Moody’s Corp. (MCO) has seen positive returns over the past six months and has steadily been outperforming the S&P 500, rising by approximately 23.1% compared to the S&P 500’s gain of about 6.7%. Despite the growth, the financial services company recently slid on the HeatMap Index, landing on a ranking of 37, down from 29.
Moody’s is an American credit rating agency, a holding company for Moody’s Investor Service (MIS), and Moody’s Analytics (MA). The company is a financial software provider and services provider, providing economic-related research data and analytics tools. Moody’s has long been a leader in the credit rating market. Still, after a stellar performance in 2019, 2020 has proven more challenging. There’s no doubt that the coronavirus pandemic has impacted Moody’s business, as credit rating agencies are continually evaluating the pandemic’s impact on the credits they rate, trying to estimate economic implications, including nationwide business closures and high unemployment levels.
Hedge Funds and Institutions Take a Step Back
Looking at second-quarter activity by the top hedge funds and institutions, it seems that Moody’s has slipped out of favor. Hedge Funds appear to be applying similar caution to what Moody’s applied to the credits it rates. Of hedge funds, 36 created new positions, 62 added to an existing holding, 11 exited, and 64 reduced their stakes. Overall, hedge funds decreased aggregate holdings by about 4.5% to approximately 42.4 million from 44.4 million shares. Similarly, institutions were also selling, reducing their aggregate holdings by about 0.4% to approximately 168.7 million from 169.4 million shares.
Projected Earnings Increase Despite Hedge Funds Selling
Analysts anticipate that earnings will grow slowly over the next few years, increasing to $9.36 per share in 2020 and continuing an upward climb to an estimated $13.00 per share in 2024. Projections include earnings growth of an impressive 12.9% for December 2020. Revenue will see multiple years of growth, spanning from about 5.1 billion to 6.3 billion between 2020 and 2024.
Optimistic Long-Term Outlook
The coronavirus pandemic’s continued uncertainty, including pandemic influenced economic policies, creates challenges for Moody’s MIS and MA holdings. The pandemic duration is also a significant factor for the impact on credit conditions for debt issuers. However, Moody’s remains a leader in the credit rating market. The encouraging projections for earnings and revenue over the next few years is something to take note of, as is the need for patience from investors.