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Moody’s Corp. (MCO - Analyst Report) reported earnings of 70 cents per share in the fourth quarter of 2012, which jumped 62.8% from the year-ago quarter and was in line with the Zacks Consensus Estimate.

Quarter Details

Revenues surged 33.0% year over year to $754.2 million and exceeded the Zacks Consensus Estimate of $689.0 million. The better-than-expected result was driven by strong performance from both Moody’s Investors Service (“MIS”) and Moody's Analytics (“MA”) division.

Domestic revenues soared 40.0% year over year to $400.9 million in the reported quarter. International revenues jumped 25.8% year over year to $353.3 million in the quarter.

Segment wise, Moody’s Investors Service (MIS) revenues jumped 41.7% year over year to $519.4 million. MIS revenues in the U.S. leaped 49.0%, while revenues outside the U.S. increased 32.0% from the year-ago quarter.

Within the MIS segment, Global Corporate Finance revenues surged 73.0% year over year to $244.9 million, while Global Structured Finance revenues jumped 18.0% year over year to $102.9 million. Global Financial Institutions revenues increased 29.0% year over year to $86.2 million. Global public, project and infrastructure finance revenues were up 19.0% year over year to $85.4 million.

MA revenues grew 17.3% year over year to $234.8 million, buoyed by an increase in Research, Data and Analytics revenues (up 9.0%), Professional Services revenues (up 21.0%) and Enterprise Risk Solutions revenues (up 31.0%). MA revenues increased 16.0% in the US, while outside the U.S, it rose 18.0% on a year-over-year basis in the reported quarter.

Operating expenses increased 25.0% year over year to $494.0 million due to higher compensation. Nevertheless, operating income jumped 53.7% year over year to $296.2 million in the fourth quarter. Operating margin expanded 530 basis points (“bps”) to 39.3%, primarily due to higher revenue base. 

Net income soared 66.4% year over year to $160.1 million in the reported quarter.

Moody's exited the quarter with $1.77 billion in cash and cash equivalents and short-term investments compared with $1.54 billion in the previous quarter. At quarter end, Moody’s had $1.67 billion in outstanding debt.

Guidance

Moody’s expects 2013 revenues to grow in the high-single-digit percent range. Operating expenses are projected to increase in the low-single-digit percent range. Operating margin is projected to be between 46% and 47%. Earnings for 2013 are expected to be in the range of $3.45 to $3.55 per share.

For 2013 share repurchases are expected to be approximately $500 million. Capital expenditures are projected to be approximately $50 million. Moody’s expects approximately $100 million in depreciation and amortization expense.

MIS revenues for 2013 are expected to increase in the high single-digit percent range. In the U.S., MIS revenues are expected to increase in the high single-digit percent range, while non-U.S. revenues are expected to increase in the mid single-digit percent range.

Corporate finance revenues are projected to grow in the high single-digit percent range. Revenues from structured finance are expected to grow in the mid single-digit percent range, while revenues from financial institutions are expected to grow in the low single-digit range. Public, project and infrastructure finance revenues are expected to increase in the low double-digit percent range.

MA revenues for 2013 are expected to increase in the high single-digit percent range. In the U.S., revenues are expected to increase in the high single-digit percent range. Non-U.S. revenues are expected to increase in the low double-digit percent range.

Revenues from research, data and analytics is projected to grow in the high single-digit percent range, while revenues for enterprise risk solutions and professional services revenues are each expected to grow in the low double-digit percent range.

Our Recommendation

We believe that Moody’s remains a solid franchise in rating debt instruments based on its diversified credit research business model and international growth opportunities. Moreover, strength in new domestic debt issuance and improving clarity over regulatory climate in Europe are positives.

Moreover, this will provide Moody’s a significant competitive edge over its peers namely Dun & Bradstreet (DNB - Analyst Report), Fiserv (FISV - Analyst Report) and Standard & Poor’s Ratings services, a division of The McGraw-Hill Companies going forward.

Currently, Moody’s has a Zacks Rank #1 (Strong Buy).

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