Decent Bond Issuances To Support Moody's (MCO) Q3 Earnings

Moody's (NYSE:MCO) is scheduled to report third-quarter 2019 results on Oct 30, 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. Also, 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. The quarter witnessed solid investment grade bond and leveraged loan issuance volumes. Also, high yield bond issuance volumes were healthy.

Thus, Corporate Finance revenues are expected to have increased. The Zacks Consensus Estimate for the same is pegged at $347 million for the to-be-reported quarter, indicating 17.2% growth from the year-ago quarter’s reported figure.

While the quarterly issuance volume for commercial mortgage-backed securities remained healthy, collateralized loan obligations and asset backed securities issuance volumes were muted. Therefore, growth in Structured Finance revenues is likely to have been weak. The consensus estimate for the same is pegged at $119 million, down 4.8% year over year.

Further, the Zacks Consenus Estimate for MIS division’s Financial Institutions’ revenues stands at $121 million, suggesting nearly 1% 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 $102 million, indicating growth of 3%.

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 $694 million, suggesting a 7.6% increase from the year-ago quarter’s reported number.

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 third quarter. Also, the company’s efforts to further strengthen the division’s profitability through inorganic growth initiatives might have offered some support.

The Zacks Consensus Estimate for Professional Services’ revenues is $42.93 million, indicating 6.3% rise from the year-ago quarter’s reported number. Also, the consensus estimate for Research, Data and Analytics revenues is $320 million, indicating rise of 13.1%. Further, Enterprise Risk Solutions revenues are projected to be $123 million, suggesting 8.8% rise.

Thus, driven by growth in revenues in all three business units at the MA division, its overall revenues might have risen. The consensus estimate for revenues in the MA division is pegged at $486 million, indicating 11.5% growth.

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

Here is what our quantitative model predicts:

We cannot conclusively predict an earnings beat for Moody’s this time around. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP Filter .

Earnings ESP: Earnings ESP for Moody’s is -0.55%.

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