Weak Bond Issuance Volume to Hurt Moody's (MCO) Q3 Earnings

Moody'sMCO is scheduled to report third-quarter 2018 results on Oct 26, before the opening bell. The company is expected to report a slight decline in revenues in its Corporate Finance line - the largest revenue contributor at the Moody's Investors Service ("MIS") division, as weakness in corporate debt issuance is expected to weigh on the performance.

Rising interest rates seem to have slowed down companies' involvement in debt issuances to some extent. Further, high yield bond, investment grade bond and leveraged loan issuance volumes were not impressive during the quarter.

Thus, Corporate Finance revenues are expected to decrease. The Zacks Consensus Estimate for the same is $346 million for the to-be-reported quarter, indicating a fall of 1.1% year over year.

On the other hand, quarterly issuance volume for commercial mortgage-backed securities, collateralized loan obligations and asset backed securities was decent. Therefore, Moody's will likely witness a rise in Structured Finance revenues in the third quarter. The Zacks Consensus Estimate is $133 million, indicating 3.9% growth from the prior-year quarter.

Further, MIS division's another revenue source - Financial Institutions - is anticipated to report $109 million of revenues, up 6.9% from the prior-year quarter. However, Public, Project and Infrastructure Finance unit revenues are projected to decline marginally year over year to $108 million as municipal bond issuance was relatively stable in the to-be-reported quarter.

Overall, the MIS division is projected to witness year-over-year top-line growth. The consensus estimate for the division's revenues is $700 million, reflecting an increase of nearly 1%.

Other Factors to Influence Q3 Results

Moody's Analytics ("MA") division to report high revenues: Moody's continues to pursue growth in areas outside the core credit ratings service. Given the rise in demand for analytics, the company's MA division is expected to witness a rise in revenues.

Of the company's three business units at the division, Professional services and Research, data and analytics are anticipated to witness higher revenues in the to-be-reported quarter, while Enterprise Risk Solutions will likely record a decline. The Zacks Consensus Estimate for the division's revenues of $438 million indicates an increase of 18.7% from the prior-year quarter.

Strategic deals/investments to support revenues: Moody's is likely to witness revenue growth on the back of its strategic acquisitions and investments. These have increased the scale and cross-selling opportunities across products and vertical markets.

Expenses to remain high: As Moody's continues with its inorganic growth strategy, acquisition and restructuring costs are expected to remain high. So, overall expenses are anticipated to rise during the quarter.

Now, let's see what our quantitative model predicts.

Chances of Moody's beating the Zacks Consensus Estimate in the third quarter are low. This is because it does not have the right combination of the two key ingredients - a positive Earnings ESP and Zacks Rank #3 (Hold) or higher - for increasing the odds of an earnings beat.

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 -0.67%.

Zacks Rank: Moody's currently carries a Zacks Rank of 4 (Sell).

Moody's Corporation Price and EPS Surprise

Moody's Corporation Price and EPS Surprise | Moody's Corporation Quote

The Zacks Consensus Estimate for earnings of $1.78 for the to-be-reported quarter has been revised 2.7% lower over the past 30 days. Nonetheless the figure reflects year-over-year growth of 17.1%. Further, the consensus estimate for sales of $1.12 billion reflects 5.6% increase from the prior-year quarter.

Stocks to Consider

Here are some finance stocks that you may want to consider, as according to our model, these have the right combination of elements to post an earnings beat this quarter.

SVB Financial Group SIVB is slated to report third-quarter 2018 results on Oct 25. It has an Earnings ESP of +1.22% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Cullen/Frost Bankers CFR is also slated to release results on Oct 25. It has an Earnings ESP of +0.07% and carries a Zacks Rank #3.

T. Rowe Price Group TROW has an Earnings ESP of +0.78% and carries a Zacks Rank #2 (Buy). It is set to report July-September quarter results on Oct 25.

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Moody's Corporation (MCO): Free Stock Analysis Report

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

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

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