Piper Jaffray Discusses Moody's Role In Sovereign Debt Crisis

Piper Jaffray is out with a research report on Moody's MCO role in the sovereign debt crisis. It has an Overweight rating and a $46 price target on shares. In a note to clients, Piper Jaffray writes, "Turmoil in the sovereign debt market creates risk to near-term issuance volumes, but does not alter our Bullish long-term view of the outlook for MCO and MHP. Cyclical and secular growth in debt issuance, manageable regulatory and litigation risk, and appealing valuations make MCO and MHP our top picks in the information services sector. We believe recent weakness in MCO is at least in part of function of profit-taking after the stock's strong YTD performance (up 37% YTD vs. 4.5% move in S&P500). We see meaningful room for valuation upside in both MCO and MHP in the context of P/E multiples that in both cases remain well below historical averages." Piper Jaffray goes on to say, "While volatility in issuance volumes will result in near-term volatility in revenues and earnings, we continue to believe that the fundamental backdrop for issuance remains positive in the context of low rates, narrow spreads, an improving macro environment, a large backlog of refinancing activity, and long-term growth in the international debt capital markets. Likewise, we remain confident that regulatory and legal risk are fading, as outlined in the summary table on page three. Despite the current buzz in Europe, we think the prospects for establishment of a new "European" rating agency are slim." Shares of MCO are up 21 cents in pre-market trading to $36.50.