Intrinsic Value Moody's Corporation (0K36.L)

• Previous Close: £516.57
• Intrinsic Value: £255.92
• Upside potential: -50%

Stock Valuation Context

Business Model And Market Position

Moody's Corporation is a globally integrated risk assessment firm operating through two primary segments: Moody's Investors Service and Moody's Analytics. The Investors Service segment dominates the credit ratings landscape, providing assessments on corporate, financial, sovereign, and structured finance obligations across 140 countries, serving as a critical benchmark for institutional investors. Moody's Analytics complements this with subscription-based risk management tools, data analytics, and software solutions, catering to financial institutions and corporations seeking advanced risk modeling and economic research. The company holds a duopoly in credit ratings alongside S&P Global, benefiting from high barriers to entry due to regulatory requirements and entrenched market trust. Its diversified revenue streams—spanning ratings, research, and SaaS-based analytics—reinforce resilience against cyclical downturns. Moody's maintains a strong competitive moat through its proprietary data, long-standing client relationships, and regulatory recognition as a Nationally Recognized Statistical Rating Organization (NRSRO).

Revenue Profitability And Efficiency

Moody's reported FY 2024 revenue of $7.09 billion, with net income of $2.06 billion, reflecting a robust 29% net margin. The company's operating cash flow of $2.84 billion underscores efficient working capital management, while negligible capital expenditures highlight its asset-light model. Revenue is split between cyclical ratings (60%) and more stable analytics (40%), balancing growth and predictability.

Earnings Power And Capital Efficiency

Diluted EPS of $11.26 demonstrates strong earnings power, supported by high-margin recurring analytics subscriptions and pricing power in ratings. The firm's capital efficiency is evident in its ability to convert 40% of revenue into operating cash flow, with minimal reinvestment needs, allowing substantial free cash flow generation for shareholder returns and strategic acquisitions.

Balance Sheet And Financial Health

Moody's holds $2.41 billion in cash against $7.75 billion of total debt, maintaining a manageable leverage profile. The balance sheet supports investment-grade ratings, with debt primarily used for strategic initiatives like tuck-in acquisitions and share repurchases. Liquidity remains ample, covering near-term obligations comfortably.

Growth Trends And Dividend Policy

Revenue growth is tied to capital markets activity and risk management demand, with analytics providing a steady 8–10% annual growth floor. The $3.58 annual dividend per share, paired with consistent buybacks, reflects a shareholder-friendly policy, yielding ~1% with a payout ratio below 35%, preserving flexibility for organic and inorganic growth.

Valuation And Market Expectations

At an $84.2 billion market cap, Moody's trades at ~12x revenue and 41x earnings, pricing in premium margins and growth. The 1.4 beta suggests moderate sensitivity to market cycles, with investors valuing its duopoly position and analytics segment's resilience.

Strategic Advantages And Outlook

Moody's benefits from regulatory moats, data network effects, and global scale. Near-term headwinds include interest rate volatility affecting bond issuance, but long-term demand for risk analytics and ESG integration supports growth. Strategic focus on AI-driven tools and emerging markets could further diversify revenue streams.

Sources

Company filings, Bloomberg