Q3 Earnings Preview: Moody’s, KKR, Comcast and Coventry Health

Q3 Earnings Preview: Moody’s, KKR, Comcast and Coventry Health

Today is a relatively light earnings day. We have previews of some of the notable companies reporting before the market open. We split up the companies into two articles, so readers should check out our other article on the topic. Below we preview, Moody’s Corporation (NYSE:MCO), KKR & Co. L.P. (NYSE:KKR), Comcast Corporation (NASDAQ:CMCSA), and Coventry Health Care, Inc. (NYSE:CVH).

Q3 Earnings Preview: Moody's, KKR, Comcast and Coventry Health

  • Moody’s Corporation (NYSE:MCO) reports Q3 earnings this Friday, 10/26.  The street expects Moody’s Corporation (NYSE:MCO) to report Q3 EPS of $0.16 and revenue of $622 million. Investors will be focused on several issues related to the agency. In a first for the ratings industry, at least in a high profile case, fraud charges have been allowed to proceed to trial according to the August 17, 2012 “Summary Judgment” issued by the Honorable Shira Scheindlin, Southern District of New York. The judge did not rule specifically on the merits of the fraud case, rather that there was sufficient basis to proceed to trial and to deny motion to dismiss.  The Judge determined that “the evidence on record could support a reasonable jury finding that the plaintiff has shown each element of either a fraud or an aiding and abetting claim by clear and convincing evidence.” The case revolved around an SIV, Cheyne Finance LLC, marketed by Morgan Stanley, with investment grade ratings by Moody’s Corporation (NYSE:MCO) and others re over $1 billion in securities that eventually collapsed. Documentation in the Judgement exhibits strong insinuations of intense investment banker pressure on the raters, greater concern for revenue generation vs. analytical integrity (“evidence that the Ratings Agencies comprised quality in pursuit of profits”), analytical work at the raters which implicitly contradicted the ratings, and lack of knowledge/poor methodology supporting the ratings. Should the defendants decide not to settle, a public airing could be damaging. Barclays analysts note that it is difficult to quantify or know if any precedent from the outcome in this case can be established. Moody’s Corporation (NYSE:MCO) has stated it has no intention of settling, is confident should a trial proceed and that the burden of proof is very high. For the six months ended 30 June 2012, Moody’s Corporation (NYSE:MCO) revenues increased 9% to $1.29B. Net income increased less than 1% to $346M. Revenues reflect MA segment increase of 19% to $399.6M, MIS segment increase of 5% to $928.5M, United States segment increase of 12% to $687.8M, EMEA segment increase of 5% to $387.1M, Other Foreign segment increase of 8% to $212.7M. Net income reflects MIS segment income increase of 4% to $475M.
  • KKR & Co. L.P. (NYSE:KKR) will report earnings before the opening bell. The street expects KKR to report Q3 EPS of $0.48 and revenue of $193 million. Consistent with previous quarters earnings calls, management will likely give an update around netting holes for the 2006 Fund and European 2, or portfolios accounting for ~45% of PE AUM and ~35% of total AUM at 6/30. JMP analyst, Steven Fu, CFA,  believes that based on the performance of the global equity markets and KKR & Co. L.P. (NYSE:KKR)’s significant publicly-traded holdings, the firm’s private equity portfolio could appreciate 3% in the quarter. In addition, Wu thinks that public markets performance should be positive, as the relevant credit indices all posted solid gains in 3Q12. Additionally, WU believes that KKR & Co. L.P. (NYSE:KKR)’s principal investments should show a somewhat larger gain, reflecting a higher weighting in some of the quarter’s better performers.  For the six months ended 30 June 2012, KKR & Co. L.P. (NYSE:KKR) revenues decreased 35% to $228.7M. Net income increased 69% to $336.7M. Revenues reflect Private Markets segment decrease of 19% to $256.8M, Public Markets segment decrease of 12% to $59M. Net income reflects Capital Markets & Ptincipal activities segment income increase of 7% to $41.5M. Dividend per share decreased from $0.32 to $0.28.
  • Comcast Corporation (NASDAQ:CMCSA)  is reporting 3Q12 results today, Oct 26th, before the market open, followed by a conference call at 8:30AM.  The street expects Comcast Corporation (NASDAQ:CMCSA) to report Q3 revenue of $16.1 billion and EPS of $0.46. Barclays analysts expect investors to focus on cable operating results (particularly video and broadband subs) in the seasonally strong backto- school quarter on the cable side, and the impact of the Olympics, the election and better show line-up at NBCU. In addition,  investors will be looking for management commentary on the use of the SpectrumCo cash and its plan for the converted Clearwire Corporation (NASDAQ:CLWR) stake.  Wi-Fi panel track is also a major focus. Cable MSOs are advantaged through the powered strands within the HFC architecture to power Wi-Fi radios to serve high data usage areas. To address the mobile data capacity needs, the MSOs and mobile entrants need to develop heterogeneous networks that seamlessly couple broad 4G cellular coverage with 1.3Gbps or faster 802.11ac/802.11ad Wi-Fi that has extremely limited range at its higher frequencies but game changing capacity. MSOs benefit from backhaul and access deals beyond better HSD sub-stickiness. For the six months ended 30 June 2012, Comcast Corporation (NASDAQ:CMCSA) revenues increased 14% to $30.09B. Net income increased 31% to $2.57B. Revenues reflect NBUCUniversal segment increase of 32% to $10.98B, Cable segment increase of 6% to $19.5B. Net income benefited from Cable segment income increase of 10% to $4.86B, NBUCUniversal segment income increase of 16% to $1.16B, Corporate and Other segment loss decrease of 29% to $184M.
  • Coventry Health Care, Inc. (NYSE:CVH) is reporting third quarter earnings before the opening bell. Analysts expect Coventry Health Care, Inc. (NYSE:CVH) to report Q3 EPS of $0.73 and revenue of $3.498 billion. Coventry Health Care, Inc. (NYSE:CVH) is in the process of being acquired by Aetna Inc. (NYSE:AET), and the deal price is comprised primarily of a fixed cash amount.  Coventry’s risk factors include: risks associated with the close of the company’s acquisition by Aetna Inc. (NYSE:AET); medical cost pressures (commercial business); increased regulatory oversight of industry pricing, unfavourable prior-period development; pricing pressure from Blue Cross Blue Shield competitors, especially in Pennsylvania; Medicare Advantage reimbursement pressure; near-term state budget pressures (Medicaid); risks associated with entering a new Medicaid market; health reform (increased regulation); and internal execution of company strategy. For the six months ended 30 June 2012, Coventry Health Care, Inc. (NYSE:CVH) revenues increased 19% to $7.21B. Net income decreased 22% to $262.5M. Revenues reflect Government Programs Division segment increase of 49% to $3.69B. Net income was offset by Charge for provider class action increase from $159.3M (income) to $0K, Interest expense increase of 18% to $50.2M (expense). Dividend per share totalled to $0.25.

Disclosure: No position in any securities mentioned.

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