Moody's Crushes 3Q Estimates - Analyst Blog

By
A A A

Moody's Corp. ( MCO ) reported third quarter 2012 earnings of 75 cents per share, beating the Zacks Consensus Estimate by 11 cents. Earnings jumped 31.6% year over year, primarily due to strong top-line growth.

Quarter Details


Revenue surged 29.6% year over year to $688.5 million and exceeded the Zacks Consensus Estimate of $622.0 million. The better-than-expected result was driven by strong performance from both Moody's Investors Service ("MIS") and Moody's Analytics ("MA") division. Domestic revenue soared 36.9% year over year to $375.4 million, while international revenues jumped 21.8% to $313.1 million in the quarter.

Segment wise, Moody's Investors Service (MIS) revenues jumped 34.7% year over year to $473.5 million. MIS revenues in the U.S. leaped 45.0%, while revenues outside the U.S. increased 21.0% from the year-ago quarter.

Within the MIS segment, Global Corporate Finance revenues surged 71.1% year over year to $220.7 million, while Global Structured Finance revenues jumped 13.5% year over year to $93.1 million. Global Financial Institutions revenue increased 14.7% year over year to $82.7 million. Global public, project and infrastructure finance revenue was up 12.7% year over year to $77.0 million.

MA revenue grew 19.5% year over year to $215.0 million, buoyed by an increase in Research, Data and Analytics revenues (up 7.4%), Professional services revenues (up 97.1%) and enterprise risk solutions revenues (up 26.0%). MA revenues increased 14.0% in the US, while outside the U.S, it rose 23.0% on a year-over-year basis in the reported quarter.

Operating expenses increased 25.0% year over year to $418.8 million due to higher compensation and increased headcount.

Nevertheless, operating income jumped 37.4% year over year to $269.7 million in the third quarter. Operating margin expanded 230 basis points ("bps") to 39.2%, primarily due to higher revenue base.

Net income soared 40.7% year over year to $183.9 million in the reported quarter.

Moody's exited the quarter with $1.54 billion in cash and cash equivalents and short-term investments compared with $839.5 million in the previous quarter. At quarter end, Moody's had $1.71 billion in outstanding debt and had additional debt capacity of $1.0 billion under its revolving credit facility.

Guidance

Moody's raised its earnings outlook to a range of $2.89 to $2.99 from the prior outlook of $2.70 to $2.80 for fiscal 2012. For fiscal 2012, Moody's expects revenues to increase in mid-teens percent range. However, expenses are also projected to increase in mid-teens percent range. Operating margin is projected to be approximately 43%.

Segment wise, global MIS revenue is expected to increase in the mid teens percent range for fiscal 2012. MA revenue will likely increase in the high-teens percent range for fiscal 2012.

Recommendation

We believe that Moody's remains a solid franchise in rating debt instruments based on its diversified credit research business model and international growth. However, increasing regulatory complications and cut-throat competition from Dun & Bradstreet Corp ( DNB ) and 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 #2 Rank, which implies a Buy rating in the short term (1-3 months).



DUN &BRADST-NEW (DNB): Free Stock Analysis Report

MOODYS CORP (MCO): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: DNB , MCO

Zacks.com

Zacks.com

More from Zacks.com:

Related Videos

Stocks

Referenced

100%
67%

Most Active by Volume

100,376,898
  • $17.62 ▲ 0.51%
83,231,837
  • $25.62 ▲ 1.91%
75,739,329
  • $111.78 ▼ 0.77%
65,297,937
  • $36.37 ▼ 1.76%
59,053,093
  • $47.66 ▲ 0.29%
53,482,350
  • $2.59 ▼ 0.38%
51,504,284
  • $7.34 ▲ 2.37%
51,434,656
  • $8.14 ▲ 6.96%
As of 12/19/2014, 04:15 PM


Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com