- Adding Moody's (MCO:xnys)
to our Alpha Picks list
- At close to 52-week lows, valuation is looking very attractive at EV/EBITDA 10x
- Moody's has high-margin business with low capex and it is growing faster than rivals
- We also highlight Novo Nordisk, Edenred, Michael Kors and Fuji Heavy Industries
Attractive valuation has led to Moody's inclusion on Saxo Bank's Alpha Picks list.
Image: Moody's 2014 annual report
By Peter Garnry
We have added shares in US rating agency Moody's (MCO:xnys) to our Alpha Picks list as a decline in the price to near 52-week lows has made the valuation attractive.
Moody's stock is now trading at an enterprise value of 10X EBITDA. The company has a high-margin busiess with very low capex levels, free cashflow of about $1.1 billion and market cap of about $15.5 billion.
Moody's business is also growing faster than its competitors.
Key risks to investing in Moody's shares are the stock price's high sensitivity to bond issuance and a stronger US dollar.
Four other highlights on our list
We also want to highlight the following four stocks, though they are not new additions to our list.
Novo Nordisk (NOVOb:xcse)
- Sharp selloff after fourth-quarter earnings and 2016 guidance (taking long-term operating profit growth down to 10% from 15%)
- The Danish company is industry leader in global diabetes care, with the best drugs and new winning drugs on the way
- Attractive valuation (EV/EBITDA 15x) against above-median revenue growth, strong margins and predictable cashflows
- Key risks: weaker USD, bad newsflow on US drug pricing, global risk-on sentiments accelerates
- The corporate services provider's stock is trading close to 52-week lows, driven lower by Latin American and Caribbean exposure (46% of revenue)
- World's largest operator of prepaid corporate services (employee benefits, expense management etc.)
- Very predictable business with strong free cashflows – high recurring revenue (sticky business model)
- Key risks: further slowdown in Brazil and Latin America, currency risk to LatAm, changing tax regimes for vouchers
Michael Kors (KORS:xnys)
- Shares in the designer handbags group are up 26% after fourth-quarter earnings as sales and outlook beat estimates, driven by new product mix and mitigation from e-commerce sales
- Very attractive valuation (EV/EBITDA 6x) against 10% free cashflow yield and cashflow to assets of +60%
- 2016 outlook will drive repricing of valuation multiples; international expansion will also drive growth
- Key risks: slowdown in consumer spending, lower US mall traffic, slowdown in international expansion
Fuji Heavy Industries (7270:xtks)
- Top-line growth at the Japanese conglomerate is close to 10% year-on-year, with margins expanding on the back of a weaker yen (though not in recent weeks)
- Extremely low valuation (EV/EBITDA 3x) which is out of touch because the Bank of Japan will not let the JPY strengthen further
- Strong fundamentals in the global auto sector; US auto sales have surprised positively (Fuji gets 60% of revenue from North America)
- Key risks: stronger JPY, slower economic growth hurting auto sales
— Edited by John Acher