Moody’s Corp. (MCO) is set to report the third-quarter fiscal 2014 results on Oct 24, 2014. Last quarter, the company posted a 13.13% positive surprise. We note that Moody’s has outperformed the Zacks Consensus Estimate in the preceding four quarters with an average positive surprise of 8.96%.
Let’s see how things are shaping up for this quarter.
Growth Factors in the Past Quarter
Moody’s reported strong second-quarter 2014 results, beating the Zacks Consensus Estimate for both earnings and revenues. The company also provided optimistic guidance for the full year.
We believe that Moody’s has plenty of growth opportunities from higher number of debt issuance, increasing disintermediation in Europe and Asia, strong potential in the professional and analytics business and improving pricing trends. Additionally, accretive acquisitions, improving liquidity, higher dividend payout and aggressive share buybacks are the other positives.
However, regulatory concerns will remain an overhang on the stock. Further, increasing competition from the likes of privately held Fitch, McGraw Hill Financial’s (MHFI) Standard & Poor's division is a major concern, going forward.
Earnings Whispers?
Our proven model does not conclusively show that Moody’s is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here as you will see below.
Zacks ESP: Moody’s currently has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 89 cents.
Zacks Rank #2 (Buy): Though Zacks Ranks #1, 2 or 3 increase the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here are a couple of stocks worth considering that, as per our model, have the right combination of elements to post an earnings beat this quarter:
Facebook (FB), with an Earnings ESP of +6.25% and a Zacks Rank #2.
InvenSense Inc. (INVN), with an Earnings ESP of +10% and a Zacks Rank #2.
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