Another quarter is now in the books, and once again Motley Fool Stock Advisor recommendation Moody's (NYSE:MCO) results have blown past analyst expectations. The company has made a habit out of upside surprises, having topped estimates at every quarterly checkpoint this fiscal year. This morning, it extended that streak by posting fourth-quarter earnings of $0.80, which outpaced even the most optimistic outlook on the Street by $0.03. Net income for the quarter rose 43% to $122.6 million, on revenues that advanced 12% to $391.6 million.
Today's results close out a banner year for ratings firm Moody's, as both revenues and profits rose to record-high levels. Even after backing out the favorable impact of currency translation, Moody's Investor Service revenues climbed by 10% to $354.9 million, with gains in ratings and research of 10% and 22%, respectively. Within the core credit ratings business, Moody's enjoyed double-digit growth in every division except for public finance, which fell modestly as higher tax revenues crimped borrowing demand.
Ratings-related revenues benefited from strength in the structured finance arena, where residential mortgages and mortgage-backed securities shined. Corporate finance reported heightened activity in the corporate high-yield market (at least domestically, as junk bond issuance fell in other countries), though investment grade activity slowed substantially. Revenues at Moody's KMV also continue to grow, adding about $128 million in sales last year. (The subsidiary provides credit processing software and subscription-based tools to help lenders and institutional investors assess corporate credit risk.)
Moody's is the classic example of a wide-moat company; stringent Securities and Exchange Commission entrance requirements have left only a few rivals -- such as McGraw-Hill's (NYSE:MHP) Standard & Poor's and France's Fitch Investors Service -- to encroach on the firm's territory. Furthermore, demand for Moody's credit rating services is all but guaranteed. Nearly every corporate and government entity needs debt at some point, and how many investors are willing to purchase non-rated securities?
Along with its impressive growth rates and juicy margins, the company has also repurchased around 27 million shares over the past few years at a net cost of roughly $42 each -- about half the level where the shares are currently trading. After a recently announced 2-for-1 stock split, Moody's will soon be back in that range. Though, as we have cautioned on numerous occasions, a stock split by itself is not necessarily a sound reason to buy. The company's other significant announcement, however, just might be.
Moody's is lifting its dividend payment by almost 50%, so despite a more toned-down forecast for the year ahead, it's obviously not too concerned about its future cash flows.
With his first pick in the Motley Fool Stock Advisor draft, Tom Gardner selected Moody's. See how well his team has performed by subscribing today with a six-month money-back guarantee.
Fool contributor Nathan Slaughter owns none of the companies mentioned.
