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On Tuesday, Evercore ISI initiated coverage on shares of Moody's Corp (NYSE:MCO) with an Outperform rating and set a price target of $521.00. The firm's initiation is based on the anticipation of positive earnings revisions which could propel the stock upwards over the coming year. The optimism is further bolstered by the potential for Moody's genAI product cycle to gain traction earlier than expected.
The valuation of Moody's by Evercore ISI is anchored in an earnings per share (EPS) estimate for the year ending 2025 (YE25), which the firm considers to be a normalized earnings power when corporate debt issuance is projected to return to mid-single-digit percentage growth per year. A forward price-to-earnings (P/E) ratio of 32 times is applied to the firm's 2027 EPS estimate. This P/E ratio reflects a significant premium of approximately 65% over the S&P 500's P/E, excluding the largest seven tech giants (referred to as "Mag7"), which is around 19 times.
Evercore ISI's target price of $521 for Moody's stock corresponds to a 34 times P/E ratio based on the firm's projected 2026 EPS. This target suggests a bullish outlook for the company's stock performance, especially considering the historical premium of Moody's P/E ratio has been around 45-50% over the S&P 500's P/E.
The analysis by Evercore ISI indicates a strong confidence in Moody's future financial performance and its ability to outperform the market, especially if the genAI product cycle contributes positively to the company's growth earlier than the firm's analysts anticipate. The Outperform rating serves as a guide for investors regarding the firm's positive view on the future trajectory of Moody's stock.
In other recent news, Moody's Corporation has made notable strides in its business operations. The company has announced the acquisition of Praedicat, an analytics firm specializing in the casualty insurance sector. This move is part of Moody's ongoing strategy to bolster its data and analytical capabilities, with a specific focus on casualty and liability risk modeling. Furthermore, Moody's has initiated a $500 million senior notes offering with a 5% interest rate, maturing in 2034. This offering, underwritten by BofA Securities, Inc., Citigroup Global Markets Inc., HSBC Securities (USA) Inc., and J.P. Morgan Securities LLC, is aimed at strengthening Moody's financial structure. In addition, several analyst firms have adjusted their price targets for Moody's following the company's strong second-quarter 2024 earnings.
Argus Research raised its price target to $490, Oppenheimer to $492, and RBC Capital Markets to $475. These recent developments highlight Moody's commitment to financial growth and strategic expansion in the market.
InvestingPro Insights
Evercore ISI's bullish outlook on Moody's Corp (NYSE:MCO) aligns with several key metrics and trends highlighted by InvestingPro. The company's strong financial performance is evident in its revenue growth of 18.56% over the last twelve months, with an even more impressive 21.62% growth in the most recent quarter. This robust growth supports Evercore's anticipation of positive earnings revisions.
InvestingPro Tips further reinforce the positive sentiment. Moody's has demonstrated a commitment to shareholder value by raising its dividend for 14 consecutive years and maintaining dividend payments for 27 consecutive years. This consistent dividend growth, coupled with a high return over the last year and decade, underscores the company's financial stability and long-term performance.
However, investors should note that Moody's is trading at a high P/E ratio of 46.42, which is consistent with Evercore's premium valuation. This high multiple is justified by InvestingPro Tips highlighting Moody's profitability and strong returns over various timeframes.
For those seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Moody's, providing deeper insights into the company's financial health and market position.
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