We initiate MCO with Hold/$532 PT. Moody’s Corporation is a leading global provider of credit ratings, research, and financial analytics tools for assessing risk in financial markets and institutional clients worldwide.
In the shadow of its bedrock ratings franchise, Moody’s faces a critical macro-volatility/innovation inflection. Through elevated rates and digesting the impact of tighter financial conditions, we estimate NT global issuance headwinds will weigh heavily on MIS (historically most cyclical).
We model FY25E EPS $12.65 (+12.2% y/y) and FY26E EPS $14.77 (+16.8% y/y), well below consensus assuming a more orderly prolonged capital markets recovery. However, MT we model Strategic Private Credit Partnerships and AI-driven margin expansion programs building operating leverage while executing on buybacks (durable +2.5% EPS tailwind).
The interplay of cyclical weigh/structural lift supports our forward FY25E/26E P/E multiples: 37.5x/36.0x. Any more severe downturn would heighten MIS vulnerability, but we believe the platform diversification/cost flexibility offset cyclical weigh.
As risk/reward is now balanced with underappreciated macro weigh but undeniable strategic momentum, we believe patience is warranted until either valuations or the credit cycle offer a more attractive entry.
Debt Issuance Volume Sensitivity: Cyclical Exposure Caps NTC Upside.
We see ample room for AI-driven structural margin expansion at Moody's, especially as it scales its analytics / risk intelligence platforms beyond legacy ratings. Embedding generative AI into core workflows (credit research automation, risk modeling, regulatory data extraction, etc.) allows Moody's to accommodate exponentially larger volumes of client queries w/o a commensurate increase in labor - a textbook operating leverage play.