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

Generated: 2026-07-13 · Exported: 2026-07-14 · Source: https://boothcheck.com/report/MCO

Headline

Field	Value
Ticker	MCO
Company	Moody’s Corporation
Current price	$494.92/sh
Composition	MA - Decision Solutions - Banking 7% / MA - Decision Solutions - Insurance 9% / MA - Decision Solutions - KYC 6% / MA - Research and Insights 13% / MA - Data and Information 12% / MIS - Corporate finance - Investment-grade 7% / MIS - Corporate finance - High-yield 4% / MIS - Corporate finance - Bank loans 7% / MIS - Corporate finance - Other accounts 9% / MIS - Structured finance - Asset-backed securities 2% / MIS - Structured finance - RMBS 1% / MIS - Structured finance - CMBS 1% / MIS - Structured finance - Structured credit 3% / MIS - Structured finance - Other accounts 0% / MIS - Financial institutions - Banking 6% / MIS - Financial institutions - Insurance 2% / MIS - Financial institutions - Managed investments 1% / MIS - Financial institutions - Other accounts 0% / MIS - PPIF - Public finance / sovereign 4% / MIS - PPIF - Project and infrastructure 5% / MIS Other 0%

What The Price Requires (Inversion)

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

Field	Value
Inversion basis	whole-company
Operating margin needed	13.6%
Operating margin today	44.3%
Margin compression implied	-30.7pp
Implied growth	27.0%
Multiple paid	26x operating income

The operating-margin requirement is derived from the framework's value band at year 11, a separately labeled basis from the headline growth/duration solve.

Solve inputs: computed at a 9.8% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~6.8pp.

How unusual the bet is: high

Reference	Value
vs own history	+1.10σ
cohort percentile (of 16 peers)	100
sustained it ~5 years at this level	27%
implied end-window share	0%

Valuation X-Ray

Every valuation family lands below the price. The price therefore requires assumptions beyond what those standard frames encode.

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.

Family	Median price/FV	Models	Reads
Asset	2.60x	4	expensive
Earnings	3.77x	5	expensive
Relative	1.60x	4	expensive
Growth	1.36x	3	expensive

Families that call it expensive: Asset, Earnings, Relative

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)

Model	Family	FV	Price/FV	Applicable	Methodology
DCF Perpetual Growth	Growth	$364.86	1.36x	yes	FCF base $2.9B, growth 9% (input: historical growth), terminal g 4.0%, WACC 8.8%, 6yr projection
DCF Exit Multiple	Growth	$510.76	0.97x	yes	Exit EV/EBITDA: 22.0x / 24.0x / 26.0x (bear / base = today's held flat / bull), 6yr
Relative Valuation	Relative	$290.88	1.70x	yes	P/E 18.95x (blended: sector 12x + trailing (TTM) 35x), scenarios: 15.8x / 18.9x / 22.1x (bear / base = sector held flat / bull), EV/EBITDA N/Ax
Simple DDM	Growth	—	—	no	—
Two-Stage DDM	Growth	—	—	no	—
Simple Excess Return	Asset	$152.13	3.25x	yes	BV/sh $16.89, ROE (TTM) 83.3%, ke 9.3%
Two-Stage Excess Return	Asset	$799.29	0.62x	yes	5yr excess ROE then converge to ke=9.3%
Discounted Future Market Cap	Growth	$304.66	1.62x	yes	Rev $7.9B, growth 9% (input: historical growth; tapered), Terminal P/S: 6.7x / 8.0x / 9.3x (bear / base = today's held flat / bull, cap 8x)
Peter Lynch Fair Value	Relative	$328.88	1.50x	yes	EPS $13.94, growth 24% (input: historical EPS growth), PEG=1.49 (Fair)
Margin Trajectory	Growth	—	—	no	—
Earnings Power Value	Earnings	$95.77	5.17x	yes	Normalized EBIT (5y avg op income, one-time charges added back) $2.71B × (1−24%) / WACC 8.8% → EPV (no growth)
Residual Income	Asset	$254.75	1.94x	yes	BV $16.89 + 5yr PV of (ROE (TTM) 83.3% − Kₑ 9.3%) × BV; BV grows 8.8%/yr
Graham Number	Asset	$72.78	6.80x	yes	√(22.5 × EPS $13.94 × BVPS $16.89) — Graham's conservative floor
EV/EBITDA Relative	Relative	—	—	no	—
FCF Yield	Earnings	$131.29	3.77x	yes	FCF $2747.0M / Kₑ 9.3% — zero-growth perpetuity
SBC-Adj FCF Yield	Earnings	$116.96	4.23x	yes	SBC-adj FCF $2.51B (FCF $2.75B − SBC $0.23B) capitalized at Kₑ
Ben Graham Formula	Earnings	$449.80	1.10x	yes	EPS $13.94 × (8.5 + 2×15.0%) × (4.4 / 5.3%)
ROIC-Justified P/B	Asset	$14.28	34.66x	yes	BV $16.89 × (ROIC 7.4% / WACC 8.8%) (excluded from median)
P/Sales Sector	Relative	$133.21	3.72x	yes	Revenue $7.87B × sector P/S 3.0x
PEG Fair Value	Relative	$493.31	1.00x	yes	EPS $13.94 × (PEG 1.5 × growth 23.6% (input: historical EPS growth)) → PE 35.4x
Earnings Yield	Earnings	$150.70	3.28x	yes	EPS $13.94 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations Multiple	Relative	—	—	no	—
Clinical Phase NPV	Growth	—	—	no	—
Merton	Asset	—	—	no	—
V5 Mechanical	—	—	—	no	—

