Moody’s Seen Climbing as Piper Jaffray Says Fees Outweigh Probes

Moody’s Corp. is poised to rally on increased debt sales, higher fees and improved margins after its shares have underperformed its main rival this year amid government probes, according to Piper Jaffray.

The owner of the second-largest credit ratings company may climb to $122 a share from about $95.32, according to a March 9 report from San Francisco-based analyst Peter Appert. While Moody’s shares are unchanged this year, shares of McGraw Hill Financial Inc. -- parent company of Standard & Poor’s, Moody’s biggest competitor -- have rallied about 15 percent.

The “most underappreciated aspect” of Moody’s business model is its ability to raise prices, according to Appert. Companies haven’t pushed back on annual fee increases of 4 percent because the higher price is still well under the greater borrowing costs of issuing an unrated security. Corporate-debt issuance worldwide rebounded in February to $333.5 billion, 13 percent more than the same month last year, according to data compiled by Bloomberg.

Moody’s conduct during the credit crisis is still being examined after S&P settled similar investigations. The U.S. government is continuing interviews with former Moody’s executives regarding whether the credit rater bent criteria on structured-finance products to win business from Wall Street banks, two people familiar with the matter said last month. The New York-based company is facing lawsuits from Connecticut and Mississippi, which were among more than a dozen states that joined the Justice Department last month in settling their cases against S&P.

Michael Adler, a Moody’s spokesman, declined to comment on the probes and Appert’s forecast.

Management expects to improve margins at Moody’s Analytics, the company’s information and research arm, by about 5 percent over the next several years, Appert wrote.

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