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Strong Bond Issuance Volume to Aid Moody's (MCO) Q2 Earnings

Moody's MCO is scheduled to report second-quarter 2020 results on Jul 30, before the opening bell. The company’s Corporate Finance line, the largest revenue contributor at the Moody's Investors Service (“MIS”) division, is likely to have recorded higher revenues in the quarter, owing to solid bond issuance volume.

Amid the continued coronavirus outbreak-led economic uncertainty, lower interest rates supported debt issuances in the to-be-reported quarter. During the second quarter, investment-grade bond and high-yield bond issuance volumes witnessed substantial growth. While growth in leveraged loan issuance volumes remained muted in the quarter, revenues under the Corporate Finance line are expected to have increased year over year on solid investment-grade and high-yield issuance volumes.

However, the quarterly issuance volumes for residential mortgage-backed securities and asset-backed securities were muted. Thus, growth in Structured Finance revenues is likely to have been weak.

Hence, while the MIS division’s top line is expected to have gotten support from improvement in Corporate Finance revenues, the same is likely to have been offset by the expected decline in Structured Finance revenues. The Zacks Consensus Estimate for the MIS division’s revenues for the to-be-reported quarter is pegged at $726 million, suggesting a 1.6% decline from the year-ago reported figure.

Other Factors at Play

Support From Moody's Analytics (“MA”) Division: With demand for analytics rising, revenues from all units at the MA division are expected to have increased in the second quarter. Also, the company’s efforts to strengthen the division’s profitability through inorganic growth initiatives might have offered some support.

Thus, the division’s overall revenues might have risen in the to-be-reported quarter. The consensus estimate for revenues in the MA division is pegged at $494 million, indicating 4% year-over-year growth.

Higher Expenses: Given Moody’s inorganic growth efforts, charges related to strategic acquisition and restructuring costs are anticipated to have increased in the to-be-reported quarter. Hence, overall expenses for the second quarter are likely to have been elevated.

Earnings and Sales Growth Expectations

The Zacks Consensus Estimate for the company’s earnings of $2.26 for the to-be-reported quarter has moved 4.1% upward over the past seven days. The figure indicates year-over-year growth of 9.2%. The consensus estimate for sales of $1.27 billion suggests a 4.6% year-over-year rise.

Moodys Corporation Price and EPS Surprise



Moodys Corporation Price and EPS Surprise

Moodys Corporation price-eps-surprise | Moodys Corporation Quote

Earnings Whispers

Our quantitative model predicts an earnings beat for Moody’s this time around. This is because it has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP for Moody’s is +2.14%.

Zacks Rank: Moody’s currently carries a Zacks Rank #3.

Other Stocks to Consider

Here are a few other finance stocks that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat in their upcoming releases.

Hercules Capital, Inc. HTGC is scheduled to release quarterly results on Jul 30. The company currently has an Earnings ESP of +3.66% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Apollo Global Management, Inc. APO is slated to report quarterly earnings on Jul 30. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +2.96%.

The Earnings ESP for Cigna Corporation CI is +2.68% and it carries a Zacks Rank #2 (Buy), currently. The company is slated to announce quarterly numbers on Jul 30.

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