Solvency

Field	Value
Net debt	$5.5b
Net debt / NOPAT (after-tax)	2.05x
Net debt / operating income (pre-tax)	1.56x
Share count CAGR (buyback)	-1.2%
Burning cash	no

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

Bullet Takeaways

At about $451, Moody's trades near 24 times company-wide operating income, a multiple that asks for roughly 24% annual operating-profit growth sustained for five years. The near-term rate is inside what the company has recently delivered. The stretch is in how long it has to hold.

Two engines, one toll road. Moody's Investors Service rates the debt that companies and governments issue, and the rules of the road require those ratings. Moody's Analytics sells the data, models, and risk tools that the same institutions run on. In Q1 2026 both segments grew 8%, and the adjusted operating margin reached 53.2%.

The X-ray spreads wide. Asset-based and earnings-power frames land far below the price (excess-return at $152, relative valuation near $276), while the forward-growth models reach it. The price is a bet on durable compounding that the static frames structurally cannot see, not a bet on a cheap multiple.

Bull Case

Start with what the market is paying for and then ask whether the business has earned the right to that bill. At $451 the price embeds about 24% operating-profit growth per year for five years. That is not a wild number for Moody's in isolation: Q1 2026 revenue rose 8% to $2.1 billion, adjusted diluted EPS climbed 13% to $4.33, and the adjusted operating margin reached 53.2%. The question the bull answers is not whether the next year looks like that. It is whether the franchise can keep printing at that pace longer than the average fast-grower manages.

The structural answer rests on what the two segments actually are. Moody's Investors Service is one of two ratings agencies that the global debt market treats as mandatory infrastructure: when a corporation or sovereign issues bonds, the rating is part of how the instrument gets priced and sold. The 10-K describes MIS transaction revenue as "the initial rating of a new debt issuance as well as other one-time fees," which ties the issuance side to debt-market volume. The recurring side is the more durable engine. Moody's Analytics revenue is defined in the filing as "subscription-based revenue and software maintenance," plus "license fees and revenue from software implementation services, risk management advisory projects, and training and certification services." Subscriptions that institutions wire their risk processes into do not churn easily, and in Q1 2026 the Analytics segment grew 8% alongside the ratings side.

The economics confirm the moat the narrative implies. The inversion solves to a first-year return on invested capital of about 32.5% fading to roughly 22%, on an asset base so light that book value per share is under $17 against an 83% trailing return on equity. A business that earns multiples of its cost of capital on almost no invested capital is precisely the shape that the asset and earnings-power models cannot price, because those frames assume returns decay to normal. Management is also returning capital with conviction: 2026 buyback guidance was raised to roughly $2.5 billion, and the share count has been shrinking about 1.2% a year. The bull case is that the durability premium is real, that the toll-road plus the subscription book justify paying ahead, and that consensus agrees: 20 analysts carry a Buy with a median target near $537.

