Moody’s Corp., whose founder John Moody created credit ratings more than a century ago, gained the most in more than a year after boosting its forecast for 2010 earnings for the second time in three months.
Moody’s expects full-year earnings per share to range from $2.08 to $2.14, compared with a previous forecast of $1.90 to $1.96, the New York-based company said today in a statement. It raised its guidance previously on Oct. 28 after reporting a 35 percent jump in third-quarter earnings. Five analysts surveyed by Bloomberg estimated profit of $1.93 per share.
The company has withstood legal challenges and political pressure after the credit-rating industry was blamed for helping fuel the financial crisis after it assigned top marks to U.S. subprime-mortgage bonds just before that market collapsed in 2007. The U.S. financial-regulation overhaul enacted in July eliminated credit-rating companies’ shield from lawsuits when underwriters include their assessments in documents used to sell debt.
“As the economy recovers and credit access improves, bond issuance should improve,” Edward Atorino, an analyst at Benchmark Co. in New York, said in a Dec. 29 note to clients that named Moody’s shares among the firm’s “Best Ideas for 2011.” With more than an estimated $2 trillion in corporate debt to be refinanced from 2011 to 2014, “increased issuance should drive revenue,” he said.
Litigation risk against Moody’s “appears low,” Atorino said in the note.
Earnings of $2.14 a share in 2010 would come close to Moody’s best year, 2007, when profits reached an all-time high of $2.50 per share. The company earned $2.25 a share in 2006, according to Bloomberg data.
Moody’s surged $2.35, or 8.6 percent, to $29.67 in New York Stock Exchange composite trading. That’s the biggest jump since Sept. 29, 2009, when it gained 10.9 percent, according to Bloomberg data.
Sales of high-yield, high-risk debt in the U.S. rose 55 percent to $88.6 billion in the fourth quarter compared with the year-earlier period, according to data compiled by Bloomberg.
“The updated guidance is driven by a higher revenue forecast associated with robust fourth-quarter bond market issuance benefiting Moody’s Investors Service,” the company said in the statement.
Ratings by Moody’s, Standard & Poor’s and Fitch Ratings Ltd. are protected speech, a California judge said in a tentative ruling last month in a $1 billion lawsuit by California Public Employees’ Retirement System against the companies.
A revival in the debt markets may help Moody’s offset higher regulatory costs after the Dodd-Frank Act overhauled financial markets last year.
The company is also raising its prices. The firm plans to charge about 5 percent more to rate debt, according to Peter Appert, an analyst at Piper Jaffray & Co. Appert made the comments in September after meeting with Chief Executive Officer Raymond McDaniel and Chief Financial Officer Linda Huber.
Moody’s said 2010 revenue rose about 13 percent from 2009, compared with a previous forecast of “high-single to low-double-digit” percent growth. It reports full fourth-quarter earnings on Feb. 3.
Moody’s also increased its forecast after completing software projects ahead of schedule at its analytics unit and following a drop in its effective tax rate.
Corporate bond issuance fell to $695 billion globally in the fourth quarter, down 11 percent from a year earlier, according to data compiled by Bloomberg.