Moody's MCO continues to be a leading provider of credit ratings, research, data & analytical tools, software solutions and related risk management services across the globe. The company is well positioned for growth on the back of its diverse revenue base and synergies from strategic acquisitions.
However, several matters, including a slowdown in bond issuance volumes, litigation issues and stiff competition across the credit rating industry are major near-term headwinds for Moody’s. Despite these, this Zacks Rank #2 (Buy) stock seems like a solid investment option as it has been witnessing upward estimate revisions.
In fact, the Zacks Consensus Estimate for earnings has been revised 1.1% and 1% upward for 2019 and 2020, respectively, over the past 60 days. This reflects analysts’ optimism regarding the company’s earnings growth potential.
Also, shares of Moody’s have surged 57.4% so far this year, outperforming the industry’s growth of 20.5%.
Here are the reasons why Moody’s is worth betting on now:
Revenue strength: Moody’s remains focused on enhancing revenue growth. The company has increased its exposure to the banking and insurance industry, branching into the emerging and fast-growing professional services and enterprise risk solutions sectors.
Also, a rising share of the analytics business, which is not correlated with the volatility of interest rates, has added stability to top-line growth. The company’s top line has witnessed a five-year (2014-2018) CAGR of 7.4%.
Its projected sales growth rate of 5.5% for 2019 and 5.2% for 2020 indicates constant upward momentum in revenues.
Synergies from acquisitions: Moody’s growth has been reflected in several successful acquisitions over the last few years. These strategic deals have provided it with increased scale and cross-selling opportunities across products and vertical markets. The company continues to pursue opportunistic deals, which are strategic fits and diversify its revenue base.
Earnings growth: Over the past three to five years, Moody’s witnessed earnings growth of 15.6%, significantly above the industry average of 7.2%. Further, the company’s earnings are projected to grow 8.7% in 2019 and 9.8% in 2020.
Moreover, Moody’s has a Growth Score of B. Our research shows that stocks with Style Scores of A or B, when combined with Zacks Rank #1 (Strong Buy) or #2, offer the best upside potential.
Impressive capital deployments: Moody’s capital deployment plan is commendable. In February, the company announced a 14% dividend hike. Also, the company has a share repurchase authorization in place. As of Jun 30, 2019, Moody’s had nearly $710 million of share buyback authorization left. Given its capital strength and favorable dividend payout ratio, the company is likely to be able to sustain capital deployments.
Other Stocks Worth a Look
The Zacks Consensus Estimate for Ally Financial ALLY has moved 3.6% upward for 2019 in the past 60 days. Shares of this Zacks Rank #1 company have returned 43.7% year to date.
The Zacks Consensus Estimate for Navient Corporation NAVI has been revised 14.5% upward for 2019 in the past 60 days. Its share price has surged 45.2% so far this year. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus estimate for Credit Acceptance Corporation CACC has been revised 2.2% upward for 2019 in the past 60 days. The company’s share price has rallied 17.1% so far this year. The company has a Zacks Rank of 2.
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