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Moody's Stock Broke Out When Market Uptrend Resumed
By: Investor's Business Daily
When the market uptrend resumed on April 29, Moody's ( MCO ) broke out of a base in heavy volume.
The base, however, was an oddly shaped cup with handle. The move to the bottom of the base involved only one week -- a 22% dive in huge volume in the week ended Feb. 8.
Normally, bulls like to see a stock consolidate in an orderly fashion.
What was behind the dive?
Companies that provide credit ratings have been and are the targets of lawsuits, government probes and general scapegoating efforts. As IBD reported on Feb. 8, concerns swirled that Moody's might become a target of the feds. The Justice Department at that time initiated a $5 billion civil suit against Standard & Poor's.
In Q1, Moody's took a charge of 14 cents a share related to litigation settlements.
CEO Raymond McDaniel said at a recent conference call that Moody's was the target of about four dozen U.S. lawsuits since the financial crisis and three dozen have been settled one way or another.
The company's earnings have been rising since EPS declines in 2008-09.
In the past three quarters, earnings grew 39%, 77% and 28%. Revenue climbed 30%, 33% and 13%. Pretax margin was 38.6% last year, the best in four years.
Moody's Corp. pays a quarterly dividend of 20 cents a share. The payout has doubled since late 2009, and the annualized yield is 1.3%.
Increases in the payout appear likely. CFO Linda Huber said at the conference call that "dividend yields could use a little bit of work."
About half of the company's cash balance is overseas. Huber confirmed that a high U.S. tax rate is keeping the money there.
Warren Buffett'sBerkshire Hathaway (BRKA) sold 1.75 million shares recently but still holds 26.7 million shares.