Moody’s Corporation (MCO): what the price assumes

In the published model solve dated 2026-Q2, anchored at $514.95, Moody’s Corporation (MCO) is priced for +26.5% growth. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-24.

Generated: 2026-08-30 · Source: https://boothcheck.com/report/MCO

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

The operating-margin figure is value-band context at year 11: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 9.8% cost of capital with 4% terminal growth over a 5-year stage.

How unusual the bet is: n/a

Valuation X-Ray

Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that justify the price: Growth Families that call it expensive: Asset, Earnings

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.8%); the inversion above states its own rate.

Per-Model Detail (n=16)

Economic-Unit Decomposition (Sum Of The Parts)

The disclosed units share an operating capital structure; consolidated cash-flow lenses remain coherent and the unit split is explanatory.

No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.

Solvency

Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.

Bullet Takeaways

• Two companies rate most of the world's debt and Moody's is one of them, which is why a 33% jump in rated issuance turned into a 25% jump in ratings revenue to $1.260 billion in the second quarter.
• The subscription half is the ballast and it is growing slower than the toll booth: annualised recurring revenue of $3.661 billion, up 9%, with 95% customer retention.
• The specific risk is the thing that just went right: issuance is the most cycle-sensitive revenue line in financial services, and management noted that some activity was pulled forward into the second quarter while keeping full-year revenue growth guidance in the high single digits.

Bull Case

A bond does not get sold without a rating, and there are only two agencies whose opinion the buy side treats as a default. That is the whole business. Moody's charges a fee tied to the size of an issue, does the analytical work once, and collects again when the issuer comes back to market. When issuance runs hot the operating leverage is close to absolute, because the marginal cost of rating the next deal is a fraction of the fee. The second quarter showed exactly that: rated issuance volume rose 33%, ratings revenue rose 25% to $1.260 billion, and the ratings segment's adjusted operating margin reached 68.3%, four percentage points wider than a year earlier.

What is feeding the volume is genuinely new. Data-centre and AI infrastructure is being financed in the bond market rather than out of cash flow, and the first quarter alone carried jumbo investment-grade financings of more than $100 billion tied to it. Separately, ratings revenue from private credit grew more than 80% year on year in that quarter. Credit migrating out of bank balance sheets into funds does not remove the need for a rating; it creates new issuers who need one for the first time.

The analytics half does a different job. Annualised recurring revenue reached $3.661 billion, up 9%, at a 95% retention rate. Reported analytics revenue grew only 4% in the quarter, but that comparison carries the sale of the regulatory solutions business rather than a demand problem, and the recurring base is the number that describes the franchise. Risk data, models and screening tools embed themselves into a bank's workflow and do not get ripped out when spreads widen. That base is what stops a ratings downturn from becoming an earnings collapse.

Profitability at the group level is unusual for anything that is not software. The company reported a GAAP operating margin of 47.9% in the quarter, up from 43.1%, and guides to a company-defined adjusted operating margin of 52% to 53% for the full year. GAAP diluted EPS was $5.03, though $181 million of that came from a pre-tax gain on the regulatory solutions divestiture rather than from operations.

Capital allocation is straightforward and the company has been leaning into it. Repurchases ran about $2.2 billion in the first half and the full-year programme was raised to up to $3.0 billion, with free cash flow guided to $2.7 billion to $2.9 billion for 2026. Share count has been coming down about 1.2% a year. Net debt of $5.5 billion sits at 1.56 times operating income, which for a business with no factories and no inventory is close to no constraint at all. The bear's point about cyclicality is fair, and the answer is that the balance sheet lets the company buy its own stock hardest in exactly the quarters when issuance is worst.

Bear Case

Set the guidance next to the requirement and the problem states itself. Moody's tells investors to expect revenue growth in the high single digits for 2026. Today's price needs operating income to compound at about 25.7% a year. Margin expansion can bridge some of a gap like that, but not most of it, and not for long: the company already converts nearly half of every revenue dollar into operating profit, so the room above that is measured in points, not in multiples.

The quarter that produced the celebration is also the evidence for the concern. Rated issuance volume rose 33%. Issuance is not a growth rate. It is a function of maturity walls, credit spreads and where the policy rate sits, and it swings in both directions harder than almost any revenue line in financial services. Management itself flagged that some activity had been pulled forward into the quarter. Extrapolating a 33% volume year is how ratings agencies get mispriced at the top of a credit cycle, and this is the second consecutive quarter in which more than two trillion dollars of issues carried a Moody's rating.

