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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 2019 results on Feb 12, before the opening bell. The company is likely to have recorded higher revenues in its Corporate Finance line, the largest revenue contributor at the Moody's Investors Service (“MIS”) division, as bond issuance volume was decent. Further, weakness in bond issuance volume in the prior-year quarter will make comparisons easier.

Lower interest rates majorly supported debt issuances in the to-be-reported quarter amid several geopolitical concerns and seasonality. The quarter witnessed slight improvement in investment grade bond and leveraged loan issuance volumes, while high yield bond issuance volumes were solid.

Thus, Corporate Finance revenues are expected to have increased. The Zacks Consensus Estimate for the same is pegged at $365 million, indicating 29% growth from the year-ago quarter’s reported figure.

While the quarterly issuance volume for commercial mortgage-backed securities and asset backed securities remained healthy, collateralized loan obligations issuance volumes were muted. Thus, growth in Structured Finance revenues is likely to have been weak. The consensus estimate for the same is pegged at $120 million, implying a 7.7% fall year over year.

Further, the Zacks Consensus Estimate for MIS division’s Financial Institutions’ revenues stands at $109 million, suggesting 25.3% rise from the prior-year reported number.  Also, Public, Project and Infrastructure Finance unit revenues are likely to have increased. The consensus estimate for the same is pegged at $110 million, indicating growth of 20.9%.

Overall, the MIS division is expected to have witnessed a year-over-year improvement in the top line. The Zacks Consensus Estimate for the division’s revenues is $713 million, suggesting a 19.8% increase.

Also, management expects MIS segment revenues for 2019 to grow in the mid-single-digit percent range.

Other Factors at Play

Support from Moody's Analytics (“MA”) division: With demand for analytics rising, all three business units at the MA division are likely to have witnessed an increase in revenues in the fourth quarter. Also, the company’s efforts to further strengthen the division’s profitability through inorganic growth initiatives might have offered some support.

Also, the Zacks Consensus Estimate for Research, Data and Analytics revenues is $334 million, indicating rise of 10.6% from the year-ago quarter’s reported number. Further, Enterprise Risk Solutions revenues are projected to be $141 million, suggesting 18.5% rise. However, the consensus estimate for Professional Services’ revenues of $16.71 million indicates a 61.6% plunge.

Thus, driven by growth in revenues in two business units at the MA division, its overall revenues might have risen in the to-be-reported quarter. The consensus estimate for revenues in the MA division is pegged at $492 million, indicating 6.3% growth.

For 2019, management anticipates the segment’s revenues to grow in the low-double-digit percent range.

Higher expenses: Given Moody’s inorganic growth efforts, charges related to strategic acquisition and restructuring costs are likely to have increased in the to-be-reported quarter. Hence, overall expenses for the fourth quarter are likely to be elevated.

For 2019, the company expects operating expenses to increase in the high-single-digit percent range.

Earnings and Sales Growth Expectations

The Zacks Consensus Estimate for earnings of $1.92 for the to-be-reported quarter has been unchanged over the past seven days. The figure reflects year-over-year growth of 17.8%.

For 2019, Moody’s expects adjusted earnings in the range of $8.05-$8.20 per share and GAAP earnings of $7.20-$7.35 per share. Further, divestiture of Moody’s Analytics Knowledge Services business in November 2019 is expected to be dilutive to GAAP earnings by up to 20 cents per share, while its impact on adjusted earnings will likely be negligible.

The consensus estimate for quarterly sales of $1.21 billion reflects 14.3% year-over-year rise.

For 2019, sales are expected to be $4.80 billion. Notably, Moody’s projects revenues to increase in the high-single-digit percent range.

Moody's Corporation Price, Consensus and EPS Surprise

 

Moody's Corporation Price, Consensus and EPS Surprise

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

Earnings Whispers

Per our quantitative model the chances of Moody’s beating the Zacks Consensus Estimate are high this time around. This is because it has 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: Earnings ESP for Moody’s is +0.57%.

Zacks Rank: Moody’s currently carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

Here are a few other finance stocks that you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat in their upcoming releases:

Healthpeak Properties, Inc. (PEAK - Free Report) is slated to release results on Feb 11. It presently has an Earnings ESP of +1.15% and a Zacks Rank #3.

Fidelity National Information Services, Inc. (FIS - Free Report) is scheduled to report on Feb 13. It has an Earnings ESP of +0.30% and a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Essent Group Ltd. (ESNT - Free Report) is slated to release results on Feb 14. It currently has an Earnings ESP of +1.26% and a Zacks Rank #2.

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