On March 11, we upgraded Moody’s Corp (MCO) to ‘Outperform’ based on its strong results in the fourth quarter of fiscal 2012. The stock also has a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
Moody’s fourth quarter revenues of $754.2 million surged 33.0% from the year-ago quarter and fared better than the Zacks Consensus Estimate of $689.0 million. The better-than-expected result was driven by strong performance from both Moody’s Investors Service (:MIS) and Moody's Analytics (MA) division.
The company’s bottom-line also increased 62.8% year over year to 70 cents per share, aided by solid margin expansion. The company ended 2012 on a strong note, as both revenues and earnings jumped approximately 20% each and margin expanded 50 basis points despite higher operating expense.
The company provided positive overall guidance primarily reflecting strong quarterly results and improving U.S. corporate finance market. Moody’s expects 2013 revenues to grow in the high-single-digit percent range. Operating expenses are projected to increase in the low-single-digit percent range. Adjusted operating margin is projected to be between 46% and 47%, while GAAP operating margin is expected between 42% and 43%. Earnings for 2013 are expected to be in the range of $3.45 to $3.55 per share. The Zacks Consensus Estimate for the fiscal 2013 is pinned at $3.49 per share.
Moody’s remains a solid franchise in rating debt instruments based on its diversified credit research business model and international growth opportunities. Moreover, strength in new domestic debt issuance and improving clarity over regulatory climate are positives. Additionally, improving liquidity, higher dividend payout and continuing share buybacks are the other positives.
Other Stocks to Consider
Besides Moody’s, other stocks in the sector that are currently performing well include Euronet Worldwide (EEFT), which has a Zacks Rank #1 (Strong Buy), and CIT Group (CIT), which currently has a Zacks Rank #2 (Buy). Moneygram International (MGI) has a Zacks Rank #3 (Hold).
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