Moody's Corporation (MCO) is scheduled to report its fourth-quarter and full-year results on February 13. Wall Street expects the company to post higher earnings and revenue over the prior-year quarter. In this piece, I have discussed why it could be wise to buy the stock now.

For the fourth quarter, MCO’s EPS and revenue are expected to increase 44.9% and 15.3% year-over-year to $2.32 and $1.49 billion, respectively. The company has a stellar earnings history, having beaten the consensus EPS estimate in each of the trailing four quarters.

MCO’s Moody’s Analytics segment’s revenue in the third quarter rose 13% year-over-year to $776 million, and its Moody’s Investors Service (MIS) revenue increased 18% year-over-year to $696 million. Its Moody’s Analytics segment’s annualized recurring revenue (ARR) rose 9.9% year-over-year to $2.85 billion.

Post its strong growth in revenue and earnings during the third quarter, MCO’s President and CEO Rob Fauber said, “Moody’s achieved impressive double-digit revenue growth during the third quarter, reflecting the rebound in issuance and demonstrating the resiliency and relevance of our business and the increasing demand for our unparalleled research, data and solutions.”

“We are in a new era of exponential risk, which requires an urgent evolution for our customers. To address this, Moody’s is investing in the momentum of the business and introducing transformative technologies to advance our capabilities, help our customers navigate decision-making at speed and scale and drive long-term sustainable growth,” he added.

MCO’s revenue for fiscal 2023 is expected to increase in the high-single-digit percent range, and its adjusted operating margin is expected to be approximately between 44% and 45%. The company’s adjusted EPS is expected to come between $9.75 and $10.25. Also, its operating cash flow and free cash flow are expected to be approximately $2.1 billion and $1.8 billion, respectively.

MCO has gained 32.4% over the past nine months and 32% over the past year to close the last trading session at $405.17.

Here’s what you might want to consider ahead of its upcoming earnings release:

Robust Financials

MCO’s revenue for the fiscal third quarter ended September 30, 2023, increased 15.5% year-over-year to $1.47 billion. Its adjusted operating income rose 32.2% over the prior-year quarter to $657 million. The company’s adjusted net income increased 31.5% year-over-year to $447 million. Also, its adjusted EPS came in at $2.43, representing an increase of 31.4% year-over-year.

Favorable Analyst Estimates

Analysts expect MCO’s EPS and revenue for fiscal 2023 to increase 17.2% and 8.3% year-over-year to $10.05 and $5.92 billion, respectively. Its fiscal 2024 EPS and revenue are expected to increase 11% and 10% year-over-year to $11.15 and $6.52 billion, respectively.

Stretched Valuation

In terms of forward non-GAAP P/E, MCO’s 40.33x is 286.6% higher than the 10.43x industry average. Its 2.65x forward non-GAAP PEG is 96.3% higher than the 1.35x industry average. Likewise, its 36.19x forward EV/EBIT is 218.5% higher than the 11.36x industry average.

High Profitability

In terms of the trailing-12-month EBIT margin, MCO’s 36.43% is 65.3% higher than the 22.05% industry average. Likewise, its 28.30x trailing-12-month levered FCF margin is 57.2% higher than the industry average of 18.01x. Also, its 0.41x trailing-12-month asset turnover ratio is 93.7% higher than the industry average of 0.21x.

POWR Ratings Show Promise

MCO has an overall B rating, equating to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. MCO has a B grade for Quality, consistent with its high profitability.

MCO is ranked #10 out of 99 stocks in the Financial Services (Enterprise) industry. Click here to access MCO’s Growth, Value, Momentum, Stability, and Sentiment ratings.

Bottom Line

MCO has forecasted a strong end to fiscal 2023 with solid growth in revenue, adjusted earnings, and free and operating cash flow. The company’s Moody’s Analytics segment’s growth is being driven by its KYC business, and its expansion into different capital markets will likely boost the MIS segment’s growth.

MCO is leveraging the power of GenAI, as is evident from its recent launch of Research Assistant and is integrating its broad data and analytics capabilities across its product suite. Moreover, its new product launches and strategic partnerships are expected to drive long-term expansion.

Given its high profitability and the other positives, it could be wise to buy the stock now.

How Does Moody's Corporation (MCO) Stack Up Against Its Peers?

While MCO has an overall grade of B, equating to a Buy rating, you may also check out these other A (Strong Buy) or B (Buy)-rated stocks within the Financial Services (Enterprise) industry: Manhattan Bridge Capital, Inc. (LOAN), Tingyi (Cayman Islands) Holding Corp. (TYCMY), and Jiayin Group Inc. (JFIN). To explore more Financial Services (Enterprise) stocks, click here.

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MCO shares rose $1.83 (+0.45%) in premarket trading Monday. Year-to-date, MCO has gained 4.21%, versus a 5.42% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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