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Decent Bond Issuance Volume to Aid Moody's (MCO) Q4 Earnings

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Moody's (MCO - Free Report) is scheduled to report fourth-quarter and full-year 2021 results on Feb 10, before the opening bell. The company’s Corporate Finance line, the largest revenue contributor at the Moody's Investors Service (“MIS”) division, is likely to have recorded decent revenue growth in the to-be-reported quarter.

Lower interest rates kept supporting debt issuances in the quarter. Though global high-yield bond issuance volumes witnessed year-over-year decline in the quarter, investment-grade bond issuance volumes and leveraged loan volumes recorded solid growth. The Zacks Consensus Estimate for revenues from the Corporate Finance line is pegged at $393 million, which indicates a 5.9% rise from the prior-year quarter’s reported number.

The quarterly issuance volumes for residential mortgage-backed securities, asset-backed securities and collateral debt obligation were impressive. Thus, growth in Structured Finance revenues is likely to have been solid. The consensus estimate for the same stands at $135 million, suggesting a 39.2% jump.

The consensus estimate for revenues for the Financial Institutions business line of $134 million implies 3.9% growth. The Zacks Consensus Estimate for Public, Project and Infrastructure Finance business of $126 million suggests a 4.1% year-over-year rise.

The consensus estimate for the MIS division’s quarterly revenues of $801 million indicates a rise of 9% from the prior-year quarter’s reported number.

For 2021, the company anticipates MIS segment revenues to grow in the low-teens percent range. Adjusted operating margin is expected to be approximately 62%.

Other Key Factors at Play

Support From Moody's Analytics (“MA”) Division: With demand for analytics rising, revenues from all units at the MA division are expected to have increased in the fourth quarter. The company’s efforts to strengthen the division’s profitability through inorganic growth strategies are anticipated to have offered some support. Thus, the division’s overall revenues are expected to have risen in the to-be-reported quarter.

The consensus estimate for the division’s quarterly revenues of $666 million suggests 20% growth from the prior-year quarter’s reported figure.

For 2021, Moody’s anticipates segment revenues to grow in the mid-teens percent range. Adjusted operating margin is expected to be roughly 29%.

High Expenses: Given Moody’s inorganic growth efforts, charges related to strategic acquisitions and restructuring costs are expected to have increased in the to-be-reported quarter. Hence, overall expenses are likely to have been elevated.

Further, the company expects to recognize a non-cash gain of nearly $30-40 million in the fourth quarter of 2021 pursuant to its minority investment in BitSight, which was completed in October 2021.

Full-Year 2021 Management Guidance

The company expects adjusted earnings in the range of $12.15-$12.35 per share. On a GAAP basis, earnings are projected within $11.65-$11.85 per share.

Moody’s projects revenues to increase in the low-teens percent range. Operating expenses are expected to increase roughly 10%.

Net interest expenses are expected to be in the range of $160-$180 million.

Adjusted operating margin is expected to be roughly 51 % and operating margin is likely to be 46-47%.

Moody’s expects cash flow from operations to be $2.3-$2.4 billion and free cash flow of $2.2-$2.3 billion.

Capital expenditures are anticipated to be $100 million.

Earnings Whispers

Our quantitative model does not conclusively predict an earnings beat for Moody’s in the fourth quarter of 2021. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Moody’s is -1.71%.

Zacks Rank: The company currently carries a Zacks Rank #2 (Buy).

Moody's Corporation Price and EPS Surprise

Moody's Corporation Price and EPS Surprise

Moody's Corporation price-eps-surprise | Moody's Corporation Quote

The Zacks Consensus Estimate for the company’s fourth-quarter earnings is pegged at $2.45, which has moved 2.1% higher over the past 30 days. The figure indicates a jump of 28.3% from the year-ago reported number.

The consensus estimate for sales of $1.49 billion suggests a 15.4% year-over-year increase.

Stocks Worth a Look

A couple of finance stocks, which you may want to consider as these have the right combination of elements to post an earnings beat in their upcoming releases per our model, are Ares Capital Corporation (ARCC - Free Report) and HSBC Holdings plc (HSBC - Free Report) .

The Earnings ESP for Ares Capital is +10.32% and it carries a Zacks Rank #2 at present. ARCC is scheduled to report quarterly numbers on Feb 9.

HSBC is scheduled to report quarterly results on Feb 22. HSBC currently has an Earnings ESP of +11.11% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.


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