We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Moody's (MCO) Up 21.5% YTD: Will the Outperformance Continue?
Read MoreHide Full Article
Shares of Moody’s (MCO - Free Report) have appreciated 21.5% so far this year compared with the industry’s growth of 6%. The stock has also outperformed the S&P 500 Index, which rallied 15.4% in the same frame.
The impressive performance marks a significant rebound from its March lows following the banking turmoil owing to the deposit outflows across many banks, which led to the collapse of three large banks. Moody’s has regained its lost ground and is now up almost 50% from its 52-week low.
Moody’s inorganic expansion and revenue diversification efforts will continue to support growth. Though the operating backdrop hasn’t improved much, green shoots are visible. Further, its ongoing cost-efficiency initiatives will aid the bottom line.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Further, analysts are bullish on this Zacks Rank #3 (Hold) stock. Over the past seven days, the Zacks Consensus Estimate for earnings of $9.80 and $11.11 per share has moved marginally and 1% upward for 2023 and 2024, respectively. These indicate growth of 14.4% for this year and 13.4% for 2024.
Now let’s check out some of the key factors that are likely to provide further impetus to Moody’s stock.
Rising Demand for Analytics
Moody’s continues to pursue growth in areas outside the core credit ratings service. The company has increased its exposure to banking and insurance industries, and is diversifying into the emerging and fast-growing professional services and ERS businesses. A rising share of the analytics business, which is not correlated with the volatility of interest rates, has added stability to top-line growth.
Though revenues declined in 2022 because of weakness in bond issuance volumes, the same witnessed a four-year (2018-2022) CAGR of 5.3%. Given the improved mix and lower-risk nature of the company’s product portfolio, the top line is expected to rise in the quarters ahead. Moody’s is currently focused on investing in technology platforms and processes to boost operations.
The consensus estimate for sales indicates growth of 7.2% and 10.2% for 2023 and 2024, respectively.
Opportunistic Acquisitions Bode Well
Moody’s continues to grow meaningfully through several strategic acquisitions. In December 2022, it announced a deal to acquire SCRiesgo, which will bolster its presence in Central America and the Dominican Republic. In March 2022, in a bid to strengthen its Know Your Customer (KYC) capabilities, Moody's purchased 360kompany AG, while in December 2021, it acquired PassFort Limited. It has also acquired Bogard, RMS, Cortera and Catylist Inc.
These deals, along with other strategic buyouts over the years, are expected to continue helping the company diversify revenues and be accretive to earnings. Moody’s is likely to continue pursuing opportunistic deals, which are strategic fits and help diversify its revenue base.
Geolocation Restructuring Program
Management expects the program to help the company further adapt to the new global workplace and talent realities. 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 likely to result in $50-$70 million of pre-tax charges to either terminate or sublease the affected real estate leases.
The program also comprises $75-$100 million of pre-tax personnel-related restructuring charges, including severance and related costs primarily determined under MCO’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 likely to be substantially complete by the end of this year.
Strong Balance Sheet
Moody’s diversifying efforts are well supported by a strong balance sheet position. As of Mar 31, 2023, Moody’s had total debt worth $7.5 billion, an undrawn revolving credit facility of $1.25 billion, and cash and cash equivalents and short-term investments of $2.20 billion. The company doesn’t have any significant debt maturities before 2024. These will enable it to continue pursuing growth opportunities.
2023 Earnings Guidance Raised
Moody’s now 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.
Stocks Worth a Look
A couple of better-ranked stocks from the finance space are Axos Financial, Inc. (AX - Free Report) and WisdomTree, Inc. (WT - Free Report) .
The Zacks Consensus Estimate for Axos Financial’s current-year earnings has remained unchanged over the past 30 days. Its shares have gained 3.1% over the past six months. Currently, AX carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
WisdomTree also currently carries a Zacks Rank #2. The consensus mark for the company's 2023 earnings has remained unchanged over the past 30 days. In the past six months, WT shares have rallied 29.4%.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Moody's (MCO) Up 21.5% YTD: Will the Outperformance Continue?
