On Monday, Goldman Sachs (NYSE:GS) updated its price target for Moody's Corporation (NYSE:MCO) shares, a notable player in the credit rating industry.
This adjustment reflects a new target price-to-earnings (P/E) multiple of 33.0 times, up from 32.0 times, based on the next twelve months plus one year (NTM + 1YR) earnings per share (EPS) estimate, which also saw a slight rise from $12.45 to $12.48.
The revision in the price target and P/E multiple is attributed to an improved outlook for debt issuance. Goldman Sachs believes that the target multiple is justified given Moody's strong competitive position, promising growth prospects in its Moody's Analytics (MA) segment, and a period of under-earning. The new target multiple stands above the median of the Information Services peer group, which is at 27.5 times.
Despite the price target increase, Goldman Sachs has chosen to maintain a Neutral rating on Moody's stock. The firm's decision takes into account Moody's wide competitive moat and its attractive growth outlook. However, the rating also reflects the inherent risks associated with the company's reliance on the fluctuating volumes of new debt issuance.
Goldman Sachs outlined potential risks that could affect the performance of Moody's shares. On the downside, these include the volatility in debt issuance, the impact of rising interest rates, and the risks related to the integration of acquisitions. Conversely, upside risks might arise from inorganic contributions in Moody's Analytics, strength in high-yield, leveraged loans, and securitized debt volumes, as well as potential margin improvements due to cost efficiencies.
InvestingPro Insights
As Goldman Sachs updates its assessment of Moody's Corporation, investors may also consider additional insights from InvestingPro. Moody's boasts a perfect Piotroski Score of 9, indicating high financial health, and has raised its dividend for 14 consecutive years, showcasing a commitment to shareholder returns. Notably, the company has maintained dividend payments for 27 consecutive years, underscoring its consistent performance and financial stability.
InvestingPro data reveals a market capitalization of $71.75 billion, with a P/E ratio of 44.98, which is above the industry average. This high earnings multiple might be a point of caution for value-oriented investors. However, Moody's strong revenue growth of 8.19% over the last twelve months, as of Q1 2023, and a robust gross profit margin of 71.48% reflect the company's effective management and market positioning. Additionally, the company's stock is trading near its 52-week high, at 96.42% of the peak value, suggesting investor confidence in its prospects.
For those interested in a deeper analysis, InvestingPro offers additional tips, including insights on earnings revisions by analysts and comparisons of P/E ratios relative to near-term earnings growth. To access these expert tips and more, consider subscribing to InvestingPro using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 12 more InvestingPro Tips available, providing a comprehensive view of Moody's financial health and future outlook.
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