Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
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Income expert Carla Pasternak's debut issue of High-Yield
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The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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| Moody's
(MCO) Looks Like a Bargain |
Published: August 15, 2006
Credit
ratings giant Moody's (MCO) recently reported a +14% jump in
second-quarter revenues, which reached $511 million. Domestic revenues
increased +16% to $328 million, while those generated in foreign markets
rose +11% to $183 million.
Despite interest rates having marched steadily higher over the past two
years, Moody's core ratings business remains robust. Thanks to an active
merger & acquisition (M&A) environment and low borrowing costs,
issuance of both investment-grade and high-yield corporate bonds remains
strong. As a result, global corporate finance revenues spiked +36% for
the period.
Meanwhile, the structured finance business, Moody's largest at 42% of
revenues, also reported solid results. This segment, which includes
credit derivatives and mortgage-backed securities, posted healthy
top-line growth of +13% for the quarter.
Aside from determining the creditworthiness of borrowers, Moody's also
generates substantial revenues by offering credit research and related
analytical software. During the quarter, research revenues rose +19% to
$63 million, and Moody's KMV, a subsidiary that provides risk assessment
software to banks and institutional investors, added another $35 million
in subscription and licensing revenues.
All of this added up to a solid +14% gain in operating income to $289
million, with operating margins remaining at a stellar level above 55%.
Better still, with an aggressive stock buyback program reducing the
outstanding share count by 14 million shares, earnings were able to rise
+26% to $0.59 per share, handily topping Wall Street estimates for
earnings of $0.56 per share.
Taking a broader look at the overall market, the ratings business is
essentially a duopoly between two firms -- Standard & Poor's and
Moody's. In the U.S., ratings agencies are certified and regulated by
the government, thus, there is a regulatory barrier preventing new firms
from entering the business to compete with these two giants.
These two firms together control 80% or more of the global ratings
business. And although a handful of smaller players also compete in this
market, most debt issuers prefer to have their deals rated by S&P
and Moody's, as it adds additional weight and legitimacy to their
offerings. This is also true outside the U.S.
There have been some attempts to break this near monopoly. Most
recently, Congress has proposed new legislation that would make it
easier for firms to be certified as ratings agencies. But the effects of
this legislation are likely to be minimal. The two major ratings firms
have spent years establishing credibility and relationships with
institutional investors and issuing companies. Thus, it will be hard for
new competitors to break into the business and take significant share.
In addition, recent regulatory proposals would require new entrants to
wait a full three years before entering this market.
In the meantime, Moody's continues to deliver outstanding results. Along
with its recently quarterly earnings release, Moody's also lifted its
full-year guidance, with earnings growth now projected to be in the
"mid-to-high teens." Investors applauded the upbeat forecast,
and the shares have rallied nicely in recent weeks. The gains were also
welcome news to Berkshire Hathaway (BRKa), which holds a 16.5% stake in
the company, making it by far Moody's largest shareholder.
Note:
The above article was merely a small excerpt from
a recent issue of our premium value investing newsletter -- Half-Priced
Stocks. The mission of Half-Priced Stocks is to
help our readers identify securities that are trading at a steep
discount to their intrinsic net worth. In some cases this
discount can reach up to 50% or more, giving savvy value
investors the chance to purchase quality stocks for just pennies
on the dollar. To learn more about our Half-Priced Stocks
service, please visit the following link:
https://www.StreetAuthority.com/subscribe-hps.asp |
Thanks for reading!
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Nathan Slaughter
Editor
Half-Priced Stocks, The ETF Authority
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in-depth guidance on today's leading value opportunities, plus educational guidance, please subscribe to
Nathan Slaughter's premium value investing newsletter --
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