Moody's Corp (NYSE:MCO)

CAPS Rating: 3 out of 5

A provider of credit ratings, research & analysis covering fixed-income securities, other debt instruments & quantitative credit risk assessment products & services & credit processing software for banks, corporations & investors in credit-sensitive asset

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Player Avatar notyouagain (64.06) Submitted: 8/2/2014 11:18:43 AM : Outperform Start Price: $90.27 MCO Score: +7.29

Why write a pitch? Once it leaves the CAPS Community page, nobody can read them now....

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Member Avatar notyouagain (64.06) Submitted: 8/2/2014 1:01:28 PM
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No way is it worth putting any effort into it any more. They took the site down last night and when it came back up look at the new stock quote page.

There is no way to view players' pitches. Your pitch will now cycle through the CAPS Community page and subsequently disappear into oblivion unless people go to your CAPS page to see it. And how would they know to do that? The minimal exposure you'll get now won't be conducive to enough people reading your pitches for new people to decide they want to see your CAPS page.

There is now no mechanism to make outperform/underperform calls at the stock quote page now.

Want to see the player scorecard? Too bad.

Member Avatar notyouagain (64.06) Submitted: 8/2/2014 1:13:49 PM
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I'll still enjoy playing... watching how my picks do over time, watching my CAPS start prices dropping with every dividend payout, etch.

But if this change is permanent, the interaction with other players reading and responding to your pitches is gone. From now on, your pitches have about one day to be seen, or they disappear, only to be seen on your CAPS page.

This is not an improvement. I don't understand it.

Member Avatar notyouagain (64.06) Submitted: 8/2/2014 1:21:16 PM
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Fix these things and I believe I'd like the new format.

Otherwise, I'll just make my picks, play my game, and never bother writing another pitch again.

Member Avatar notyouagain (64.06) Submitted: 8/2/2014 2:16:21 PM
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You know... if you make long term picks and go six months in between making new pitches... other players won't even know you exist, so they won't be going to your CAPS page to read your pitches, either.

So why bother?

Member Avatar notyouagain (64.06) Submitted: 8/2/2014 2:30:59 PM
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Beginning start price $90.80

Member Avatar notyouagain (64.06) Submitted: 8/26/2014 10:21:13 PM
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AND... here is YET ANOTHER ONE!

YET ANOTHER stock that went ex-dividend more than two weeks AFTER I wrote the above pitch reply DOCUMENTING my beginning start price of $90.80.

YET MY START PRICE REMAINS AT $90.80!!!!!

Is it worth the frustration for a dividend investor, to whom dividends are the central focus of his strategy, to play this game?

MCO WENT EX-DIVIDEND ON 8/18/14!

This makes THREE, counting TGT and MSFT, with which I'm having the same problem.

Are you, too, a dividend investor?

I recommend you monitor your dividends and start prices...

Member Avatar notyouagain (64.06) Submitted: 8/27/2014 7:42:44 PM
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Start price for this pick adjusted from $90.80 to $90.52 due to a dividend payout of $0.28. The ex-dividend date was 8/18/14 and the opening price that day was $91.50.

My $0.28 dividend would be assumed to be reinvested at the ex-div day opening price of $91.50, purchasing 0.003060 more shares.

So for my original start price of $90.80, I would now own 1.003060 shares and my new dividend-adjusted CAPS start price would be

$90.80/1.003060 = $90.5230

Rounded to $90.52....my new start price.

Member Avatar notyouagain (64.06) Submitted: 9/8/2014 4:20:28 PM
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I still haven't written a real pitch for this? Wow. And this really deserves one. Ok. It's coming. Either later this evening or tomorrow. As if anyone's holding their breath waiting.

Member Avatar notyouagain (64.06) Submitted: 9/9/2014 5:52:59 PM
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This being my 9th pitch reply, I would be very surprised if anyone else lays eyes on it. I spent the first six pitch replies complaining about CAPS glitches. So, finally, I'm going to write a real pitch for myself if for nobody else.

MCO, along with MHFI, enjoy not only the durable competitive advantage that comes with being a market leading company. The incredible advantages of both of these money machines are impossible for most companies to replicate.

I'll show you...

