Raymond James Upgrades Moody's, S&P Global, Says Corporate Debt Appetite Remains Strong

Shares of Moody's Corporation MCO and S&P Global Inc SPGI traded higher on Thursday after one Wall Street analyst upgraded the credit rating agencies.

The Analyst: Raymond James analyst Patrick O'Shaughnessy upgraded Moody’s from Market Perform to Outperform and set a $337 price target.

O'Shaughnessy also upgraded S&P Global from Market Perform to Outperform and set a $402 target.

The Takeaways: In the Moody’s upgrade note, O'Shaughnessy said rising interest rates and leverage aren't slowing down corporate debt issuance in 2021, which is good news for the Moody’s ratings business.

“Beyond the ratings business, we are positive on the compliance and risk franchise that Moody's is building and believe that Moody's Analytics is positioned for sustained margin improvement after the current period of elevated investment,” O'Shaughnessy said.

The stock is trading at a discount to its historical valuation relative to the overall S&P 500, the analyst said. 

S&P Global is also benefiting from the same resilience in corporate debt issuance so far in 2021, he said.

In the first quarter, high yield bond issuance was up 81% and leveraged loan issuance was up 40% from a year ago, O'Shaughnessy said. 

“We expect that S&P will aggressively return to the share repurchase market later in 2021 once its pending acquisition of IHS Markit closes and note that its cash balance ballooned to $4.1 billion by 2020 year-end.”

 S&P shares are also trading at a discount to their long-term average valuation relative to the S&P 500, the analyst said. 

MCO, SPGI Price Action: Moody's shares were trading 2.67% higher to $306.58 at last check Thursday, while S&P shares were up 2.63% at $362.16. 

Benzinga’s Take: So far in 2021, rising interest rates seemingly haven’t impacted companies’ willingness or ability to take on more debt.

Should interest rates start to increase more rapidly or should debt issuance start to slow down, it could potentially have a severely negative impact on the credit ratings agencies.