I recommend a buy rating for Moody's Corporation (NYSE: MCO ). In my view, MCO is one of the businesses that has the best moat in the market, with strong pricing power. I have a positive outlook for both segments, and I'm a fundamental, valuation-driven investor with a strong focus on identifying businesses that have the potential to scale over time and unlock massive terminal value. My investment approach centers around understanding the core economics of a business—its competitive moat, unit economics, re ...

Company Overview - Moody's shares ended the last trading session 10.6% higher at $438.59, following a significant volume of trading, contrasting with a 10.6% loss over the past four weeks [1] - The stock's rally was positively influenced by President Trump's announcement of a 90-day tariff suspension for non-retaliating countries, which alleviated trade tensions and boosted investor sentiment [2] Earnings Expectations - Moody's is expected to report quarterly earnings of $3.56 per share, reflecting a year-over-year increase of 5.6% [2] - Revenue expectations stand at $1.89 billion, which is a 5.9% increase from the same quarter last year [2] Earnings Estimate Revisions - The consensus EPS estimate for Moody's has been revised 0.8% higher over the last 30 days, indicating a positive trend that typically correlates with price appreciation [4] - Empirical research suggests that trends in earnings estimate revisions are strongly correlated with near-term stock price movements [3] Industry Comparison - Moody's holds a Zacks Rank of 2 (Buy) within the Zacks Financial - Miscellaneous Services industry [4] - Another company in the same industry, ChoiceOne Financial Services, Inc. (COFS), closed the last trading session 3.5% higher at $26.55, but has returned -11.8% over the past month [4]

Core Insights - The financial industry is undergoing a transformation due to Big Data and AI, enabling faster and smarter decision-making for investors and institutions [2][4] - The global Big Data market is projected to reach $401.2 billion by 2028, indicating significant growth potential across various sectors [4] Group 1: Technology Utilization - Banks and financial institutions are leveraging Big Data and AI to enhance customer understanding, improve marketing strategies, and detect fraud in real-time [3][4] - Companies like NVIDIA are at the forefront of the Big Data revolution, providing advanced chips and software tools that facilitate AI applications across multiple industries [5][9] Group 2: Company-Specific Developments - NVIDIA has evolved from a graphics card manufacturer to a leader in AI and Big Data, with its Blackwell technology enabling faster and more cost-effective AI model training [8][10] - Moody's Corporation has shifted from traditional ratings to risk analytics, utilizing Big Data and AI to enhance its services and improve client risk management [12][13] - Qualcomm has expanded its role in the AI space, with its Snapdragon processors powering smart devices and enabling advanced AI features without internet connectivity [14][15]

Core Insights - The company aims to invest in firms with strong qualitative attributes, purchasing them at attractive prices based on fundamentals and holding them long-term [1] - The investment strategy focuses on maintaining a concentrated portfolio to avoid underperformers while maximizing exposure to high-potential winners [1] - The company plans to publish articles on selected companies approximately three times a week, with regular quarterly updates [1] Investment Strategy - The investment approach involves rating companies as 'Hold' when their growth opportunities do not meet the threshold or when downside risks are deemed too high [1] - The company is managed by an MBA graduate with a law degree, currently working as a financial analyst at a large pension fund [1] Analyst's Position - The analyst has a beneficial long position in the shares of SPGI, indicating confidence in the stock's performance [2]

