks Consensus Estimate of $1.75 billion. Also, the top line jumped 22% year over year.
Total expenses were $982 million, up 10% year over year.
Adjusted operating income of $902 million soared 38%. Adjusted operating margin was 49.6%, rising from 43.7% a year ago.
Solid Segment Performance
Moody’s Investors Service revenues surged 36% year over year to $1 billion. The rise was mainly driven by solid Corporate Finance, a favorable mix in Public, Project and Infrastructure Finance and improvement in Structured Finance revenues.
Moody’s Analytics revenues increased 7% to $802 million. This was mainly driven by robust demand for Moody’s proprietary data and unique analytical insights.
Strong Balance Sheet
As of Jun 30, 2024, Moody’s had total cash, cash equivalents and short-term investments of $2.7 billion, up from $2.19 billion as of Dec 31, 2023.
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 0.7 million shares at an average price of $396.08 per share.
2024 Guidance
Moody’s now expects adjusted earnings to be in the range of $11.00-$11.40 per share, higher than the previous guidance of $10.40-$11.00.
On a GAAP basis, earnings are now projected to be within $9.95-$10.35 per share. Earlier, management expected GAAP earnings to be in the range of $9.55-$10.15 per share.
Moody’s now projects revenues to increase in the low-teens percent range, higher than the prior target of the high-single-digit to low-double-digit percent range.
Operating expenses are expected to rise high-single-digit percent range, a change from the mid-to-high-single-digit percent range.
Net interest expenses are estimated to be $240-$260 million. Depreciation and amortization expenses are expected to rise almost 6.5%.
Adjusted operating margin is expected to be 46-47%. The operating margin is likely to be approximately 39%.
Moody’s expects cash flow from operations of $2.4-$2.6 billion. Free cash flow is projected to be in the range of $2-$2.2 billion.
The company will likely repurchase shares worth almost $1.3 billion.
The effective tax rate is projected to be 22-24%.
Segment Outlook for 2024
MIS segment revenues are anticipated to increase in the high-teens percent range. The company previously projected segment revenues to rise in the high-single-digit to low-double-digit percent range.
Adjusted operating margin is expected to be 58-29%.
Global MIS-rated issuance is expected to increase in the 20-25% range.
Coming to the MA segment, Moody’s anticipates revenues to rise in the high-single-digit percentage range.
Adjusted operating margin is expected to be 30-31%. Further, the segment’s organic Annualized Recurring Revenue (ARR) is projected to rise in the high-single-digit to low-double-digit percent range.
Medium-Term Targets With 2022 Base Year
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 mid-to-high-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 an upward trend in estimates revision.
VGM Scores
Currently, Moody's has a nice Growth Score of B, though it is lagging a lot 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 lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Moody's has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Moody's belongs to the Zacks Financial - Miscellaneous Services industry. Another stock from the same industry, Virtu Financial (VIRT - Free Report) , has gained 4.8% over the past month. More than a month has passed since the company reported results for the quarter ended June 2024.
Virtu Financial reported revenues of $385.08 million in the last reported quarter, representing a year-over-year change of +38.2%. EPS of $0.83 for the same period compares with $0.37 a year ago.
For the current quarter, Virtu Financial is expected to post earnings of $0.64 per share, indicating a change of +42.2% from the year-ago quarter. The Zacks Consensus Estimate has changed +1.6% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Virtu Financial. Also, the stock has a VGM Score of A.
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Why Is Moody's (MCO) Up 9.6% Since Last Earnings Report?
A month has gone by since the last earnings report for Moody's (MCO - Free Report) . Shares have added about 9.6% 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 catalysts.
Moody's Q2 Earnings Beat on Solid Bond Issuance Volume
Moody's reported second-quarter 2024 adjusted earnings of $3.28 per share, which handily outpaced the Zacks Consensus Estimate of $3.06. The bottom line surged 43% from the year-ago quarter figure.
Robust 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 posed a headwind.
After considering certain non-recurring items, net income attributable to Moody's was $522 million or $3.02 per share, up from $377 million or $2.05 per share in the prior-year quarter.
Revenues Up, Costs Rise
Quarterly revenues were $1.82 billion, which beat the Zacks Consensus Estimate of $1.75 billion. Also, the top line jumped 22% year over year.
Total expenses were $982 million, up 10% year over year.
Adjusted operating income of $902 million soared 38%. Adjusted operating margin was 49.6%, rising from 43.7% a year ago.
Solid Segment Performance
Moody’s Investors Service revenues surged 36% year over year to $1 billion. The rise was mainly driven by solid Corporate Finance, a favorable mix in Public, Project and Infrastructure Finance and improvement in Structured Finance revenues.
Moody’s Analytics revenues increased 7% to $802 million. This was mainly driven by robust demand for Moody’s proprietary data and unique analytical insights.
Strong Balance Sheet
As of Jun 30, 2024, Moody’s had total cash, cash equivalents and short-term investments of $2.7 billion, up from $2.19 billion as of Dec 31, 2023.
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 0.7 million shares at an average price of $396.08 per share.
2024 Guidance
Moody’s now expects adjusted earnings to be in the range of $11.00-$11.40 per share, higher than the previous guidance of $10.40-$11.00.
On a GAAP basis, earnings are now projected to be within $9.95-$10.35 per share. Earlier, management expected GAAP earnings to be in the range of $9.55-$10.15 per share.
Moody’s now projects revenues to increase in the low-teens percent range, higher than the prior target of the high-single-digit to low-double-digit percent range.
Operating expenses are expected to rise high-single-digit percent range, a change from the mid-to-high-single-digit percent range.
Net interest expenses are estimated to be $240-$260 million. Depreciation and amortization expenses are expected to rise almost 6.5%.
Adjusted operating margin is expected to be 46-47%. The operating margin is likely to be approximately 39%.
Moody’s expects cash flow from operations of $2.4-$2.6 billion. Free cash flow is projected to be in the range of $2-$2.2 billion.
The company will likely repurchase shares worth almost $1.3 billion.
The effective tax rate is projected to be 22-24%.
Segment Outlook for 2024
MIS segment revenues are anticipated to increase in the high-teens percent range. The company previously projected segment revenues to rise in the high-single-digit to low-double-digit percent range.
Adjusted operating margin is expected to be 58-29%.
Global MIS-rated issuance is expected to increase in the 20-25% range.
Coming to the MA segment, Moody’s anticipates revenues to rise in the high-single-digit percentage range.
Adjusted operating margin is expected to be 30-31%. Further, the segment’s organic Annualized Recurring Revenue (ARR) is projected to rise in the high-single-digit to low-double-digit percent range.
Medium-Term Targets With 2022 Base Year
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 mid-to-high-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 an upward trend in estimates revision.
VGM Scores
Currently, Moody's has a nice Growth Score of B, though it is lagging a lot 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 lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Moody's has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Moody's belongs to the Zacks Financial - Miscellaneous Services industry. Another stock from the same industry, Virtu Financial (VIRT - Free Report) , has gained 4.8% over the past month. More than a month has passed since the company reported results for the quarter ended June 2024.
Virtu Financial reported revenues of $385.08 million in the last reported quarter, representing a year-over-year change of +38.2%. EPS of $0.83 for the same period compares with $0.37 a year ago.
For the current quarter, Virtu Financial is expected to post earnings of $0.64 per share, indicating a change of +42.2% from the year-ago quarter. The Zacks Consensus Estimate has changed +1.6% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Virtu Financial. Also, the stock has a VGM Score of A.