The subscription business, which is supposed to be the shock absorber, is growing more slowly than the cyclical one. Recurring revenue rose 9% while ratings revenue rose 25%. That mix shift is pleasant on the way up and unhelpful on the way down, because it means a larger share of today's earnings sits in the half that reprices with the credit cycle. Reported analytics revenue grew 4% after the regulatory solutions disposal, and a company selling assets while its recurring line decelerates is a company whose growth is being managed as well as generated.

There is also a question underneath the analytics story that the numbers do not settle. The tools Moody's sells, screening, risk models, entity data, are the ones large language models are best suited to commoditise, and the customers buying them are the same institutions building internal AI capability. Retention at 95% is high. It is also a lagging indicator: enterprise software contracts renew long after the buyer's opinion of them has changed.

The methods used to triangulate this business all land under the price, which is the pattern that leaves no comfortable reading. The earnings-power approach, which capitalises the profit the company makes today and credits it with nothing further, sits about 3.6 times below the price. Asset-based methods sit about 2.48 times below it. Peer multiples, comparing Moody's to the other data and analytics franchises it is grouped with, sit about 1.55 times below. Even the forward-growth methods, which do credit expansion, come up short at about 1.29 times. No standard frame reaches this price, which means the premium is not one lens being conservative. It is the price sitting above all of them at once.

Leverage is not the vulnerability here, but it is not nothing either. Net debt of $5.5 billion runs at 1.56 times operating income, comfortable while issuance is booming and less so in a year when it is not. The real exposure is simpler: an issuance recession compresses the highest-margin revenue in the company at exactly the moment the multiple paid for it stops looking self-evident.

Valuation

At $472.79, the market pays about 25 times Moody's operating income, and what it is buying with that multiple is a compounding assumption rather than an asset. Read backwards, the price needs operating income to grow roughly 25.7% a year. Set against a company guiding to high-single-digit revenue growth for 2026, that requirement leans almost entirely on the cyclical half of the business staying at its current pitch and on margins continuing to widen from an already remarkable base.

How unusual is it? Roughly three in ten companies that have grown at a comparable pace held it across a stretch like this one, and the multiple itself sits at the very top of the distribution of the data and analytics group Moody's is measured against. Neither of those makes the outcome impossible. Both say the price has removed the margin for a normal disappointment.

The disagreement among the standard methods is unusually one-sided here. Every family lands below the price. The earnings-power methods, which credit no growth at all, sit about 3.6 times below the price. Asset-based methods, the right lens for a company whose assets are contracts and brand rather than plant, sit about 2.48 times below. Peer multiples land about 1.55 times below. Closest is the forward-growth family at about 1.29 times, and that is the tell: even the frame designed to pay for growth does not quite reach this price. Where every lens sits under the number, the premium is not an artefact of one conservative method.

The operating reality those methods are reading is genuinely strong. Trailing operating margin runs near 44.3%, and the second quarter widened it further, to a reported 47.9% from 43.1% a year earlier, on revenue of $2.185 billion, up 15%. The split matters more than the total: ratings revenue of $1.260 billion grew 25% on a 33% rise in rated issuance volume, while analytics recurring revenue of $3.661 billion grew 9%. The valuation question is which of those two rates the buyer is paying for.

The peer comparison sharpens it rather than settling it. S&P Global (SPGI), the other half of the ratings duopoly, grew its ratings division 13% to $1.3 billion in the first quarter of 2026. Both companies are being carried by the same issuance wave, and both are priced on the assumption that it is a trend rather than a phase.

Solvency puts a floor under the downside without doing much else. Net debt of $5.5 billion is 1.56 times operating income for a business that needs no capital to grow, generates free cash flow guided at $2.7 billion to $2.9 billion for 2026, and has already repurchased about $2.2 billion of stock this year against a full-year programme of up to $3.0 billion. Share count is falling about 1.2% a year. A cyclical downturn in issuance would hurt the earnings and the multiple at once; it would not threaten the company, and the buyback is the mechanism that converts a bad issuance year into a better per-share outcome than the headline suggests.