Core Viewpoint - Moody's reported strong fourth-quarter 2024 results and provided an optimistic outlook for 2025, with shares reaching an all-time high of $531.93 following the announcement [1][2]. Financial Performance - Fourth-quarter adjusted earnings were $2.62 per share, exceeding the Zacks Consensus Estimate of $2.60 and reflecting a 20% increase from the previous year [1]. - For 2025, Moody's projects adjusted earnings between $14.00 and $14.50 per share, up from $12.47 in 2024 [2][5]. - Revenues are expected to grow in the high-single-digit percent range, while operating expenses are anticipated to rise in the low-to-mid-single-digit percent range [4]. Strategic Initiatives - Moody's is pursuing inorganic growth through acquisitions, including CAPE Analytics, Numerated Growth Technologies, and Praedicat, aimed at expanding beyond core credit ratings [6][8]. - A strategic alliance with MSCI was established to enhance ESG solutions, and a 100% stake in GCR was acquired to strengthen its position in Africa's credit market [7][8]. Balance Sheet and Liquidity - As of December 31, 2024, Moody's had total debt of $6.73 billion, an undrawn revolving credit facility of $1.25 billion, and cash and short-term investments totaling $2.97 billion [10]. - The company expects cash flow from operations of $2.75-$2.95 billion and free cash flow of $2.40-$2.60 billion for 2025 [10]. Capital Distribution - Moody's announced an 11% increase in its quarterly dividend to 94 cents per share and has increased its dividend six times in the past five years [11]. - An additional $1.5 billion in share repurchase authority was announced, with nearly $1.6 billion worth of shares available as of December 31, 2024 [12]. Market Position and Competition - Moody's faces competition from firms like Fitch, S&P Global, and Dun & Bradstreet in the credit rating and analytics sectors [14][15]. - The company has been experiencing rising operating expenses, with a five-year CAGR of 7.1% due to increased selling, general, and administrative costs [13]. Analyst Expectations - Earnings estimates for Moody's have been revised upward for both 2025 and 2026, indicating positive sentiment [16]. - The estimate for 2025 suggests an 8.1% year-over-year growth, while the estimate for 2026 indicates a 13.7% rise [18]. Investment Outlook - The operating environment is improving, with expected increases in issuance volumes and demand for corporate refinancing, supporting profitability [20]. - Despite challenges from elevated expenses and competition, Moody's strong liquidity and capital distribution position it well for sustained growth [21].

Company Overview - Moody's Analytics (MA) serves over 14,800 customers across more than 165 countries, including 6,700 corporates and professional services[32]. - Moody's Investors Service (MIS) has rated over $75.8 trillion in total debt outstanding, covering 33,300 rated organizations and structured deals[38]. - The company employs approximately 16,000 people across more than 40 countries, emphasizing its global presence and diverse workforce[22]. Revenue Generation - MA's revenue is driven by subscription-based services, with a focus on data, analytics, and cloud-based software tools for risk management[27]. - MIS generates revenue from non-ratings-related operations, including financial instruments pricing services and Second Party Opinions, although these are not material to the segment's results[39]. Operational Efficiency and Growth - The company aims to enhance operational efficiency through a multi-year restructuring program initiated in December 2024, focusing on high-priority growth areas[20]. - Moody's expects continued growth in global fixed-income market activity, driven by increasing financial complexity and the demand for integrated risk solutions[64]. - The company has a strong position in the credit ratings market, recognized for the depth and breadth of its analytical capabilities[36]. Sustainability and Corporate Responsibility - Moody's received multiple awards for its sustainability efforts in 2024, reflecting its commitment to integrating sustainability into its operations and services[41]. - Moody's focuses on delivering value to stakeholders while managing risks related to sustainability and climate change[41]. - Moody's was recognized on CDP's 2023 Climate Change 'A' List for its leadership in corporate transparency and actions taken in response to climate change[42]. - The company aims to procure 100% renewable electricity in its office spaces as part of its decarbonization strategy, with implementation costs expected to be non-material[55]. Employee Growth and Talent Management - Moody's total employee count increased by 4% from 7,864 in 2023 to 8,145 in 2024, with a notable 6% growth in non-U.S. employees[53]. - The company achieved a 7% increase in its MIS segment's total employees, rising from 5,360 in 2023 to 5,757 in 2024[53]. - The company has implemented a global paid parental leave policy and updated its tuition reimbursement program to attract and retain top talent[44]. Technology and Innovation - The company is leveraging AI and ML technologies to enhance customer service and decision-making capabilities, positioning itself as an early adopter of Gen AI[65]. - Moody's has expanded its climate data and analysis capabilities through the acquisition of RMS, integrating these into existing offerings[56]. Regulatory Environment - The European Parliament reached an agreement on the Regulation on ESG Ratings Activities, which will become law after an 18-month implementation period, potentially impacting certain products offered by the company[83]. - The EU AI Act was published in July 2024, with varying implementation periods, and the company is assessing its implications[84]. - The EU adopted DORA in December 2022, which will apply from early 2025, requiring the company to enhance its IT oversight and risk management[85]. - In March 2023, the FCA initiated a review of competition in the wholesale market data, concluding without specific remedies for credit ratings data[86]. - The U.K. Government intends to introduce regulation for ESG ratings providers in 2025, following a consultation published in March 2023[87]. Intellectual Property - The company owns a variety of intellectual property, including proprietary information, databases, and software tools, which are crucial to its business[88]. - The company provides access to its databases and software applications under standard agreements that include intellectual property protections[92]. - The company does not rely on any single data source for a material aspect of its business, utilizing a variety of commercial sources[93]. - The company considers its intellectual property proprietary and employs various safeguards for its protection[95]. - The company maintains an investor relations website where it provides access to its SEC filings and other financial information[96].

