UBS Analyst: Time To Buy Moody's, But M&A Slowdown Could Be Risk

Shares of Moody's Corporation (NYSE: MCO) have declined 11.43 percent over the past three months, while appreciating 2.43 percent year-to-date.

Alex Kramm of UBS has upgraded the rating on the company from Neutral to Buy, while reiterating a price target of $116.

Kramm believes that sentiment has turned negative around the stock, given the slowdown in debt issuance, while investors appear to be concerns about macro impact in 2016.

Analyst Alex Kramm explained that one of the most commonly asked questions recently has been whether rating agencies, especially Moody’s, would be able to sustain top-line growth in 2016.

“We see a much rosier picture than we believe the market is currently pricing in after a sell-off that we believe was overstated,” Kramm stated, while expressing confidence in the company’s ability to drive high single digit MIS growth.

According to the UBS report, Moody’s stock is expected to rise, “as issuance pipelines unfreeze and as investors regain comfort with macro conditions.”

A modest increase is expected in overall issuance, with refinancing needs expected to rise in 2016 as compared to 2015, as well as acceleration in GDP growth, globally.

Kramm also expects M&A activity to continue in 2016, especially given that volatility is likely to have pushed many deals into 2016.

In addition, there have been recent signs of improving credit conditions. “Flows into bond funds have turned positive in recent weeks and credit spreads have come down after spiking in October,” the report said.

Kramm believes that this indicates that debt issuance would begin to pick up, making the current stock valuation an attractive buying opportunity.