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Moody's (MCO) Beats on Q2 Earnings, Raises 2020 Guidance

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Moody's (MCO - Free Report) reported second-quarter 2020 adjusted earnings of $2.81 per share, which outpaced the Zacks Consensus Estimate of $2.26. Also, the figure improved 36% from the year-ago quarter.

Shares of the company gained nearly 1% in early market trading. It is to be noted that investors’ sentiments seem to be bullish as the company raised 2020 earnings outlook. Yet, a full day’s trading will likely depict a better picture.

Revenue growth on the back of impressive global bond issuance volume largely drove the results. Further, operating expenses declined slightly. 

After taking into consideration certain non-recurring items, net income was $509 million or $2.69 per share, up from $311 million or $1.62 per share in the prior-year quarter.

Revenues Improve, Costs Down

Revenues of $1.44 billion beat the Zacks Consensus Estimate of $1.27 billion. Also, the top line grew 18% year over year. Foreign currency translation unfavorably impacted the top line by 1%.

Total expenses were $725 million, down 1% year over year. The fall was driven by prudent expense management. Also, foreign currency translation favorably impacted operating expenses by 1%.

Adjusted operating income of $766 million increased 28% year over year. Adjusted operating margin was 53.4%, up from 49.3% a year ago.

Impressive Segment Performance

Moody’s Investors Service revenues grew 27% year over year to $938 million, attributable to rise in issuance activity. Foreign currency translation unfavorably impacted the segment’s revenues by 1%.

Corporate finance revenues increased from the prior-year period, driven by robust investment grade bond issuances. Also, financial institutions’ revenues grew year over year, primarily backed by a rise in activities from U.S. banks and insurance companies.

Further, public, project and infrastructure finance revenues increased from the year-ago level, reflecting strong U.S. public finance issuance, as well as solid infrastructure issuance. However, structured finance revenues fell from the prior-year figure, mainly due to lower global collateralized loan obligation activity and weakness within U.S. CMBS.

Moody’s Analytics revenues grew 5% year over year to $497 million. Foreign currency translation unfavorably impacted the segment’s revenues by 2%.

The segment recorded growth in research, data and analytics revenues, as well as Enterprise Risk Solutions revenues.

Strong Balance Sheet

As of Jun 30, 2020, Moody’s had total cash, cash equivalents and short-term investments of $2.2 billion, up from $1.9 billion on Dec 31, 2019. Further, it had $6.3 billion of outstanding debt and $1 billion in additional borrowing capacity under the revolving credit facility.

2020 Guidance Raised

Given impressive second-quarter results, Moody’s has raised its 2020 earnings guidance. The company now expects adjusted earnings in the range of $8.80-$9.20 per share (up from the prior expectation of $7.80-$8.40). The Zacks Consensus Estimate for the bottom line for 2020 is $8.69, which is below the lower end of the adjusted earnings guidance.

On GAAP basis, earnings are expected within $8.15-$8.55 per share, up from the earlier guided range of $7.25-$7.85.

Moody’s now projects revenues to increase in the low-single-digit percent range versus the prior guidance of revenue decline in the band of mid-single-digit percent.

Operating expenses are expected to remain relatively stable year over year versus the prior guidance of a decrease in the mid-single-digit percent range.

Our Take

Though the company remains well positioned for growth on the back of a strong market position, strength in diverse operations and strategic acquisitions; steadily increasing operating expenses will hurt its financials to some extent.

Moodys Corporation Price, Consensus and EPS Surprise

Moodys Corporation Price, Consensus and EPS Surprise

Moodys Corporation price-consensus-eps-surprise-chart | Moodys Corporation Quote

Currently, Moody’s carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Release Date of Other Finance Stocks

Ares Capital Corporation (ARCC - Free Report) , LendingClub Corporation (LC - Free Report) and KKR & Co. Inc. (KKR - Free Report) are scheduled to announce quarterly results on Aug 4.

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