On Wednesday, Baird analyst increased the price target for Moody's Corp (NYSE:MCO) to $512, up from the previous $512, while maintaining an Outperform rating on the company's shares. The adjustment reflects a positive outlook on the stock's potential, with a particular emphasis on the strong performance of Moody's Investor Service (MIS) in the third quarter of 2024.
The analyst noted that despite Moody's lower position in Baird's hierarchy of Outperform-rated high-quality businesses, the risk/reward balance for the company appears favorable, with structural risks remaining low. The third quarter results for MIS were described as excellent, which was anticipated given the known strength in issuance and high expectations.
For the full year 2024, the guidance assumes a relatively softer fourth quarter, attributed to in-year pull-forwards into the first three quarters of 2024 and uncertainty related to the elections. However, the analyst found management's commentary on issuance for 2025 and beyond to be generally positive, leading to an increase in Baird's consolidated estimates and the price target for Moody's.
The analyst also touched upon the performance of Moody's Analytics (MA), which was softer. However, this was seen as only a modest incremental negative, especially since the guidance for MA's Annual Recurring Revenue (ARR) had already been lowered in the previous quarter.
The updated price target and continued Outperform rating indicate a belief in Moody's ongoing strength and potential for future performance, despite the softer outlook for the fourth quarter of 2024 and the adjustments in Moody's Analytics' guidance.
In other recent news, Moody's Corporation reported robust financial results for the third quarter of 2024. The company saw a 23% increase in revenue, amounting to $1.8 billion, and a 32% rise in adjusted diluted earnings per share. The ratings business, particularly investment-grade issuance, played a significant role in this growth, with transactional revenue surging by 70%.
Despite potential macroeconomic and geopolitical uncertainties, the company maintains an optimistic outlook for the future, supported by favorable market conditions.
Recent developments include Moody's raising its full-year ratings revenue growth guidance to the mid-30s percentage range and adjusted operating margin expectations for the year to 59-60%. The company's adjusted diluted EPS guidance has also been increased from $11.90 to $12.10, indicating a 21% growth from the previous year.
Moody's plans to capitalize on market trends in private credit and sustainable finance and the integration of RMS is expected to strengthen its position in insurance solutions.
InvestingPro Insights
Recent data from InvestingPro provides additional context to Baird's optimistic outlook on Moody's Corp (NYSE:MCO). The company's market capitalization stands at $84.75 billion, reflecting its significant presence in the financial services sector. Moody's has demonstrated strong financial performance, with a revenue growth of 20.43% over the last twelve months and an impressive EBITDA growth of 35.21% during the same period.
These growth figures align with Baird analyst's positive assessment of Moody's Investor Service (MIS) performance in Q3 2024. The company's robust financials are further underscored by its high operating income margin of 42.05%, indicating efficient operations and strong profitability.
InvestingPro Tips highlights Moody's commitment to shareholder returns, noting that the company has raised its dividend for 14 consecutive years and maintained dividend payments for 27 consecutive years. This consistent dividend policy supports Baird's view of Moody's as a high-quality business with a favorable risk/reward balance.
While Moody's is trading at a high P/E ratio of 44.53, which could be seen as expensive, the company's strong financial performance and analyst optimism suggest potential for continued growth. Investors considering Moody's should note that InvestingPro offers 11 additional tips for a more comprehensive analysis of the company's prospects.
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