Moody's: Today's Financial Loser
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 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."