This isn't a pitch for IBM. IBM is an outstanding company, and I wrote an enthusiastic pitch for it. The fact that IBM cannot (EVER!) hope to compete with Moody's or MHFI's return on assets, net margin, or return on equity serves to underscore the impressive advantages certain industries have over others to begin with.

IBM's total revenues for the last 4 quarters add up to..................... $98,268M.
IBM's total gross profits for the last 4 quarters add up to................. $52,623M.
IBM's total net income available to common, last 4 quarters.............$16,745M.
IBM's total spent on R & D, last 4 quarters........................................$5,991M.
IBM's total spent on capital expenditures, last 4 quarters..................$10,045M.
IBM's total assets (last quarterly balance sheet)................................$124,314M.
IBM's total equity (last quarterly balance sheet).................................$17,377M.

These numbers, taken from the IBM statements right here at the Fool, can be put to good use. Here is everything we need to figure gross margin, net margin, asset turnover, return on assets, and return on equity.

So let's do that.

Gross margin = $52,623M/$98,268M = 0.5355.................Gross margin = 53.55%.
Net margin = $16,745M/$98,268M = 0.1704......................Net margin = 17.04%.
Asset turnover = $98,268M/$124,314M = 0.7905 ..............Asset turnover = 0.79 (Fool has it rounded to 0.80).
Return on assets = 0.1704 X 0.79 = 0.1346........................ROA = 13.46% (Fool rounds it to 13.5%).
Return on equity = $16,745M/$17,377M = 0.9636............. ROE = 96.36%.

These in addition to a couple others are a few of the key metrics we'll compare to Moody's.

Moody's total revenues, last 4 quarters...........................................$3,125.40M
Moody's total gross profits, last 4 quarters.......................................$2,262.80M
Moody's total net income available to common, last 4 quarters.......$942.50M
Moody's total spent on R & D, last 4 quarters...................................$0.00
Moody's total capital expenditures, last 4 quarters............................$131.20M
Moody's total assets (last quarterly balance sheet)...........................$4,786.60M
Moody's total equity (last quarterly balance sheet)............................$445.40M

Gross margin = $2,262.80M/$3,125.40M = 0.7240.................Gross margin = 72.4%
Net margin = $942.50M/$3,125.40M = 0.3016........................Net margin = 30.16%
Asset turnover = $3,125.40M/$4,786.60M = 0.6529...(Fool rounds to).......... 0.70
Return on assets = 0.3016 X 0.6529 = 0.1969 (Fool rounds to).....................19.70.
Return on equity = $942.50M/$445.40M = 2.1161............................ROE =211.61%

...............................................................IBM..............................MOODY's
Gross margin.........................................53.55%.........................72.4%
Net margin.............................................17.04%.........................30.16%
Asset turnover........................................0.79...............................0.70
Return on assets....................................13.46%.........................19.70
Return on equity.....................................96.36%.........................211.61%

Moody's starts beating up on IBM right from the get-go. Look at the difference in gross margin. Why? It has much lower cost of goods sold. It doesn't require as many employees to do what it does, either. IBM employs 463,785 people and generates $211,883 in revenue per employee, which becomes $36,105 in net income.

Contrast that with Moody's. Moody's employs 9,792 people that each generate $372,071 in revenue...and $112,202 of that becomes net income.

Why? Why does it take over 3 IBM employees generating $635,649 in revenue to equal the net income generated by one employee at Moody's?

Moody's operations are less capital-intensive.

In 2013, IBM had $16,483M in net income, and spent $4,140M on capital expenditures.

In 2013, IBM also spent $6,226M in R &D. Moody's doesn't have that, either.

So. IBM poured 25.1% of its earnings into capital expenditures and another 37.77% of its earnings on R & D.

Sounds unbelievable, doesn't it? It's a good thing IBM makes so much money. Of course, these are capital expenditures, which will have their costs allocated and amortized over a number of years as depreciation expense.

Contrast that with Moody's 2013 earnings of $815.90M and 2013 capex spending of $42.30M...Moody's only spent 5.18%of its net earnings on capex in 2013.

R & D? Moody's says, "What's that?"

Since IBM has over 47 times as many employees as Moody's, SGA (Selling, general, and administrative expenses) is much higher.
SGA includes direct and indirect costs of selling (management salaries, payroll costs, commissions, advertising, etc.)