Core Insights - Moody's reported fourth-quarter 2024 adjusted earnings of $2.62 per share, exceeding the Zacks Consensus Estimate of $2.60, with a 20% increase from the previous year [1][3] - The company's revenues for the quarter were $1.67 billion, a 13% year-over-year increase, although it fell short of the consensus estimate of $1.70 billion [4] - Moody's expects adjusted earnings for 2025 to be in the range of $14.00-$14.50 per share, with projected revenue growth in the high-single-digit percent range [9] Financial Performance - Net income attributable to Moody's for the fourth quarter was $395 million or $2.17 per share, up from $340 million or $1.85 per share in the prior-year quarter [3] - For the full year 2024, adjusted earnings were $12.47 per share, beating the consensus estimate of $12.39, and grew 26% year over year [3] - Total revenues for 2024 reached $7.09 billion, a 20% increase, but missed the consensus estimate of $7.11 billion [4] Segment Performance - Moody's Investors Service revenues increased 18% year over year to $809 million, driven by strong Corporate Finance and Structured Finance performance [5] - Moody's Analytics revenues grew 8% to $863 million, supported by robust demand for proprietary data and analytical insights [5] Balance Sheet and Liquidity - As of December 31, 2024, Moody's had total cash and short-term investments of $2.97 billion, up from $2.19 billion a year earlier [6] - The company reported $6.73 billion in outstanding debt and $1.25 billion in additional borrowing capacity under its revolving credit facility [6] Share Repurchase Program - During the quarter, Moody's repurchased 1 million shares at an average price of $477.15, with approximately $1.6 billion of share repurchase authorization remaining available as of December 31, 2024 [7] 2025 Guidance - Moody's anticipates operating expenses to rise in the low-to-mid-single-digit percent range and expects $80 million to $100 million in restructuring charges related to its Strategic and Operational Efficiency Restructuring Program [10]

