Moody's Corporation
A tollbooth on global credit with a fast‑growing data engine
Moody’s combines a near-duopolistic credit ratings franchise with a sticky, subscription-led analytics platform.
The ratings arm benefits from regulatory entrenchment, bank and investor mandates, and efficient scale, while Moody’s Analytics compounds through high recurring revenue, expanding datasets (Orbis, KYC/AML, RMS cat risk) and steady price realization.
In 2024 revenue reached about $7.1 billion and operating income rose sharply; through Q3 2025, Moody’s delivered roughly $5.8 billion of revenue year-to-date, lifted guidance, and demonstrated substantial operating leverage, with adjusted operating margins above 50%. The balance sheet is strong relative to cash generation.
As of September 30, 2025, cash and short-term investments were about $2.26 billion versus total debt of roughly $7.0 billion, and trailing free cash flow is about $2.4 billion, implying net leverage well under 2x FCF.
Management raised its 2025 outlook in October and continues to invest behind secular growth vectors such as private credit, KYC/AML, and climate/insurance analytics (including CAPE Analytics). The result is a high‑quality, capital‑light compounding machine.
That said, issuance cycles and regulation can drive volatility, so we anchor valuation on conservative, through‑cycle free cash flow.
Does Moody's have a strong competitive moat?
We assess Moody’s as possessing multiple, reinforcing moats. Component scores and weights: switching costs 90 (30% weight), network effects 85 (25%), intangible assets 95 (20%), efficient scale 95 (15%), cost advantage 80 (10%).
Weighted result ≈ 90. Switching costs are high because issuers and investors embed Moody’s ratings in covenants, benchmarks, and processes; changing agencies risks market access and pricing. Network effects arise from the breadth of coverage and investor reliance that make Moody’s signals more valuable as adoption increases.
Intangible assets include brand, methodologies, and regulatory licenses as an SEC‑registered NRSRO and a global leader in outstanding ratings. Efficient scale persists because a handful of NRSROs serve a market not large enough to support many full‑line competitors, and regulation discourages fragmentation.
Cost advantages stem from data reuse across ratings and analytics, though less central than other moats. Evidence: 10 NRSROs globally with Moody’s recording ~675k outstanding ratings as of 2024; recurring-revenue analytics (Orbis, KYC, RMS) increases stickiness and cross‑sell.
Risks: disintermediation attempts by private models/AI, regulatory changes, reputational events, and growth of alternative CRAs (KBRA, DBRS). Our view is the moat durability remains very high over 10+ years.
Does Moody's have pricing power in its industry?
Ratings carry demonstrated fee resilience because they are a small portion of total issuance costs yet crucial for market access. Moody’s has historically lifted fees and realized mix/pricing gains, especially in complex segments.
In analytics, 96% recurring revenue and double‑digit ARR growth in Decision Solutions/KYC enable steady mid‑single‑digit price escalators layered on top of seat/usage expansion. The company’s 2025 guidance and margin profile imply continued pricing traction despite episodic issuance volatility.
Latent pricing power is substantial, given regulatory entrenchment and workflow integration, though tempered by regulator and client scrutiny.
How predictable is Moody's's business?
Group revenue and FCF are predictable over multi‑year windows but show intra‑cycle variability tied to capital markets. The analytics segment (ARR ~$3.4 billion; ~96% recurring) provides ballast while ratings recovers with issuance regimes.
Through Q3 2025, revenue momentum led to a guidance raise; however, earlier in April management narrowed/lowered the outlook on volatility, illustrating cyclical sensitivity. We view mid‑teens EPS/FCF compounding as achievable over a cycle, driven by secular trends in private credit, compliance/KYC, and climate/insurance analytics.
Concentration risk to the U.S. is moderate but diversified with sizable EMEA exposure. Regulatory shifts remain a tail risk.
Is Moody's financially strong?
As of September 30, 2025, Moody’s held $2.26 billion in cash and short‑term investments against ~$6.98 billion of debt; net debt of roughly $4.72 billion is covered by less than two years of trailing free cash flow ($2.4 billion). Interest expense is easily serviced by operating income with substantial headroom.
The company maintains an undrawn $1.25 billion revolver and continues to generate robust FCF even during softer issuance periods, reflecting variable‑cost discipline and analytics stability. We view liquidity, maturity profile, and cash generation as sufficient to weather adverse cycles.
How effective is Moody's's capital allocation strategy?
Track record is strong: disciplined M&A (Bureau van Dijk earlier, RMS cat‑risk in 2021, CAPE Analytics agreement in 2025) to deepen data moats; consistent dividend growth (2025 quarterly dividend raised to $0.94); opportunistic buybacks with authorization expanded by $4 billion in October 2025. YTD 2025 repurchases total ~2.4 million shares across Q1–Q3; diluted share count continues to trend down, offsetting stock‑based compensation.
Integration execution in analytics has improved margins while sustaining ARR growth. We note management avoids large, dilutive transactions outside core adjacencies.
Does Moody's have high-quality management?
CEO Rob Fauber and CFO Noémie Heuland have prioritized reinvestment in data, product, and efficiency, producing visible operating leverage and prudent guidance management. The CFO brings deep SaaS finance experience, aligning with the analytics growth strategy.
Insider ownership is modest, but long‑term institutional alignment is evident, notably with Berkshire Hathaway as a large, persistent shareholder, which we regard as an indirect endorsement of governance and capital allocation. Execution through 2024–2025 (guidance cadence, cost discipline, targeted M&A) supports confidence.
Is Moody's a quality company?
Moody's Corporation is an excellent quality company with a quality score of 90/100
- Multiple durable moats: regulatory entrenchment and efficient scale in ratings plus high switching costs and network effects across datasets and workflows in analytics.
- Analytics recurring revenue ~96% and ARR growth high-single digits to low‑double digits provide stability against rating-cycle swings.
- TTM free cash flow about $2.4 billion and rising margins support continued buybacks, dividends, and targeted M&A.
- Net debt roughly $4.7 billion as of Q3 2025 is covered by less than two years of FCF, keeping balance‑sheet risk low.
- 2025 guidance was raised in October on robust MIS activity and MA strength, but the business remains sensitive to issuance and regulatory shifts, which we incorporate in valuation.
What is the fair value of Moody's stock?
Is Moody's a good investment at $533?
The following analysis is provided for informational and educational purposes only. It does not constitute financial advice, investment advice, or a recommendation to buy or sell any security. The opinions expressed are based on publicly available information and historical data. Beanvest and its contributors may hold positions in the securities mentioned. Investors should conduct their own due diligence or consult a licensed financial advisor before making any investment decision.