Higher Costs, Stiff Competition Hurt Moody's: Time To Sell?

Moody's Corporation’s (NYSE:MCO) bottom line is expected to be adversely impacted by the increase in expenses. Moreover, a stricter regulatory landscape, litigations issues and stiff competition across the credit rating industry remain key headwinds for the company.

The company’s Zacks Consensus Estimate for earnings in 2018 has also been revised 2.2% downward over the past 60 days, reflecting that analysts are not optimistic regarding its earnings growth potential. Thus, the stock currently carries a Zacks Rank #4 (Sell).

Moreover, its price performance does not seem very impressive. The company’s shares have lost 1.1% over the past year compared with 22.7% decline recorded by the industry it belongs to.



Looking at fundamentals, its expenses witnessed a five-year (2013-2017) CAGR of 8.3%, mainly due to higher compensation and employee benefit costs. Moreover, the company expects expenses to keep on rising as it continues to invest in franchise and grow inorganically. Thus, elevated expenses are expected to hurt bottom-line growth to quite an extent.

Moreover, Moody’s faces stiff competition in most of the markets in which it operates. This is likely to continue putting pressure on pricing that may hurt profitability in the long run.

Further, the slowdown in bond issuance volumes due to economic risks related to the volatile macro environment remains a concern for the company. The uncertain macro environment will affect the volume of debt securities issued in global capital markets and the demand for credit ratings.

Nevertheless, the company remains well positioned to boost profitability on the back of its dominant position in the credit rating industry, diverse revenue base, strategic acquisitions and disintermediation of credit markets.

Stocks to Consider

A few better-ranked stocks from the finance space are On Deck Capital, Inc. (NYSE:ONDK) , Credit Acceptance Corporation (NASDAQ:CACC) and E*TRADE Financial Corporation (NASDAQ:ETFC) . Each of these stocks currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Over the past 60 days, On Deck Capital witnessed an upward earnings estimate revision of 22.7% for the current year. Its share price increased 68.8% in the last two years.

Over the past 60 days, Credit Acceptance witnessed an upward earnings estimate revision of 3.4% for the current year. Its share price has surged 84.9% in the past 24 months.

E*TRADE Financial’s Zacks Consensus Estimate has been revised 6.1% upward over the past 60 days. Its share price has increased 25.5% over the past two years.

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Moody's Corporation (MCO): Free Stock Analysis Report

Credit Acceptance Corporation (CACC): Free Stock Analysis Report

E*TRADE Financial Corporation (ETFC): Free Stock Analysis Report

On Deck Capital, Inc. (ONDK): Free Stock Analysis Report

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