A month has gone by since the last earnings report for Moody's (MCO). Shares have added about 6.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Moody's due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Moody's Misses on Q4 Earnings & Revenues
Moody's reported fourth-quarter 2023 adjusted earnings of $2.19 per share, which lagged the Zacks Consensus Estimate of $2.34. The bottom line, however, jumped 37% from the year-ago quarter figure.
Improvement in global bond issuance volumes and steady demand for analytics supported Moody’s results. The company’s liquidity position was robust during the quarter. Also, stable operating expenses posed a tailwind.
After taking into consideration certain non-recurring items, net income attributable to Moody's was $340 million or $1.85 per share, up from $246 million or $1.34 per share in the prior-year quarter.
For 2023, adjusted earnings of $9.90 per share missed the Zacks Consensus Estimate of $10.06 but grew 16% year over year. Net income attributable to Moody's (GAAP) was $1.61 billion or $8.73 per share, up from $1.37 billion or $7.44 per share in the prior-year quarter.
Revenues Up, Costs Stable
Quarterly revenues were $1.48 billion, which missed the Zacks Consensus Estimate of $1.49 billion. However, the top line grew 15% year over year.
For 2023, total revenues grew 8% to $5.92 billion. The top line marginally lagged the consensus estimate of $5.93 billion.
Total expenses were $982 million, relatively stable year over year.
Adjusted operating income of $631 million was up 32%. Adjusted operating margin was 42.6%, up from 37% a year ago.
Solid Segment Performance
Moody’s Investors Service revenues grew 19% year over year to $684 million. The improvement was mainly driven by solid Corporate Finance, a favorable mix in Public, Project and Infrastructure Finance and improvement in Structured Finance revenues.
Moody’s Analytics revenues increased 11% to $796 million. This was mainly driven by double-digit growth in all lines of business.
Strong Balance Sheet
As of Dec 31, 2023, Moody’s had total cash, cash equivalents and short-term investments of $2.19 billion, up from $1.86 billion as of Dec 31, 2022.
The company had $7 billion in outstanding debt and $1.25 billion in additional borrowing capacity under the revolving credit facility.
Share Repurchase Update
During the quarter, Moody's repurchased 0.6 million shares at an average price of $346.8 per share.
2024 Guidance
Moody’s expects adjusted earnings to be in the range of $10.25-$11.00 per share. On a GAAP basis, earnings are projected within $9.45-$10.20 per share.
Moody’s projects revenues to increase in the high-single-digit to low-double-digit percent range.
Operating expenses are expected to rise in the mid-to-high-single-digit percent range.
Net interest expenses are estimated to be $240-$260 million.
Adjusted operating margin is expected to be 44-46%. The operating margin is likely to be in the range of 37-39%.
Moody’s expects cash flow from operations of $2.3-$2.5 billion. Free cash flow is projected to be in the range of $1.9-$2.1 billion.
The company will likely repurchase shares worth almost $1 billion.
The effective tax rate is projected to be 22-24%.
Segment Outlook for 2024
MIS segment revenues are anticipated to increase in the high-single-digit to low-double-digit percent range.
Adjusted operating margin is expected to be 55.5-57.5%.
Coming to the MA segment, Moody’s anticipates revenues to rise roughly 10%.
Adjusted operating margin is expected to be 30-31%. Further, the segment’s organic Annualized Recurring Revenue (ARR) is projected to rise in the low-double-digit percent range.
2022-2023 Geolocation Restructuring Program
Management expects the program to help the company further adapt to the new global workplace and talent realities. Also, the restructuring plan will accelerate a number of ongoing cost-efficiency initiatives, and includes real estate optimization and increased utilization of lower-cost operational hubs.
The program is expected to result in annualized savings of $145-$165 million per year.
Cash outlays associated with the program are expected to be $36 million, which are likely to be paid through 2024.
The program substantially completed in 2023.
Medium-Term Targets
Moody’s projects total revenue growth of at least 10%, with adjusted operating margin in the low-50s range. Adjusted earnings per share are anticipated to increase in the low double-digit percentage range.
MA segment revenues are projected to grow in the low-to-mid teen percentage range, with adjusted operating margin in the mid-30s range.
MIS segment revenues are anticipated to rise in the mid-to-high-single-digit percentage range, with adjusted operating margin in the low-50s range.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
Currently, Moody's has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Moody's has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Moody's is part of the Zacks Financial - Miscellaneous Services industry. Over the past month, Lazard (LAZ), a stock from the same industry, has gained 6.1%. The company reported its results for the quarter ended December 2023 more than a month ago.
Lazard reported revenues of $760.96 million in the last reported quarter, representing a year-over-year change of +13.4%. EPS of $0.66 for the same period compares with $0.69 a year ago.
For the current quarter, Lazard is expected to post earnings of $0.46 per share, indicating a change of +276.9% from the year-ago quarter. The Zacks Consensus Estimate has changed +5.3% over the last 30 days.
Lazard has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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