Can Moody's (MCO) Stellar Performance Continue In 2018?
Zacks Investment Research | Dec 21, 2017 08:37PM ET
Moody's Corporation (NYSE:MCO) continues to be a leading provider of credit ratings, research, data & analytical tools, software solutions and related risk management services across the globe. Post the dismal 2016 performance, the company made a comeback this year.
Before we dig into the factors that are likely to support the rally in 2018, let’s first check out what the factors which drove the stock this year?
Despite starting on a low note, global debt and equity issuances along with M&A activities picked up pace as the year progressed. Thus, its Moody’s Investors Service (MIS) division continued to witness steady rise in revenues.
Further during the year, Moody’s continued with its efforts to pursue growth in areas outside the core credit ratings service. In line with this, the company acquired Amsterdam, Netherlands-based Bureau van Dijk in August 2017. Driven by the rise in demand for analytics, its Moody's Analytics division recorded solid revenue growth.
Given the strong underlying business performance, Moody’s persistently revised its earnings outlook upward for 2017. Earnings are now projected to be $6.18 to $6.33 per share (up from the previous outlook of $5.69-$5.84).
Driven by the strong fundamentals and improving operating environment, investors are bullish on the stock. Shares of Moody’s have jumped 56.4% so far this year, significantly outperforming the industry ’s gain of 20%. The stock has even surpassed S&P 500 rally of 20.1% year to date.
Now, let’s check out the factors which are likely to provide an impetus to Moody’s stock.
Driven by the improving global economy, tightening monetary policy and rise in global M&A and IPO activities, Moody’s is expected to witness an increase in bond and bank loan issuance revenues as well as higher monitoring revenues related to new ratings. Therefore, corporate finance revenues, the largest revenue contributor at the MIS division, will record a rise in 2018.
Further, Moody’s is currently focused on investing in technology platform and processes to boost operations. Also, the company is undertaking initiatives to diversify into the emerging and fast growing professional services and enterprise risk solutions sectors.
These efforts are well supported by Moody’s’ strong balance sheet and cash flow position. As of Sep 30, 2017, the company had total cash, cash equivalents and short-term investments of $1.1 billion. This will support the company’s diversifying plans.
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Moreover, management expects Bureau van Dijk deal to be accretive to its 2018 adjusted earnings (excluding purchase price amortization and one-time integration expenses).
However, mounting expenses and stiff completion are expected to remain concerns. Despite these issues, analysts seem to be optimistic about Moody’s prospects. Over the last 60 days, the stock has witnessed three upward estimate revisions (no downward revisions) for 2018. Thus, the stock carries a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for earnings of $6.54 shows 10.3% year-over-year growth for 2018. Further next year, revenues are projected to witness a 10.3% rise to $4.51 billion.
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Some other top-ranked stocks in the finance space worth considering are American Express Company (NYSE:AXP) , MoneyGram International, Inc. (NASDAQ:MGI) and Southern First Bancshares, Inc. (NASDAQ:SFST) . All the stocks carry a Zacks Rank of 2. You can see Original post
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