Moody's Cut Outlook, But Argus Likes Its Long-Term Opportunities

Moody's Corporation MCO shares have outperformed over the past quarter, appreciating 11 percent, as compared to the 6.6 percent rise in the S&P 500.

Argus’ John Eade maintained a Buy rating on the company, while raising the price target from $110 to $124.

Impressive Track Record

“The company modestly beat Street expectations in 2Q16; however, it reduced its full-year outlook, citing uncertainty following the Brexit vote,” Eade mentioned.

The analyst also pointed out that the company had an “impressive” track record, with five year sales and EPS CAGR in the 10-17 percent range.

“Management also has opportunities to develop new products and raise margins, and to expand through targeted acquisitions,” Eade stated.

Long Term Outlook

Over the long term, the analyst expects Moody’s to benefit from debt market disintermediation and global GDP growth trends.

Pointing out that Moody’s balance sheet was strong, Eade noted that a new risk for the company was the uncertainty regarding the magnitude and timing of the upcoming rate hikes by the Fed, along with rising default risk in the corporate bond market.

“However, we expect management to navigate through these challenges, and to deliver increased earnings that result in higher multiples,” the analyst added.

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