Moody's Corporation (NYSE:MCO) just released its latest first-quarter results and things are looking bullish. The company beat both earnings and revenue forecasts, with revenue of US$1.3b, some 7.1% above estimates, and statutory earnings per share (EPS) coming in at US$2.57, 23% ahead of expectations. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the twelve analysts covering Moody's provided consensus estimates of US$4.69b revenue in 2020, which would reflect a small 5.7% decline on its sales over the past 12 months. Statutory earnings per share are forecast to dip 6.9% to US$7.59 in the same period. In the lead-up to this report, the analysts had been modelling revenues of US$4.92b and earnings per share (EPS) of US$8.33 in 2020. The analysts are less bullish than they were before these results, given the reduced revenue forecasts and the minor downgrade to earnings per share expectations.
The analysts made no major changes to their price target of US$250, suggesting the downgrades are not expected to have a long-term impact on Moody's'valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Moody's, with the most bullish analyst valuing it at US$325 and the most bearish at US$205 per share. This shows there is still a bit of diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. We would highlight that sales are expected to reverse, with the forecast 5.7% revenue decline a notable change from historical growth of 8.2% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 3.3% annually for the foreseeable future. It's pretty clear that Moody's' revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Moody's. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have forecasts for Moody's going out to 2024, and you can see them free on our platform here.
You still need to take note of risks, for example - Moody's has 2 warning signs we think you should be aware of.
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