Earnings Preview: MCO Corp.

A leading provider of credit ratings, research, tools and analysis, Moody’s Corp. (MCO), is scheduled to release its first quarter 2011 results before the market opens on April 27, 2011.

The Zacks Consensus Estimate for the first quarter is pegged at 53 cents, up 12.8% year over year. Moody’s posted an average earnings surprise of 16.98% in the trailing four quarters, implying that it has surpassed the Zacks Consensus Estimate by a like amount in the trailing four quarters.

Fourth Quarter Recap

Moody’s reported fourth quarter earnings per share (EPS) of 58 cents, beating the Zacks Consensus Estimate by a dime. The positive surprise was on account of better-than-expected revenue growth.

Revenues in the reported quarter increased 16.2% to $564.3 million from $485.8 million in the year-ago quarter. Revenues handily beat the Zacks Consensus Estimate of $473.0 million. The revenue growth was driven by increases in both the Moody’s Business Analytics (MA) and Moody’s Investor Services (MIS) segments. For further details please see Moody’s Beats by a Dime.

Estimate Revision Trend

Of the 5 analysts providing estimates for the first quarter, only one analyst made an upward revision, while none made a downward revision in the last thirty days.

In its fourth quarter earnings call, Moody’s did not provide any guidance for the first quarter of 2011. However, for fiscal 2011, Moody’s forecasted EPS in the range of $2.12 to $2.22, with the Zacks Consensus Estimate of $2.18 slightly exceeding the midpoint of the guided range.

Currently, estimates for fiscal 2011 have moved up to a range of $2.14 to $2.20 based on the analysts’ bullish outlook on the company.

Over the long term, Moody’s expects to deliver double-digit revenue growth and over 40.0% in operating margin on the back of growing Investor Service (69.0% of 2010 revenue) and Analytics (31.0% of 2010 revenue) businesses.


We expect Moody’s to benefit from the gradual recovery of the US macro environment and to deliver strong top-line results driven by Investor Service and Analytics businesses over the long term.

Despite tough competition from Dun & Bradstreet Corp (DNB) and privately held Fitch Ratings Inc., we believe Moody’s remains a solid franchise in rating debt instruments based on its diversified credit research business model and international growth.

We maintain our Outperform recommendation over the long term (6-12 months). Currently, MCO has a Zacks #3 Rank, which implies a Hold rating over the short term (1-3 months).

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