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Why Is Moody's (MCO) Up 1.4% Since Last Earnings Report?
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A month has gone by since the last earnings report for Moody's (MCO - Free Report) . Shares have added about 1.4% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Moody's due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Moody's reported first-quarter 2023 adjusted earnings of $2.99 per share, which handily beat the Zacks Consensus Estimate of $2.31. The bottom line also grew 3% from the year-ago quarter figure.
Lower operating expenses and Moody’s Analytics segment’s solid performance supported Moody’s results. The company’s liquidity position was robust during the quarter. Yet, subdued issuance volume was a major headwind, which hurt Moody’s top line.
After taking into consideration certain non-recurring items, net income attributable to Moody's was $501 million or $2.72 per share, up from $498 million or $2.68 per share in the prior-year quarter.
Revenues Down, Costs Rise
Quarterly revenues were $1.47 billion, which outpaced the Zacks Consensus Estimate of $1.43 billion. The top line, however, declined 3% year over year. Foreign currency translation unfavorably impacted revenues by 2%.
Total expenses were $916 million, up 6%.
Adjusted operating income of $656 million was down 11%. Adjusted operating margin was 44.6%, down from 48.2% a year ago.
Mixed Segment Performance
Moody’s Investors Service revenues declined 11% year over year to $733 million. The fall was mainly due to muted capital market activities. Foreign currency translation affected the segment’s revenues by 1%.
Moody’s Analytics revenues grew 6% to $747 million. This was mainly driven by the steady demand for Know Your Customer solutions and credit research. Foreign currency translation unfavorably impacted the segment’s revenues by 3%.
Strong Balance Sheet
As of Mar 31, 2023, Moody’s had total cash, cash equivalents and short-term investments of $2.2 billion, up from $1.86 billion as of Dec 31, 2022.
The company had $7.5 billion in outstanding debt and $1.25 billion in additional borrowing capacity under the revolving credit facility.
Share Repurchase Update
During the quarter, Moody's repurchased 0.1 million shares at an average price of $297.30 per share.
2023 Guidance
Moody’s expects adjusted earnings in the range of $9.50-$10.00 per share, up from the earlier projection of $9.00-$9.50. On a GAAP basis, earnings are projected within $8.45-$8.95 per share, rising from the prior target of $8.05-$8.55.
Moody’s projects revenues to increase in the mid-to-high-single-digit percent range.
Operating expenses are expected to rise in the mid-single-digit percent range, an increase from the low-single-digit percent range provided previously.
Net interest expenses are expected to be $275-$295 million, changed from the previous guidance range of $290-$310 million.
Adjusted operating margin is expected to be 44-45%. The operating margin is likely to be nearly 37%.
Moody’s expects cash flow from operations in the range of $1.7-$1.9 billion. Similarly, free cash flow is projected to be $1.4-$1.6 billion.
The company will likely repurchase shares worth $250 million.
The effective tax rate is projected to be 15-17%, changed from the 20-22% projected earlier.
Segment Outlook for 2023
MIS segment revenues are anticipated to increase low-to-mid-single-digit percent range.
Adjusted operating margin is expected to be mid-50s.
Coming to the MA segment, Moody’s anticipates revenues to grow 10%.
Adjusted operating margin is expected to be roughly 31%. Further, the segment’s organic Annualized Recurring Revenue (ARR) is projected to rise in the low-double-digit percent range.
2022-2023 Geolocation Restructuring Program
Management expects the program to help the company further adapt to the new global workplace and talent realities. Also, the restructuring plan will accelerate a number of ongoing cost-efficiency initiatives, and includes real estate optimization and increased utilization of lower-cost operational hubs.
The program is expected to result in annualized savings of $100-$135 million per year.
The exit from certain leased office spaces is expected to result in $50-$70 million of pre-tax charges to either terminate or sublease the affected real estate leases.
The program also includes $75-$100 million of pre-tax personnel-related restructuring charges, an amount that includes severance and related costs primarily determined under the company’s existing severance plans.
Cash outlays associated with the program are expected to be $75-$100 million, which are expected to be paid through 2024.
The program is expected to be substantially complete by the end of 2023.
Medium-Term Targets
Moody’s projects total revenue growth of at least 10%, with adjusted operating margin in the low-50s range. Adjusted earnings per share are anticipated to increase in the low double-digit percentage range.
MA segment revenues are projected to grow in the low-to-mid teen percentage range, with adjusted operating margin in the mid-30s range.
MIS segment revenues are anticipated to rise in the low-to-mid-single-digit percentage range, with adjusted operating margin in the low-60s range.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
At this time, Moody's has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Moody's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Moody's is part of the Zacks Financial - Miscellaneous Services industry. Over the past month, Synchrony (SYF - Free Report) , a stock from the same industry, has gained 3.2%. The company reported its results for the quarter ended March 2023 more than a month ago.
Synchrony reported revenues of $4.05 billion in the last reported quarter, representing a year-over-year change of +6.9%. EPS of $1.35 for the same period compares with $1.73 a year ago.
Synchrony is expected to post earnings of $1.19 per share for the current quarter, representing a year-over-year change of -25.6%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.6%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Synchrony. Also, the stock has a VGM Score of A.