IBM's SGA expenses for 2013 were $21,837M.
Moody's SGA costs for 2013 were $822.10M.

These are simply superior economics inherent to this business sector. As I said, IBM is a good company, with outstanding numbers. It's simply that companies like MHFI and MCO have a tremendous advantage just by virtue of their less capital-intensive structure.

All they do is make money. They don't have costs associated with manufacturing, shipping, or storing products, they don't require large amounts of R & D just to stay in business, they just...make...money!

And they're very, very, good at it.

Member Avatar notyouagain (64.06) Submitted: 9/10/2014 12:09:28 AM
Recs: 0

Well...I wanted to use the data from the Fool's published statements for the source for all my computations. In the end, that couldn't work for a limited few of my calculations, because the Fool has screwed up the quarterly cash flow numbers.
If you look at IBM's quarterly cash flow statements, the Fool has really messed them up.

See the cash flow statement for the quarter ended Dec 2013? IBM did not have capex spending of $4,140M in the last quarter of 2013. In fact, IBM's capex for the whole of 2013 was $4,140M.

The first quarter of 2014, ended in Mar, the Fool lists the correct capex number of $961M.
However, the second quarter of 2014 ending in June, the capex listed is $1,979M. This not the capex for the quarter ending in June.

The capex for the quarter ending in June is $1,018. Instead of listing the separate quarterly amounts, someone at the Fool has decided, for whatever reason, to list cash flow items on running total basis throughout the year. I actually had to look at this for quite some time to figure it out, and in the end had to go to Morningstar.com to do so.

Now, it turns out I could have gone ahead and used the totals from the quarterlies for the R & D and the SGA stats. The only statements the Fool has screwed up in the way I've described are the quarterly cash flow statements.

Unless they've chosen to do it that way for some reason. Of course, why they would screw them up on purpose is beyond me. I'm just reporting the facts.

If you want to see and understand for yourself, be aware that Morningstar.com separates capex spending into "property, plant, and equipment" and "purchases of intangibles".....and for the year 2010, they broke it down into "property, plant, and equipment" and "investments in technology".

Sorry, Fool. Nobody's perfect, but your cash flow statements are a confusing mess.

Anyway, that's why I didn't use the total capex for the last 4 quarters that I had listed for IBM and Moody's, instead going to the annual statements and pulling the capex off of them for 2013.

I thought the capex figures were suspect when I noticed the figure listed for the quarter ending Dec 2013 was the same as the capex listed for all of 2013 on the annual cash flow statement.

So if you've ever been confused by this, maybe I've helped.

Member Avatar notyouagain (64.06) Submitted: 9/10/2014 12:45:15 AM
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I just sent feedback to the Fool using the "Contact Us" button about their quarterly cash flow statements. I doubt very much if they'll fix it. It's been like that for years.

Truthisntstupid was probably the last one to contact them about this very same problem...years ago. I had forgotten about it.

However, just being aware of the nature of this problem, found only on the quarterly cash flow statements, does make them usable.

Member Avatar notyouagain (64.06) Submitted: 9/10/2014 12:50:23 AM
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LOL

Surely nobody will read this, and if they actually do, they'll get a workout for their brain!

Sorry to make you work so hard! But if you want to learn something...if you want a pitch with some MEAT in it...that's why you're reading this!

Member Avatar notyouagain (64.06) Submitted: 9/11/2014 4:17:21 PM
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CONFIRMATION!!!!

Score! I just received an e-mail from the Fool regarding my feedback message to them about the errors in their quarterly cash flow statements!
They're acknowledging the errors and working on correcting them. In the meantime, as I said earlier, they are still usable IF YOU KNOW THE NATURE OF THE ERRORS...so, as much as you may not want to, you might want to reread my earlier comments about them if you want to be able to refer to the quarterly cash flow statements for information.

Member Avatar notyouagain (64.06) Submitted: 11/19/2014 10:23:50 PM
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MCO went ex-div on 11/18/14, with another quarterly payout of $0.28 and opening at $100.62/share.

1 / 1 plus ($0.28 / $100.62) = 0.997225

0.997225 X $90.52 = $90.2688...rounds to $90.27, my new start price.

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