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Moody's (MCO) Poised for Growth: Time to Hold the Stock?

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On Nov 28, 2016, we issued an updated research report on Moody's Corporation (MCO - Free Report) . The credit ratings giant continues to depict strength in several areas, including a solid revenue growth momentum.

Moody's has been recording increasing revenues over the past several years driven by strength in its diverse operations. The growth trend continued during the nine-month period ended Sep 30, 2016, as revenues were up 2% year over year to $2.67 billion.    

Revenues of the company’s unit – Moody’s Investors Service (MIS) – edged down 1%, reflecting overall challenges in first-half 2016 due to higher credit spreads and market volatility. However, Moody’s Analytics (MA) segment recorded 8% growth in revenues from the prior year, on the back of increases in Enterprise Risk Solutions and data and analytics.

This New York-based company remains focused on pursuing growth opportunities through strategic acquisitions. In Jul 2016, Moody’s acquired Korea Investors Service (KIS) fully, while in Sep 2016, it announced collaboration with Hamburg-based ratings agency – Euler Hermes Rating GmbH (EHRG) – to provide credit ratings for small- and medium-sized enterprises (SMEs) and mid-cap companies across Europe.

Additionally, extending its insurance risk offerings and analytical capabilities, Moody’s acquired a prominent actuarial software company – GGY – in Mar 2016.

Though Moody’s total operating expenses increased 5% year over year to $1.56 billion, during the first nine months of 2016 due to higher compensation costs and restructuring charges, the company remains focused on expense management initiatives.

In fact, the company raised its earnings guidance for 2016 to $4.62–$4.72 per share from the previous outlook of $4.55–$4.65. Revenues are projected to be up in low-single digits.

However, Moody’s imminent hurdle remains from the Department of Justice (DOJ) as the regulator might file a lawsuit against the company related to RMBS and CLO ratings assigned prior to the 2008 financial crisis. Moody’s expects that several state attorneys are likely to follow in DOJ’s footsteps. These litigations, if materialized, could see a rise in legal expenses. Also, heightened political risks and market volatility remain other headwinds for the rating agency.

Moody’s shares, which inched up 1% year to date, underperformed 3.5% gain for the Zacks categorized Miscellaneous Financial Services industry.




Over the past 30 days, the Zacks Consensus Estimate remained unchanged at $4.69 for 2016 and at $5.11 for 2017.

Moody’s currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Bats Global Markets : The Zacks Consensus Estimate for 2016 moved up 3.6% to $1.43 for 2016 and 6.5% to $1.64 for 2017, over the last 30 days. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Compass Diversified Holdings LLC (CODI - Free Report) : The Zacks Consensus Estimate for 2016 has moved up 1.4% to $1.43 for 2016 and 1.7% to $1.78 for 2017, in the last 30 days. The company also boasts a Zacks Rank #1.

LPL Financial Holdings Inc. (LPLA - Free Report) : Over the last 30 days, the Zacks Consensus Estimate for the current year increased 10% to $2.03 and climbed 5.3% to $1.98 for 2017. The company carries a Zacks Rank #2 (Buy).

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