Moody’s Beats Revenue Estimates, But Misses on Earnings

Moody’s, an American business and financial services company, reported better-than-expected revenue in the fourth quarter, growing 5% to $1.3 billion, but higher costs kept profits subdued.

Moody’s Corporation said its revenue for 2020 rose 11% to $5.4 billion, surpassing the Wall Street consensus estimates of $1.22 billion. However, in the fourth quarter diluted EPS fell 12% to $1.66 per share; adjusted diluted EPS of $1.91 per share, down 5%. That was lower than the market expectations of $1.95 per share.

The company projected the fiscal year 2021 diluted EPS of $9.70 to $10.10 and adjusted diluted EPS of $10.30 to $10.70.

“For its fourth quarter, wide-moat-rated Moody’s reported $1.29 billion in revenue, above FactSet consensus of $1.22 billion, though adjusted EPS of $1.91 missed the Street’s $1.95, which we’d attribute to higher operating expenses. As is customary during its fourth quarter, Moody‘s provided its initial 2021 outlook, which did beat Street expectations,” said Rajiv Bhatia, equity analyst at Morningstar.

“Moody’s expects 2021 revenue growth in the mid-single digits (versus the 1% implied by the Street) and adjusted EPS of $10.30-$10.70 (versus the Street’s $10.34). Moody’s is continuing to invest in its business, and as a result, adjusted operating margins are expected to be about flat. Following the strong results, we expect to tweak our fair value estimate higher.”

Moody’s shares, which surged over 20% in 2020, closed nearly flat at $278.67 on Friday.

Moody’s Stock Price Forecast

Six analysts who offered stock ratings for Moody’s in the last three months forecast the average price in 12 months of $313.00 with a high forecast of $327.00 and a low forecast of $292.00.

The average price target represents a 12.32% increase from the last price of $278.67. From those six analysts, three rated “Buy”, three rated “Hold”, none rated “Sell”, according to Tipranks.

Morgan Stanley upgraded the base target price to $292 from $435 with a high of $473 under a bull scenario and $188 under the worst-case scenario. The firm gave an “Equal-weight” rating on the ratings company’s stock.

Several other analysts have also upgraded the stock outlook. Raymond James reissued a “hold” rating on shares. Barclays lifted their price target to $320 from $305 and gave the stock an “overweight” rating. Deutsche Bank assumed coverage and issued a “hold” rating and a $300 target price on the stock.

In addition, BidaskClub raised shares of Moody’s from a “sell” rating to a “hold” rating. UBS Group upped their price objective to $368 from $358 and gave the company a “buy” rating.

Analyst Comments

“Mixed 4Q, but better than expected ’21 guidance lead us to raise ’21 and ’22 adj. EBITDA by 1.5% for both years. ’21 issuance expected to be down HSD, but MIS rev guide flat driven by strong recurring, pricing, and mix. Maintain equal-weight and price target of $292,” Toni Kaplan, said equity analyst at Morgan Stanley.

“With 60% of revs and 80% of profits coming from its rating agency business, Moody’s (MCO) shares will be levered to the issuance environment. Facing a difficult comp given a strong 2020, issuance is expected to decline in 2021 with MCO forecasting a high single-digit decline. Though MCO forecasts flat MIS revenue, we think there could be downside risk to this forecast if the issuance is weak. At 19x ’22 EV/EBITDA, MCO trades at in-line to Info Services peers ex-NSLN, which we view as fair.”

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