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Moody's (MCO) Buys ZM Financial to Boost Risk Capabilities

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Moody's Corporation (MCO - Free Report) has acquired ZM Financial Systems using cash. ZM Financial provides risk and financial management software for banks in the United States. The deal is not expected to have any material impact on Moody’s 2020 financials.

Financial institutions and banks use ZM Financial’s services to manage risk and make business decisions related to asset and liability management, portfolio management, liquidity, solvency, and budgeting.

The deal is expected to broaden Moody’s Analytics’ (“MA”) Enterprise Risk Solutions (“ERS”) line of business and hence advance Moody’s position as a leader in integrated risk assessment.

Notably, the MA division (which constitutes almost 42% of Moody’s revenues) offers solutions related to financial and risk-management activities of institutions. Within its ERS, MA provides risk-management software solutions and related services.

ZM Financial’s products complement the MA division’s credit origination and credit scoring, accounting, portfolio management, and forecasting tools to form a robust suite of U.S. banking solutions.

Stephen Tulenko, the president of MA, stated, “ZM Financial’s advanced analytical tools are a trusted source for risk management software used by U.S. banks, credit unions, and broker-dealers. The addition of ZM Financial’s leading ALM capabilities furthers Moody’s global leadership in risk assessment and will help us support financial institutions of all sizes.”

Our Take

Moody’s has grown meaningfully over the years through several acquisitions. So far in 2020, it has acquired minority stakes in MioTech and Malaysian Rating Corporation and purchased Acquire Media, Regulatory DataCorp and London-based RBA International. Last year as well, it undertook several inorganic expansion initiatives.

Moreover, Moody’s has been pursuing growth in areas outside the core credit ratings service. It has increased its exposure to the banking and insurance industry, branching into the emerging and fast-growing professional services, and ERS sectors. In fact, the rising share of the analytics business, which is not correlated with the volatility of interest rates, has added stability to Moody’s top-line growth.

Over the past six months, shares of Moody’s have gained 2.9% against a 12.7% decline of the industry it belongs to.

Currently, the company carries a Zacks Rank #3 (Hold).

A few better-ranked stocks from the finance space are mentioned below.

BlackRock, Inc.’s (BLK - Free Report) Zacks Consensus Estimate for current-year earnings has been revised upward by 8.4% over the past 60 days. Moreover, the stock has rallied 27.1% over the past six months. It currently carries a Zacks Rank #2 (Buy).

The Blackstone Group Inc. (BX - Free Report) has witnessed an upward earnings estimate revision of 20.9% for the current year over the past 60 days. The company’s shares have gained 6.2% in the past six months. At present, the company carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The consensus estimate for earnings of Artisan Partners Asset Management Inc. (APAM - Free Report) has been revised 6.7% upward for the current year over the past 60 days. The stock has gained 50.5% over the past six months. Currently, it carries a Zacks Rank #2.

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