We updated our research report on Moody’s Corp. MCO on Jun 29.
Moody’s reported strong first-quarter 2015 results. Both earnings and revenues surpassed the Zacks Consensus Estimate driven by growth across all segments. We believe that Moody’s remains a solid franchise in rating debt instruments based on its diversified credit research business model and international growth opportunities.
Sustained growth should come from a stronger issuance environment, increasing disintermediation in Europe, strong potential in the analytics business and improving pricing trends. However, adverse foreign currency translations, regulatory concerns, increasing operating expenses and stiff competition will remain overhangs.
Moody’s, along with Standard & Poor’s, holds a dominant position in the duopolistic credit rating industry. It has also gained significant market share in the analytics business based on its strong product portfolio. The company has a diversified customer base, which includes a range of corporate and government issuers of securities as well as institutional investors, depositors, creditors, investment banks, commercial banks and other financial intermediaries.
Approximately 51% of Moody’s revenues are recurring in nature, which lends stability and predictability to the revenue stream. Going forward, increasing bond and bank loan issuance along with higher monitoring revenues related to new ratings customers will remain the key drivers in the corporate finance line, the largest revenue contributor at Moody's Investors Service. We believe Moody’s is well positioned to achieve strong growth based on the above factors over the long term.
However, Moody’s faces stiff competition in most of the markets in which it operates. In the credit rating sector, the company faces competition from Fitch, S&P Ratings Services, Morningstar and many other regional providers. In the analytics segment, it faces competition from Dun & Bradstreet, Bloomberg, IBM, Fiserv FISV and many others.
In the risk management software market, the company competes with large software developers including SAS, Oracle ORCL, IBM Corp. IBM and Mysis. We believe stiff competition will continue to put pressure on pricing that may hurt profitability in the long run.
Moody’s currently has a Zacks Rank #3 (Hold).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment