Morgan Stanley analysts are optimistic about the outlook for rating agencies, raising price targets for both S&P Global (SPGI) and Moody's Corp. (NYSE:MCO).
They anticipate both companies to exceed analyst expectations for the second quarter due to strong issuance activity. This follows a positive trend, with year-to-date (YTD) issuance up 35% compared to the same period last year.
Morgan Stanley increased its 2024 revenue and adjusted earnings per share (EPS) estimates for both SPGI and MCO by 1-2%. They also raised their 2Q ratings revenue growth estimates to 25% and 26% for SPGI and MCO, respectively.
While investors are expected to price in a strong quarter, Morgan Stanley believes the underperformance of rating agency stocks YTD creates a "favorable set-up." Due to continued caution about the issuance environment, they anticipate only modest guidance increases for the second half of 2024.
Morgan Stanley remains bullish on SPGI, raising its price target to $510 from $500 and reiterating its Overweight rating. It maintains an Equal-Weight rating on MCO but raised its price target to $392 from $374.