Financial Data and Key Metrics Changes - Moody's Corporation reported a record revenue growth of 20% in 2024, exceeding $7 billion, with a 26% increase in adjusted diluted EPS [9][37] - The adjusted operating margin expanded by over 400 basis points, reaching 50% for 2025 guidance [9][47] Business Line Data and Key Metrics Changes - Moody's Investors Service (MIS) achieved an 18% total revenue growth, with a remarkable 29% growth in transactional revenue in Q4 [10][38] - Moody's Analytics (MA) reported a 10% recurring revenue growth in Q4 and a 9% growth in Annual Recurring Revenue (ARR) [11][40] - Decision Solutions within MA led with $1.4 billion in ARR, growing at 12% [11][41] Market Data and Key Metrics Changes - MIS revenue in Q4 was $809 million, up 18% year-on-year, driven by a 134% increase in leveraged loan issuance activity [38][39] - MA's recurring revenue, which constitutes 95% of total revenue, grew by 10% year-on-year [40] Company Strategy and Development Direction - The company is focusing on strategic investments in technology, including generative AI and enhancing risk and resilience capabilities [13][60] - Moody's aims to simplify its organizational structure and improve operational efficiency through an efficiency program, expecting annualized cost savings of $250 million to $300 million [52][53] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing demand across various sectors, particularly in private credit and sustainable finance [15][119] - The company anticipates a constructive market environment for 2025, with expectations of low single-digit growth in rated issuance [49][84] Other Important Information - Moody's was recognized as the best rating agency for the thirteenth consecutive year, reinforcing its leadership position in the market [14] - The company plans to incur restructuring charges of $200 to $250 million over two years to support its efficiency program [53] Q&A Session Summary Question: Clarification on medium-term guidance and organic growth - Management confirmed that the medium-term targets primarily reflect organic growth, with less reliance on M&A than initially anticipated [64][67] Question: Insights on MIS margins and earnings growth - Management indicated that while MIS margins are already high, they expect continued investments to enhance efficiency and support long-term growth [69][72] Question: Discussion on MA margins and investment strategies - Management clarified that they are redeploying capital towards high-growth areas while maintaining investments in their platform and data estate [75][76] Question: Outlook for ratings and potential risks - Management highlighted economic growth and refinancing activity as key drivers for ratings, with a cautious outlook on M&A activity [84][86] Question: Update on demand environment and sales cycles - Management reported stable sales cycles and strong new business production, with retention rates slightly improving [90][92] Question: Revenue growth expectations despite ARR growth - Management explained that the difference is driven by transactional revenue dynamics, which are expected to narrow over time [94][96] Question: Impact of federal government exposure and policy changes - Management noted that federal government exposure is minimal, constituting less than 1% of consolidated revenue, with potential impacts from policy changes being sector-specific [106][110] Question: Medium-term outlook for MIS revenue growth - Management indicated that the updated medium-term outlook reflects strong performance and anticipated recovery in M&A activity and private credit [112][119]

Fourth Quarter and Full Year 2024 Earnings Call February 13, 2025 Shivani Kak Certain statements contained in this document are forward-looking statements and are based on future expectations, plans and prospects for Moody's business and operations that involve a number of risks and uncertainties. Such statements involve estimates, projections, goals, forecasts, assumptions and uncertainties that could cause actual results or outcomes to differ materially from those contemplated, expressed, projected, antic ...

Core Insights - Moody's reported revenue of $1.67 billion for the quarter ended December 2024, reflecting a 13% increase year-over-year, with EPS at $2.62 compared to $2.19 in the same quarter last year [1] - The revenue fell slightly short of the Zacks Consensus Estimate of $1.7 billion, resulting in a surprise of -1.41%, while the EPS exceeded the consensus estimate of $2.60 by +0.77% [1] Revenue Breakdown - Moody's Analytics generated $863 million, surpassing the average estimate of $858.01 million, marking an 8.4% year-over-year increase [4] - Moody's Investor Services reported $809 million, below the estimated $832.85 million, but showing an 18.3% increase compared to the previous year [4] - Decision Solutions within Moody's Analytics achieved $402 million, exceeding the estimate of $396.89 million, with an 11.4% year-over-year growth [4] - Data and Information segment reported $218 million, slightly below the estimate of $219.13 million, reflecting a 6.3% increase year-over-year [4] - Research and Insights segment generated $243 million, in line with the estimate of $242.74 million, showing a 5.7% year-over-year increase [4] - Corporate finance within Moody's Investor Services reported $381 million, below the estimate of $422.80 million, but still reflecting a 13.1% year-over-year increase [4] - Structured finance segment reported $138 million, exceeding the estimate of $127.13 million, with a significant 35.3% year-over-year increase [4] - Public, project, and infrastructure finance generated $115 million, below the estimate of $129.34 million, but still showing a 9.5% year-over-year increase [4] Stock Performance - Moody's shares have returned +7.2% over the past month, outperforming the Zacks S&P 500 composite's +3.9% change, indicating a positive market sentiment [3] - The stock currently holds a Zacks Rank 2 (Buy), suggesting potential for outperformance in the near term [3]