Shares of Moody’s (MCO - Free Report) have appreciated 21.5% so far this year compared with the industry’s growth of 6%. The stock has also outperformed the S&P 500 Index, which rallied 15.4% in the same frame.
The impressive performance marks a significant rebound from its March lows following the banking turmoil owing to the deposit outflows across many banks, which led to the collapse of three large banks. Moody’s has regained its lost ground and is now up almost 50% from its 52-week low.
Moody’s inorganic expansion and revenue diversification efforts will continue to support growth. Though the operating backdrop hasn’t improved much, green shoots are visible. Further, its ongoing cost-efficiency initiatives will aid the bottom line.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Further, analysts are bullish on this Zacks Rank #3 (Hold) stock. Over the past seven days, the Zacks Consensus Estimate for earnings of $9.80 and $11.11 per share has moved marginally and 1% upward for 2023 and 2024, respectively. These indicate growth of 14.4% for this year and 13.4% for 2024.
Now let’s check out some of the key factors that are likely to provide further impetus to Moody’s stock.
Rising Demand for Analytics
Moody’s continues to pursue growth in areas outside the core credit ratings service. The company has increased its exposure to banking and insurance industries, and is diversifying into the emerging and fast-growing professional services and ERS businesses. A rising share of the analytics business, which is not correlated with the volatility of interest rates, has added stability to top-line growth.
Though revenues declined in 2022 because of weakness in bond issuance volumes, the same witnessed a four-year (2018-2022) CAGR of 5.3%. Given the improved mix and lower-risk nature of the company’s product portfolio, the top line is expected to rise in the quarters ahead. Moody’s is currently focused on investing in technology platforms and processes to boost operations.
The consensus estimate for sales indicates growth of 7.2% and 10.2% for 2023 and 2024, respectively.
Opportunistic Acquisitions Bode Well
Moody’s continues to grow meaningfully through several strategic acquisitions. In December 2022, it announced a deal to acquire SCRiesgo, which will bolster its presence in Central America and the Dominican Republic. In March 2022, in a bid to strengthen its Know Your Customer (KYC) capabilities, Moody's purchased 360kompany AG, while in December 2021, it acquired PassFort Limited. It has also acquired Bogard, RMS, Cortera and Catylist Inc.
These deals, along with other strategic buyouts over the years, are expected to continue helping the company diversify revenues and be accretive to earnings. Moody’s is likely to continue pursuing opportunistic deals, which are strategic fits and help diversify its revenue base.
Geolocation Restructuring Program
Management expects the program to help the company further adapt to the new global workplace and talent realities. 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 likely to result in $50-$70 million of pre-tax charges to either terminate or sublease the affected real estate leases.
The program also comprises $75-$100 million of pre-tax personnel-related restructuring charges, including severance and related costs primarily determined under MCO’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 likely to be substantially complete by the end of this year.
Strong Balance Sheet
Moody’s diversifying efforts are well supported by a strong balance sheet position. As of Mar 31, 2023, Moody’s had total debt worth $7.5 billion, an undrawn revolving credit facility of $1.25 billion, and cash and cash equivalents and short-term investments of $2.20 billion. The company doesn’t have any significant debt maturities before 2024. These will enable it to continue pursuing growth opportunities.
2023 Earnings Guidance Raised
Moody’s now 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.
Stocks Worth a Look
A couple of better-ranked stocks from the finance space are Axos Financial, Inc. (AX - Free Report) and WisdomTree, Inc. (WT - Free Report) .
The Zacks Consensus Estimate for Axos Financial’s current-year earnings has remained unchanged over the past 30 days. Its shares have gained 3.1% over the past six months. Currently, AX carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
WisdomTree also currently carries a Zacks Rank #2. The consensus mark for the company's 2023 earnings has remained unchanged over the past 30 days. In the past six months, WT shares have rallied 29.4%.