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Moody's (MCO) Rides on Strategic Acquisitions Amid Cost Woes
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Moody's Corporation (MCO - Free Report) continues to be well positioned for growth, driven by its dominant position in the credit rating industry, business expansion initiatives and constant efforts to diversify its revenue base. Steadily rising expenses and intense competition across the credit rating industry are concerns.
Though MCO's revenues declined in 2022 due to lower bond issuances, it still witnessed a compound annual growth rate (CAGR) of 5.3% over the four-year period ended 2022. The momentum persisted in the first half of 2023. The top line is expected to rise, given the improved mix and lower-risk nature of the company’s product portfolio.
Moody's continues to expand beyond its core business of providing credit rating services. The company has increased its exposure to the banking and insurance industries and is diversifying into the emerging and fast-growing professional services and ERS businesses. These constant efforts have added stability to its top-line growth.
MCO is exploring opportunities for bolt-on acquisitions that are strategic fits and complement its existing operations. Last year, it announced a deal to acquire SCRiesgo and acquired 360kompany AG. These, along with several other strategic buyouts over the years, are expected to continue helping the company diversify revenues and be accretive to earnings.
Analysts seem optimistic regarding MCO's earnings growth prospects. The Zacks Consensus Estimate for the company's 2023 earnings has been revised 2.4% upward over the past 60 days. It currently carries a Zacks Rank #3 (Hold).
Over the past six months, shares of MCO have gained 19.1% compared with the industry's upside of 7.1%.
Image Source: Zacks Investment Research
However, Moody's operating expenses have remained elevated over the past several years, with the metric recording a four-year CAGR of 8.6% (ended 2022). The uptrend continued in the first half of 2023. Overall costs are expected to remain elevated as it continues to invest in franchises and grow inorganically. Management expects 2023 operating expenses to increase in the mid-single-digit percent range.
The company faces competition from Fitch, S&P Ratings Services, Morningstar and many other regional providers. In the analytics segment, it faces competition from Dun & Bradstreet, Bloomberg, IBM, Fiserv and many others. In the risk management software market, MCO competes with large software developers including SAS, Oracle, IBM and Mysis. The stiff competition will likely continue to put pressure on pricing, which may hurt profitability to some extent.
Finance Stocks Worth a Look
A couple of better-ranked stocks from the finance space are JPMorgan Chase & Co. (JPM - Free Report) and Globe Life (GL - Free Report) .
JPMorgan currently sports a Zacks Rank #1 (Strong Buy). Its earnings estimates for 2023 have been revised marginally upward over the past seven days. In the past six months, JPM’s shares have rallied 10.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Globe Life’s current-year earnings has been revised marginally upward over the past 60 days. Its shares have gained 2.2% in the past six months. Currently, GL carries a Zacks Rank #2 (Buy).
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Moody's (MCO) Rides on Strategic Acquisitions Amid Cost Woes
Moody's Corporation (MCO - Free Report) continues to be well positioned for growth, driven by its dominant position in the credit rating industry, business expansion initiatives and constant efforts to diversify its revenue base. Steadily rising expenses and intense competition across the credit rating industry are concerns.
Though MCO's revenues declined in 2022 due to lower bond issuances, it still witnessed a compound annual growth rate (CAGR) of 5.3% over the four-year period ended 2022. The momentum persisted in the first half of 2023. The top line is expected to rise, given the improved mix and lower-risk nature of the company’s product portfolio.
Moody's continues to expand beyond its core business of providing credit rating services. The company has increased its exposure to the banking and insurance industries and is diversifying into the emerging and fast-growing professional services and ERS businesses. These constant efforts have added stability to its top-line growth.
MCO is exploring opportunities for bolt-on acquisitions that are strategic fits and complement its existing operations. Last year, it announced a deal to acquire SCRiesgo and acquired 360kompany AG. These, along with several other strategic buyouts over the years, are expected to continue helping the company diversify revenues and be accretive to earnings.
Analysts seem optimistic regarding MCO's earnings growth prospects. The Zacks Consensus Estimate for the company's 2023 earnings has been revised 2.4% upward over the past 60 days. It currently carries a Zacks Rank #3 (Hold).
Over the past six months, shares of MCO have gained 19.1% compared with the industry's upside of 7.1%.
Image Source: Zacks Investment Research
However, Moody's operating expenses have remained elevated over the past several years, with the metric recording a four-year CAGR of 8.6% (ended 2022). The uptrend continued in the first half of 2023. Overall costs are expected to remain elevated as it continues to invest in franchises and grow inorganically. Management expects 2023 operating expenses to increase in the mid-single-digit percent range.
The company faces competition from Fitch, S&P Ratings Services, Morningstar and many other regional providers. In the analytics segment, it faces competition from Dun & Bradstreet, Bloomberg, IBM, Fiserv and many others. In the risk management software market, MCO competes with large software developers including SAS, Oracle, IBM and Mysis. The stiff competition will likely continue to put pressure on pricing, which may hurt profitability to some extent.
Finance Stocks Worth a Look
A couple of better-ranked stocks from the finance space are JPMorgan Chase & Co. (JPM - Free Report) and Globe Life (GL - Free Report) .
JPMorgan currently sports a Zacks Rank #1 (Strong Buy). Its earnings estimates for 2023 have been revised marginally upward over the past seven days. In the past six months, JPM’s shares have rallied 10.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Globe Life’s current-year earnings has been revised marginally upward over the past 60 days. Its shares have gained 2.2% in the past six months. Currently, GL carries a Zacks Rank #2 (Buy).