Moody's: Today's Financial Loser

NEW YORK ( TheStreet) -- Moody's Corp. ( MCO) was the loser among major financial-services companies on Friday, with shares dropping 8% to close at $43.37.

A strong fourth-quarter earnings report and rosy guidance for 2013 weren't enough to allay investors' fears of a lawsuit similar to the one filed on Monday against competitor Standard & Poor's (a unit of McGraw-Hill ( MHP)). BTIG analyst Mark Palmer said Moody's and the other ratings agencies might be facing an " existential threat" from additional lawsuits. There were also several reports saying New York Attorney General Eric Schneiderman and other state attorneys general were considering lawsuits of their own.

Moody's shares were down 22% from a week earlier. Shares of McGraw-Hill closed at $42.67, declining 3% on Friday and 27% from a week earlier.

The broad indices all ended higher after the Census Bureau said the U.S. trade deficit for December narrowed sharply to $38.5 billion in December from $48.6 billion in November. An increase of $3.3 billion in exports of goods was mostly made up of industrial supplies and materials. A decline of $6.1 billion in imports of goods was also mostly in industrial supplies and materials.

UBS economist Maury Harris earlier said he expected a "narrower trade gap" because of "a slight drop in oil prices and a healthy rise in aircraft exports," along with "some unwind of November's 11.1% surge in non-auto consumer goods imports (which was seen specifically in cell phones)."

Investors also cheered an agreement among European leaders for a new, long-term European Union budget, which was seen as a victory for British Prime Minister David Cameron. The 18-month negotiation ended with the EU cutting spending for the first time ever.

Moody's


Moody's Corp. on Friday reported fourth-quarter earnings of $160.1 million, or 70 cents a share, increasing from $96.2 million, or 43 cents a year earlier. Fourth-quarter revenue was up 33% year-over-year to $754.2 million, "with double-digit revenue growth in most lines of business," according to CEO Raymond McDaniel.

Full-year earnings for 2012 were $690 million, or $3.05 a share, increasing from $571.4 million, or $2.49 a share, in 2011. McDaniel said that, "despite ongoing economic uncertainty, we anticipate generally favorable market conditions to remain in place in 2013. As a result, Moody's expects revenue growth across all areas of the business, as well as earnings per share in the range of $3.45 to $3.55."

After the Department of Justice filed suit against Standard & Poor's, UBS analyst Alex Kramm said in a report that the lack of a similar lawsuit against Moody's "suggests that the DOJ could either 1) have specific evidence to make a case against MHP, or 2) MCO could be targeted at a later time." Kramm also said a lawsuit against Moody's "could take years to play out."

Piper Jaffray analyst Peter Appert on Friday reiterated his "overweight" rating on Moody's, with a price target of $59, saying in a note that "we continue to like the risk/reward of MCO shares based on strong earnings momentum, impressive secular growth prospects, fading regulatory concerns and what we believe should be manageable litigation risk."

"We believe upside in MCO shares may be limited until we get clarity over the weightiness of the DoJ's evidence against S&P and the applicability of the FIRREA rule to rating agencies," Appert wrote.

Appert also expects the legal risk to Moody's to be "manageable" because "after four years of extensive discovery the long sought 'smoking gun' that would prove fraud has failed to materialize."

-- Written by Philip van Doorn in Jupiter, Fla.

MCO Chart MCO data by YCharts

Interested in more on Moody's Corp.? See TheStreet Ratings' report card for this stock.

RELATED STORIES:






>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

More from Investing

7 Key Takeaways as Amazon Beats Estimates and Raises Prime's Price

7 Key Takeaways as Amazon Beats Estimates and Raises Prime's Price

Coke's a Better Stock to Buy Than Pepsi on Surprising North America Sales
Starbucks Surprises Wall Street With U.S. Sales Up a Paltry 2%

Starbucks Surprises Wall Street With U.S. Sales Up a Paltry 2%

Intel Stock Jumps After Earnings Beat, Raised Outlook for 2018

Intel Stock Jumps After Earnings Beat, Raised Outlook for 2018

Amazon Crushes Quarterly Earnings Estimates, Raises the Price of Prime

Amazon Crushes Quarterly Earnings Estimates, Raises the Price of Prime