Moody’s stock price has bounced back in the past few weeks, mirroring the performance of most companies in Wall Street. MCO, which counts Warren Buffett as an investor, jumped to a high of $488, its highest point since March 4, and 30% above its lowest point this year. This article explores whether Moody’s shares will keep rising.
Moody’s business is doing well
Moody’s is one of the biggest companies in the financial services industry. It is a top credit rating agency, where it competes with S&P Global and Fitch Ratings.
Moody’s makes money by charging fees to issuers of debt securities, which help lenders to determine the creditworthiness of these companies and countries. It also earns fees for rating new debt isssuances and surveillance fees.
The company also has a large analytics business in which it offers subscriptions and software licensing.
Moody’s is often seen as an all-weather company that makes money in all market conditions. It annual results shows that its revenue has been growing in the past few years, moving from $5.3 billion in 2020 to $7.08 billion last year.
Moody’s is also a high-margin company as it generated a net profit of $2.05 billion, giving it a net income margin of 29.15%.
The most recent results showed that the company’s business continued doing well in the first quarter. Its revenue rose by 8% to $1.065 billion, a record figure. Most of this revenue came from the Corporate Finance Group followed by Structured Finance, and Publi, Project, and Infrastructire Finance.
Analysts are optimistic that Moody’s revenue will come in at $1.82 billion in the second quarter. They also expect that its earnings per share will be $3.28. For the year, analysts expect that its revenue growth will be 4.45% to $7.4 billion, while the earnings per share will move from $12.47 to $13.61.
Most analysts have a bullish outlook for the Moody’s stock, with the average target being at $502, up from the current $488. Some of the most bullish analysts are from Baird, Wells Fargo, and Barclays.
Still, the risk is that Moody’s is not a cheap company. Data shows that the company has a forward price-to-earnings ratio of 39, up from the sector median of 11.46. Its non-GAAP P/E ratio is 35.9, also higher than the sector median of 10.9.
Moody’s valuation metrics are also higher than those of S&P Global, which has a forward P/E ratio of 37 and a non-GAAP multiple of 30.
Moody’s stock price analysis
The daily chart shows that the MCO stock price bottomed at $377.75 in April as the tariff jitters continued. It has then rebounded and moved to $488 today.
The stock has moved above the 50-day and 100-day Exponential Moving Averages (EMA), while the Relative Strength Index is nearing the overbought level.
The risk, however, is that the Moody’s stock price has formed a rising wedge pattern, a popular bearish sign. Its two lines are about to converge, which may lead to a bearish breakdown.
The stock is also forming an inverse head and shoulders pattern whose shoulders are at $435. Therefore, the stock will likely drop and retest the support at $435, and then resume the upward trend.
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