) raised its fiscal 2012 forecast. While the top line remains
similar to previous expectations (up 12% to 13% year over year
compared to previous expectations of an increase in the
low-double-digit percentage range). In dollar terms, the company
expects revenues in the range of $2.55 billion to $2.58 billion,
which is well above the Zacks Consensus Estimate of $2.53 billion.
Moody's has also raised its pro forma earnings per share
expectations to $2.70-$2.80 from prior estimates of $2.62-$2.72.
The Zacks Consensus Estimate pegs Moody's fiscal 2012 earnings per
share at $2.75, still above the guidance.
Segment wise, global Moody's Investor Service ("MIS") is
expected to increase in the high-single-digit percentage range
(previously expected to increase in mid to high single digit
percentage range). Domestic MIS revenue is expected to increase in
the mid-teens percent range, up from earlier expectation of an
increase in low-double-digit percent range. However, overseas MIS
revenue is expected to increase in the low-single-digit range,
which is consistent with previous expectations.
Revenue from Corporate finance is expected to expand in the
mid-teens percent range (previously expected to increase in the
high single-to-low double-digit percent range). Though Moody's had
projected its revenues from structured finance to be flat on
year-over-year basis for 2012, the company now expects revenues
from the segment to increase in the mid-single-digit percent range.
However, the company expects its revenue from financial
institutions to remain flat, consistent with previous
However, Moody's has maintained its guidance on revenue from its
analytics division, Moody's Analytics ("MA"). Domestic MA revenue
is expected to increase in the high-teens to 20% range, while
overseas revenue is projected to increase in the mid to high-teens
percentage range. Research, data and analytics revenue growth is
expected to be in the mid single-digit percentage range, while
Enterprise Risk Solutions revenue is expected to be in the low 20%
range. Professional services revenue is expected to grow
approximately 75% for the full year.
The improvement in MA segment revenue expectation is backed by a
growing client base and expansion in the regulatory requirements of
banks and insurance companies. Moreover, Moody's is expected to
benefit from the disintermediation of credit markets. Improvement
in the debt market is also expected to be a positive catalyst for
the company going forward.
The company has plans to repurchase shares amounting to $300
million in fiscal 2012. Capital expenditures are expected to be in
the range of $60.0 million to $70.0 million for fiscal 2012.
Moody's expects depreciation to be approximately $100.0 million for
the full year. Incremental compliance and regulatory expense is
expected to be in the range of $10.0 million to $15.0 million for
Despite the increased guidance, we retain a Neutral
recommendation on Moody's due to the sluggish U.S economy, the
ongoing European debt crisis and concerns regarding the banking
sector. Moreover, integration risks from acquisitions and
increasing technology costs (due to Dodd-Frank implementation) are
expected to be the headwinds going forward. Moody's faces stiff
competition in most of the markets in which it operates.
Additionally competition from Fitch, S&P rating services,
Dun & Bradstreet Corp
) are the other near-term headwinds.
Nonetheless, we believe that Moody's remains a solid franchise
in rating debt instruments based on its diversified credit research
business model and international growth opportunities.
Moody's currently has a Zacks #3 Rank, which translates into a
short-term Hold rating.
DUN &BRADST-NEW (DNB): Free Stock Analysis
FISERV INC (FISV): Free Stock Analysis Report
MOODYS CORP (MCO): Free Stock Analysis Report
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