Critical Survey: Moody’s (NYSE:MCO) and XP (NASDAQ:XP)

XP (NASDAQ:XP) and Moody’s (NYSE:MCO) are both large-cap finance companies, but which is the better investment? We will compare the two companies based on the strength of their risk, dividends, earnings, profitability, valuation, analyst recommendations and institutional ownership.

Earnings and Valuation

This table compares XP and Moody’s”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
XP	$3.30 billion	5.31	$925.91 million	$1.91	17.07
Moody’s	$8.16 billion	9.98	$2.46 billion	$15.77	29.82

Moody’s has higher revenue and earnings than XP. XP is trading at a lower price-to-earnings ratio than Moody’s, indicating that it is currently the more affordable of the two stocks.

Volatility and Risk

XP has a beta of 1.01, suggesting that its stock price is 1% more volatile than the S&P 500. Comparatively, Moody’s has a beta of 1.35, suggesting that its stock price is 35% more volatile than the S&P 500.

Analyst Ratings

This is a breakdown of recent ratings and target prices for XP and Moody’s, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
XP	0	2	5	0	2.71
Moody’s	0	7	14	0	2.67

XP currently has a consensus price target of $28.80, suggesting a potential downside of 11.66%. Moody’s has a consensus price target of $559.42, suggesting a potential upside of 18.97%. Given Moody’s’ higher probable upside, analysts plainly believe Moody’s is more favorable than XP.

Profitability

This table compares XP and Moody’s’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
XP	27.20%	22.19%	1.33%
Moody’s	34.25%	80.35%	19.38%

Institutional & Insider Ownership

59.2% of XP shares are owned by institutional investors. Comparatively, 92.1% of Moody’s shares are owned by institutional investors. 0.1% of Moody’s shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Dividends

XP pays an annual dividend of $0.40 per share and has a dividend yield of 1.2%. Moody’s pays an annual dividend of $4.12 per share and has a dividend yield of 0.9%. XP pays out 20.9% of its earnings in the form of a dividend. Moody’s pays out 26.1% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Moody’s has raised its dividend for 16 consecutive years. XP is clearly the better dividend stock, given its higher yield and lower payout ratio.

Summary

Moody’s beats XP on 14 of the 17 factors compared between the two stocks.

About XP

XP Inc. provides financial products and services in Brazil. It offers securities brokerage, private pension plans, commercial, and investment banking products, such as loan operations and transactions in the foreign exchange markets and deposits; product structuring and capital markets services for corporate clients and issuers of fixed income products; advisory services for mass-affluent and institutional clients; and wealth management services for high-net-worth customers and institutional clients. The company also offers XP Educação, an online financial education portal that offers seminars, classes, and learning tools to help teach individuals on topics, such as basics of investing, techniques, and investment strategies, as well as insurance brokerage services. In addition, it operates XP Platform, an open product platform that provides clients to access investment products in the market, including equity and fixed income securities, mutual and hedge funds, structured products, life insurance, pension plans, real-estate investment funds, and others. The company was founded in 2001 and is based in São Paulo, Brazil.

About Moody’s

Moody’s Corporation operates as an integrated risk assessment firm worldwide. It operates in two segments, Moody’s Analytics and Moody’s Investors Services. The Moody’s Analytics segment develops a range of products and services that support the risk management activities of institutional participants in financial markets. It also offers credit research, credit models and analytics, economics data and models, and structured finance solutions; data sets on companies and securities; and SaaS solutions supporting banking, insurance, and know your customer workflows. The Moody’s Investors Service segment publishes credit ratings and provides assessment services on various debt obligations, programs and facilities, and entities that issue such obligations, such as various corporate, financial institution, and governmental obligations, as well as structured finance securities. The company was formerly known as Dun and Bradstreet Company and changed its name to Moody’s Corporation in September 2000. Moody’s Corporation was founded in 1900 and is headquartered in New York, New York.