Why Moody's Shares Dropped


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Moody's were getting a lower rating from the market today, falling as much as 14% on lawsuit fears, after reporting quarterly earnings.

So what: The ratings agency's shares already dropped nearly 20% this week since the Justice Dept. announced a lawsuit against rival S&P for faulty ratings in the run-up to the financial crisis. Moody's earnings shot up from $0.43 a year ago to $0.70, beating estimates by a penny, and revenue climbed 33% to $754.2 million, topping estimates by 10%. Still, the market was more concerned with the possibility that Moody's would become a defendant in its own lawsuit.

Now what: McGraw-Hill , S&P's parent, has already lost $5 billion off its market cap, the equivalent of damages claimed in the lawsuit, and 30% of its former share price. The markets seem to be overreacting to this. These suits are often settled or negotiated to much lower than the original damages, as we've seen with the big banks, which have a lot more to pay than the ratings agencies. Moody's EPS guidance was notably better than expected, at $3.45 to $3.55 in 2013. It seems like most of the risk from a lawsuit is already priced in. I'd say it looks like a good time to buy.

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The article Why Moody's Shares Dropped originally appeared on Fool.com.

Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Moody's. The Motley Fool owns shares of The McGraw-Hill Companies. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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