Moody’s Corporation (NYSE:MCO) is one of Wall Street’s household names. As a provider of one of the financial sectors essential services, the stock has seen massive growth over the past decade. The company has been a market favorite and is one of Warren Buffet led Berkshire Hathaway’s biggest holdings.
The company has two main businesses, Moody’s Investment Service, a major credit ratings agency, and Moody’s Analytics, a financial research provider.
On the 30thof April, the company released its Q1 2020 numbers. They came out with a EPS of $2.73 a share, compared to analyst consensus of $2.3 dollars per share, up 32% year-on-year and up 42% from last quarter(Yahoo Finance). The company also reported a revenue of $1.29 billion, up 13% year-on-year. The company is also one of the select few stocks that has gained in 2020 by adding 7.4% to it’s market cap, compared to the broad market indexes being down about 9%.
The company is placed in a unique position to take advantage of the carnage being brought upon by the coronavirus pandemic. The virus has caused state wide lockdowns and social distancing is killing most consumer, travel and entertainment businesses.
Due to low demand and fractional revenues, a large number of businesses are looking to debt markets to raise capital in a bid to stay liquid long enough to weather the storm. Investors are in desperate need of dependable ratings of these new bonds that are flowing into to the market and as a premier ratings agency Moody’s is in a great position to take advantage of and grow it’s business.
Moody’s Investment Service, the company’s credit rating arm reported record a revenue of $794 million dollars up 19% year-on-year, with bulk of the growth being driven by corporate finance ratings. The Investment Service operating margin for the quarter was 61%, a new record. Moody’s Analytics reported revenues of $496 million, up 5% year-on-year and an operating margin of 29%.(Nasdaq)
The company reported operating cost of $698 million for the quarter, up 3% from last quarter, but is an admirable figure considering the increase in costs was less than the increase in earnings and revenues, implying a solid return on capital employed.
In Q1, the company bought back $1.1 million shares at a total price of $253 million($237 per share), a good move considering it is trading at $243 now. The company also paid $105 million of dividends in Q1. However due to uncertainty of the long term effects of the pandemic, the company has suspended dividends and buy-backs for the year.(BW)
Given Moody’s stellar performance in this market the fact that the economic effects of the pandemic were only seen in March, the company looks set for a solid Q2 as more company’s face the heat and raise debt to stay afloat.