Why An Earnings Beat Is Likely For Moody's (MCO) Stock In Q2

Moody's Corporation (NYSE:MCO) is slated to report its second-quarter 2017 results on Jul 21, before the opening bell. Its revenues and earnings are expected to record marginal growth on a year-over-year basis.

Driven by an increase in revenues, Moody’s’ first-quarter earnings outpaced the Zacks Consensus Estimate. However, rise in operating expenses was an undermining factor.

Also, the company’s business activities and prospects encouraged analysts to revise earnings estimates. As a result, the Zacks Consensus Estimate of $1.33 for the just-concluded quarter moved up by a penny over the last seven days.

Moody’s boasts an impressive earnings surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with an average beat of 11.7%.

The company’s price performance has been impressive as well. Its shares have gained 34.3% year to date, significantly outperforming the Zacks categorized Miscellaneous Financial Services industry’s rally of 6.7%.

Before digging deeper into the factors that are likely to influence the results, let’s check what our quantitative model predicts.

Why a Likely Positive Surprise?

According to our quantitative model, chances of Moody’s beating the Zacks Consensus Estimate in the to-be-reported quarter are high. This is because it has the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better, which is required to be confident of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: The Earnings ESP for Moody’s is +4.51%. This is because the Most Accurate estimate of $1.39 is more than the Zacks Consensus Estimate of $1.33.

Zacks Rank: Moody’s currently sports a Zacks Rank #1 (Strong Buy), which when combined with a positive ESP, increases the chances of an earnings beat.

Factors to Drive Better-than-Expected Results

Favorable corporate bond issuance environment: Backdrop for bond issuance (driven by tightening of credit spreads and pull back of long-term yield curve) during the second quarter was favorable. Thus, investment grade bond and leveraged loan issuances volume remained strong year over year. So, Moody’s corporate finance revenues are expected to rise.

Structured products issuance trend remain strong: Quarterly issuance volume for commercial mortgage-backed securities, collateralized loan obligations and asset backed securities remained robust. So, Moody’s will likely benefit from this trend and witness a rise in structured finance revenues during the quarter.

Strategic deal to support revenue growth: Moody’s is expected to record revenue growth on the back of its strategic acquisitions, which has increased scale and cross-selling opportunities across products and vertical markets. However, strength of the U.S. dollar is likely to impact quarterly revenues to some extent.

Expenses to remain high: As Moody’s continues with its inorganic growth strategy, acquisition and restructuring costs are expected to remain high. So, overall expenses are anticipated to rise during the quarter.

Other Stocks that Warrant a Look

Here are some other finance stocks worth considering, as they have the right combination of elements to post an earnings beat this quarter.

Huntington Bancshares Inc. (NASDAQ:HBAN) has an Earnings ESP of +4.35% and a Zacks Rank #3. It is scheduled to report second-quarter 2017 results on Jul 21.

Zions Bancorporation (NASDAQ:ZION) is scheduled to report results on Jul 25. It has an Earnings ESP of +1.61% and carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Hilltop Holdings Inc. (NYSE:HTH) is +2.33% and it carries a Zacks Rank #2. The company is scheduled to release results on Jul 27.

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