Catalysts

The read-across arrives before the next Moody's print does. S&P Global (SPGI) reports its own second quarter on 28 July, and because both companies are paid on the same issuance flow, its ratings division growth is the cleanest available check on whether the second-quarter surge was industry-wide or company-specific.

The more important number for Moody's itself is the one management has already flagged as noisy. Some second-quarter activity was pulled forward, which means the third-quarter ratings comparison starts at a disadvantage that has nothing to do with demand. Full-year guidance frames what the remaining quarters have to deliver: revenue growth in the high single digits, a company-defined adjusted operating margin of 52% to 53%, GAAP diluted EPS of $16.00 to $16.50, and free cash flow of $2.7 billion to $2.9 billion.

Two structural threads are worth following through the back half of the year. The first is private credit, where ratings revenue grew more than 80% year on year in the first quarter, and where every fund that wants insurance capital as a buyer needs a rating it did not previously need. The second is AI infrastructure financing, which produced more than $100 billion of jumbo investment-grade issuance in the first quarter alone. Both are volume stories rather than pricing stories, which means they show up in the ratings line immediately and disappear from it just as fast if the bond market closes.

On capital, the repurchase authorisation was raised to up to $3.0 billion for 2026 with about $2.2 billion already executed, so the pace of the remaining buyback is a live decision rather than a plan on paper.

Peer Cohorts (Per Segment, With Filing Citations)

Moody's Analytics (MA) / Moody's Investors Service (MIS) (reported)

• SPGI (S&P Global Inc.)
• FY2025 10-K: , advanced analytics, and financial risk solutions which includes subscription-based offerings, RatingsXpress®, RatingsDirect® and Credit Analytics. Subscription revenue at Market Intelligence is primarily derived from distribution of data, valuation services, analytics, third party research, and credit…
• FY2025 10-K: …regulatory requirements. The portfolio includes industry leading financial technology solutions like Wall Street Office, Enterprise Data Manager, Information Mosaic, and iLevel. Our Global Markets Group offering delivers bookbuilding platforms across multiple assets including municipal bonds, equities and fixed…
• MSCI (MSCI INC.)
• FY2025 10-K: …our Index segment. Analytics Our Analytics segment offers risk management, performance attribution and portfolio management content, applications and services that provide clients with an integrated view of risk and return and tools for analyzing market, credit, liquidity, counterparty and climate risk across all…
• FY2025 10-K: …increased 5.7%. Analytics segment Adjusted EBITDA expenses increased 7.2% for the year ended December 31, 2025, primarily driven by increases in compensation and benefits costs as a result of increased headcount costs as well as higher severance costs. Adjusting for the impact of foreign currency exchange rate…
• FDS (FACTSET RESEARCH SYSTEMS INC.)
• FY2025 10-K: …and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the Consolidated Financial Statements and related Notes included in Part II, Item 8. Financial Statements and Supplementary Data , of this Annual Report on Form 10-K, our Current Reports on Form 8-K and our other…
• FY2025 10-K: ,000 investment professionals, including institutional asset managers, bankers, wealth managers, asset owners, partners, hedge funds, corporate users, and private equity and venture capital professionals. Our revenues are primarily derived from subscriptions to our multi-asset class data and solutions powered by our…
• ICE (Intercontinental Exchange Inc)
• FY2025 10-K: …requirements. We also provide solutions that provide consumers with access to customized, timely information about their mortgages and allow our clients' customer service representatives to access the same customer information, which is key to increasing borrower retention. Another servicing solution provides…
• FY2025 10-K: …700 reference entities and over 180 Index CDS instruments. Revenues also include interest income on certain clearing margin deposits related to our CDS clearing business. • Fixed Income Data and Analytics: We are a leading provider of end-of-day and continuous evaluated pricing services on over three million fixed…
• VRSK (Verisk Analytics, Inc.)
• FY2025 10-K: …also serving clients in Continental Europe, Singapore, China, Australia, and New Zealand. The international enhanced commercial and residential property models and enriched data sets help insurers with triage, reconstruction value, risk selection, pricing, benchmarking, and portfolio management across multiple…
• FY2025 10-K: …features that rely on AI may be susceptible to unanticipated security threats from sophisticated adversaries. We use analytical models to assist our customers in key areas, such as underwriting, claims, reserving, and catastrophe risks, but actual results could differ materially from the model outputs and related…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.