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Moody's Still Exposed to Risk
We maintain a Hold recommendation on the shares of Moody’s Corporation (MCO - Analyst Report). A major slowdown in residential mortgages and poor credit market conditions are responsible for the decline in Moody’s stock price as investors have grown increasingly concerned about its outlook. Moreover, the company’s inaccurate credit rating on European debt securities exposes Moody’s to new risks.
Moody’s seeks to add value to company ratings by providing greater analysis of issues related to creditworthiness, including enhanced liquidity and cash flow analysis and evaluation of accounting and corporate governance issues. We believe that Moody’s remains a solid franchise and will show substantial growth with its diversified business model and international growth. However, the company will face continuous pressure from negative headlines and likely face additional expenses related to increased regulation.
We therefore maintain our Hold rating and set our target price to $39.50. Moody’s shares are currently trading at a P/E of 19.2x our 2008 EPS estimate of $1.99, a discount to the industry mean. Thus, we set our target price to $39.50 based on a P/E multiple of 19.8x our 2008 EPS estimate. This P/E is towards the low-end of its five-year historical trading range of 14x-30x forward earnings, reflecting continued risks associated with the home mortgage market.
Read the full analyst report on MCO
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| Market Summary | Feb 10, 2010 02:01 am ET |
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