Bear Case

Begin with how the cash gets spent, because that is where an expensive compounder either earns its multiple or quietly loses it. Moody's is paying out aggressively. The 2026 buyback guidance was lifted to about $2.5 billion, and management has been shrinking the share count near 1.2% a year. Buying back stock at 24 times operating income is a bet that the shares are cheap relative to the future. If the implied 24% growth does not hold, those repurchases are retiring stock above intrinsic value, and the cash that funded them is gone. The balance sheet is not a fortress on its own terms either: net debt sits near $5.5 billion against trailing operating income of about $3.4 billion, roughly 1.6 times, and the filings do not separately report interest expense, so a clean coverage read is not even available from the disclosure.

The valuation math is the harder problem. The X-ray is lopsided in a way that should give a buyer pause. The simple excess-return model lands at $152, relative valuation at about $276, and the discounted future market cap at about $305, all well under the $451 price (June 27, 2026). Only the growth-DCF family reaches the tape. When asset value, earnings power, and peer multiples all sit below the price and only the most optimistic forward frame catches it, the price is not supported by the conservative methods. It is supported by a single assumption about durability, and the historical record says only about 31% of comparable fast-growers sustained this pace for five years.

The cyclicality hides inside the recurring story. MIS issuance revenue rides debt-market volume, which the 10-K ties to new debt issuance and one-time fees. When rates spike or credit markets freeze, issuance stalls and that revenue line goes with it, as it did in prior tightening cycles. The bear does not argue Moody's is a bad business. It argues that a great business bought at a price that already assumes a decade of compounding offers very little margin for the years when issuance disappoints, regulation tightens on the ratings duopoly, or the multiple simply de-rates. Stifel's post-Q1 trim to a $523 target, even while keeping a Buy, is the mild version of that worry.

Valuation

The valuation reads cleanest as a spread, not a point. The pattern is what matters. The growth-DCF family is what reaches the price, with a perpetual-growth DCF at $368 and the exit-multiple DCF at $474. Inverting the price gives the cleanest summary: at $451 the market is paying roughly 24 times company-wide operating income, which implies about 24.4% annual operating-profit growth for five years at a 9.8% cost of capital and a 4% terminal rate.

Two filing-sourced inputs anchor that solve. The recurring base is real: the 10-K defines Moody's Analytics recurring revenue as "subscription-based revenue and software maintenance," which is the line that makes a high-margin forward model defensible. The transactional base is more cyclical: MIS one-time revenue is "the initial rating of a new debt issuance as well as other one-time fees," which is why the issuance side swings with debt-market volume. The reliability of the inversion is rated ok, and the sensitivity is steep: each one-point change in the cost of capital moves the implied growth about 6.6 points, so the whole bet is rate-sensitive.

Put plainly, today's price is not asking whether Moody's grows. It is asking whether Moody's grows fast for long. The conservative models say the static value is well under the tape; the growth models say the durability is worth the premium. The reasonable range sits between roughly $238 on the low end and the current price on the high end, with the base case essentially at the market. A buyer here is underwriting the durability, not buying a discount.

Catalysts

Q1 2026 (reported April 22) was a record quarter: revenue up 8% to $2.1 billion, adjusted diluted EPS up 13% to $4.33 (a $0.05 beat), and adjusted operating margin of 53.2%. Both segments grew 8%. Reported revenue of $2.079 billion came in just shy of the $2.11 billion consensus, the one soft note in an otherwise strong print.

Guidance was reaffirmed for full-year 2026: high-single-digit revenue growth and adjusted diluted EPS of $16.40 to $17.00. Management raised the 2026 buyback outlook to roughly $2.5 billion, a direct signal of where it sees value.

Analyst sentiment is constructive but no longer cheap-looking. The stock carries a Buy consensus from about 20 analysts with a median target near $537 and a high of $610. After Q1, Stifel trimmed its target to $523 from $540 while keeping a Buy; Daiwa's January upgrade to a $590 target sits at the optimistic end.

The watch items for the next few quarters are debt-issuance volume (the swing factor for the MIS transaction line), the trajectory of Moody's Analytics recurring growth, the pace of the buyback against the price, and any regulatory pressure on the ratings duopoly. Each maps directly to whether the priced-in durability holds.

Peer Cohorts (Per Segment, With Filing Citations)

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

• SPGI (S&P Global Inc.)
• (no filing in the citation store)
• MSCI (MSCI INC.)
• (no filing in the citation store)
• FDS (FACTSET RESEARCH SYSTEMS INC.)
• (no filing in the citation store)
• ICE (Intercontinental Exchange Inc)
• (no filing in the citation store)
• VRSK (Verisk Analytics, Inc.)
• (no filing in the citation store)

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.
• 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.