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Why Is Moody's (MCO) Up 1.4% Since Last Earnings Report?
A month has gone by since the last earnings report for Moody's (MCO - Free Report) . Shares have added about 1.4% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Moody's due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Moody's Q1 Earnings & Revenues Beat, Costs Rise Y/Y
Moody's reported first-quarter 2023 adjusted earnings of $2.99 per share, which handily beat the Zacks Consensus Estimate of $2.31. The bottom line also grew 3% from the year-ago quarter figure.
Lower operating expenses and Moody’s Analytics segment’s solid performance supported Moody’s results. The company’s liquidity position was robust during the quarter. Yet, subdued issuance volume was a major headwind, which hurt Moody’s top line.
After taking into consideration certain non-recurring items, net income attributable to Moody's was $501 million or $2.72 per share, up from $498 million or $2.68 per share in the prior-year quarter.
Revenues Down, Costs Rise
Quarterly revenues were $1.47 billion, which outpaced the Zacks Consensus Estimate of $1.43 billion. The top line, however, declined 3% year over year. Foreign currency translation unfavorably impacted revenues by 2%.
Total expenses were $916 million, up 6%.
Adjusted operating income of $656 million was down 11%. Adjusted operating margin was 44.6%, down from 48.2% a year ago.
Mixed Segment Performance
Moody’s Investors Service revenues declined 11% year over year to $733 million. The fall was mainly due to muted capital market activities. Foreign currency translation affected the segment’s revenues by 1%.
Moody’s Analytics revenues grew 6% to $747 million. This was mainly driven by the steady demand for Know Your Customer solutions and credit research. Foreign currency translation unfavorably impacted the segment’s revenues by 3%.
Strong Balance Sheet
As of Mar 31, 2023, Moody’s had total cash, cash equivalents and short-term investments of $2.2 billion, up from $1.86 billion as of Dec 31, 2022.
The company had $7.5 billion in outstanding debt and $1.25 billion in additional borrowing capacity under the revolving credit facility.
Share Repurchase Update
During the quarter, Moody's repurchased 0.1 million shares at an average price of $297.30 per share.
2023 Guidance
Moody’s expects adjusted earnings in the range of $9.50-$10.00 per share, up from the earlier projection of $9.00-$9.50. On a GAAP basis, earnings are projected within $8.45-$8.95 per share, rising from the prior target of $8.05-$8.55.
Moody’s projects revenues to increase in the mid-to-high-single-digit percent range.
Operating expenses are expected to rise in the mid-single-digit percent range, an increase from the low-single-digit percent range provided previously.
Net interest expenses are expected to be $275-$295 million, changed from the previous guidance range of $290-$310 million.
Adjusted operating margin is expected to be 44-45%. The operating margin is likely to be nearly 37%.
Moody’s expects cash flow from operations in the range of $1.7-$1.9 billion. Similarly, free cash flow is projected to be $1.4-$1.6 billion.
The company will likely repurchase shares worth $250 million.
The effective tax rate is projected to be 15-17%, changed from the 20-22% projected earlier.
Segment Outlook for 2023
MIS segment revenues are anticipated to increase low-to-mid-single-digit percent range.
Adjusted operating margin is expected to be mid-50s.
Coming to the MA segment, Moody’s anticipates revenues to grow 10%.
Adjusted operating margin is expected to be roughly 31%. Further, the segment’s organic Annualized Recurring Revenue (ARR) is projected to rise in the low-double-digit percent range.
2022-2023 Geolocation Restructuring Program
Management expects the program to help the company further adapt to the new global workplace and talent realities. Also, the restructuring plan will accelerate a number of ongoing cost-efficiency initiatives, and includes real estate optimization and increased utilization of lower-cost operational hubs.
The program is expected to result in annualized savings of $100-$135 million per year.
The exit from certain leased office spaces is expected to result in $50-$70 million of pre-tax charges to either terminate or sublease the affected real estate leases.
The program also includes $75-$100 million of pre-tax personnel-related restructuring charges, an amount that includes severance and related costs primarily determined under the company’s existing severance plans.
Cash outlays associated with the program are expected to be $75-$100 million, which are expected to be paid through 2024.
The program is expected to be substantially complete by the end of 2023.
Medium-Term Targets
Moody’s projects total revenue growth of at least 10%, with adjusted operating margin in the low-50s range. Adjusted earnings per share are anticipated to increase in the low double-digit percentage range.
MA segment revenues are projected to grow in the low-to-mid teen percentage range, with adjusted operating margin in the mid-30s range.
MIS segment revenues are anticipated to rise in the low-to-mid-single-digit percentage range, with adjusted operating margin in the low-60s range.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
At this time, Moody's has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Moody's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Moody's is part of the Zacks Financial - Miscellaneous Services industry. Over the past month, Synchrony (SYF - Free Report) , a stock from the same industry, has gained 3.2%. The company reported its results for the quarter ended March 2023 more than a month ago.
Synchrony reported revenues of $4.05 billion in the last reported quarter, representing a year-over-year change of +6.9%. EPS of $1.35 for the same period compares with $1.73 a year ago.
Synchrony is expected to post earnings of $1.19 per share for the current quarter, representing a year-over-year change of -25.6%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.6%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Synchrony. Also, the stock has a VGM Score of A.