Earnings Preview: Moody's Corp.

Zacks Equity Research

Moody’s Corp. (NYSE:MCO - News) is scheduled to release its fiscal fourth quarter 2011 results before the opening bell on February 8, 2012. In the run up to the earnings release, we have noticed upward revisions to analyst estimates.

Prior quarter Recap

Moody’s reported third quarter 2011 earnings, which beat the Zacks Consensus Estimate of 49 cents by 8 cents (up 16.3%). Revenues in the reported quarter totaled $531.3 million, up 3.5% from $513.3 million reported in the year-ago quarter, but below the Zacks Consensus Estimate of $543.0 million. Moody's Business Analytics (:MA) was the primary growth driver in the reported quarter.

On the operational front, Moody’s Operating income, excluding restructuring charges and legacy tax, came in at $196.3 million in the third quarter, up 3.7% year over year. However, net income decreased 3.9% year over year to $130.7 million, with net margin contracting 190 bps year over year to 24.6%.

For detailed report, please read: Mixed 3Q for Moody’s Corp.

Expectations from Fiscal 2011

The company expects diluted earnings per share in the range of $2.38 to $2.48 for fiscal 2011. Currently, the Zacks Consensus Estimate is pegged at $2.52 for fiscal 2011.

For fiscal 2011, Moody’s expects revenues to increase in the low-double-digit percent range (previous guidance was in the low-teens-digit percent range). Management expects segment revenues to contribute in the overall revenue growth of the company. The Zacks Consensus Estimate projects fourth quarter revenues at $2.27 billion.

However, expenses are expected to increase in the high-single digit percent range (prior outlook was low-double-digit percent range)

Management expects operating margin of 39% and effective tax rate to be approximately 31.0% for fiscal 2011.

Management intends to continue with its share repurchase program in 2011, subject to available cash flow and other capital allocation decisions.

Estimate Revision Trend

Two of the five analysts covering the stock raised their estimates upward in the last 30 days, while none of the analysts moved in the opposite direction. As a result, the Zacks Consensus Estimate for the fourth quarter increased by a couple of cents to 49 cents.

Analysts covering the stock are positive about the company’s competitive position and attractive growth profile. Moreover, a strong balance sheet, solid pricing techniques and improving fundamentals are expected to help its growth going forward. However, the ongoing credit crisis and sluggish macro economic outlook remain the headwinds for the company.


For the past four quarters, Moody’s Corp. reported a positive earnings surprise of 24.01% and for the current quarter we expect the company to beat the Zacks Consensus Estimate by the same magnitude.

We believe that Moody’s remains a solid franchise in rating debt instruments based on its diversified credit research business model and international growth. Moreover, Moody’s Analytics has emerged as a key growth driver for the company over the past few years, primarily due to the accretive acquisitions it has made that in turn have evolved into a strong product pipeline, particularly in the Research, Data & Analytics and Risk Management domains.

However, a sluggish global economy, increasing regulatory complications, and increasing competition from Dun & Bradstreet Corp (NYSE:DNB - News), privately held Fitch Ratings Inc. and Standard & Poor’s Financial Services LLC may hurt its profitability going forward.

We remain Neutral on a long-term basis (6-12 months). Currently, Moody’s has a Zacks #3 Rank, which implies a Hold rating in the short term (1-3 months).

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