Moody’s Posts Better-Than-Expected 4Q Revenue But Profit Disappoints

Moody’s reported better-than-expected 4Q sales driven by currency tailwind. However, higher costs kept earnings under pressure.

The global credit rating company’s 4Q total revenue grew 5% on a year-over-year basis to $1.3 billion and surpassed the consensus mark of $1.22 billion. Adjusted earnings decreased 5% to $1.91 per share, missing Street estimates of $1.93 per share.

Moody’s (MCO) operating expenses came in at $846 million, up 16% year-over-year. Adjusted operating margin came in at 41.2% in the quarter, down 410 basis points.

Moody’s CEO Robert Fauber commented, “As managing risk becomes more complex, the demand for our insights and solutions has never been greater. In 2021, we will help our customers navigate the changing environment by continuing to enhance our products, bringing new capabilities to the market and building on the strengths of our core businesses. We project 2021 revenue growth in the mid-single-digit percent range with strong growth in Moody’s Analytics offsetting expectations for a modest decline in global debt issuance.”

For 2021, the company projects adjusted EPS to be in a range of $10.30 to $10.70 per share. Adjusted operating margin is anticipated to be in the range of 49%-50%. (See Moody’s stock analysis on TipRanks)

Last week, the company entered into a deal to snap up Cortera, a provider of North American credit data and workflow solutions. With this acquisition, Moody’s expects to improve its integrated risk assessment capabilities and expand business in its small and medium enterprise (SME) segment.

On Feb. 9, Moody’s raised its quarterly cash dividend by 11% to $0.62 per share. The new dividend will be paid on March 18, to shareholders of record as of Feb. 25. The company’s annual dividend of $2.48 per share now reflects a dividend yield of 0.89%.

Following the results, Raymond James analyst Patrick O’Shaughnessy reiterated a Hold rating on the stock. The analyst said, “Moody missed 4Q20 EPS estimates due to higher operating expenses, but revenue in both segments finished ahead of estimates. Looking ahead to 2021, the firm’s initial outlook should be reasonably well-received by investors.”

The company also “plans to ramp up share repurchases in 2021”, he added.

Meanwhile, Oppenheimer analyst Owen Lau increased his price target to $333 (19.5% upside potential) from $327 and maintained a Buy rating, based on the company’s “strong 2021 guidance”. Lau believes, “the recent pullback in shares provides an attractive entry point for long-term investors.”

Overall, Wall Street analysts are cautiously optimistic about the stock. The Moderate Buy consensus rating breaks down into 3 Buy ratings and 3 Hold ratings. The average analyst price target stands at $313 and implies upside potential of about 12.3% to current levels over the next 12 months. Shares have advanced around 3.7% over the past year.

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