Moody’s Earnings: OK Earnings, Mediocre Outlook Plus Healthy Valuation Equals Negative Reaction

Moody's reported an OK finish to 2023. Reported revenues grew 15% to $1.48 billion against easy comparisons in ratings, and this was in line with the FactSet consensus expectation. Adjusted EBITDA of $631 million was $40 million below consensus and as a result adjusted EPS of $2.19 missed consensus of $2.33, which we attribute to some margin softness in the ratings business as well as revenue mix toward lower-margin Moody's Analytics. As is customary, Moody's gave its initial 2024 outlook on its fourth-quarter release. Moody's 2024 revenue outlook is roughly in line, but margins and earnings came in disappointing. Overall, Moody's results and outlook were not horrible in our view; we attribute the negative market reaction to Moody's health valuation (about 36 times forward earnings before they reported) leaving little room for error. As we update our model, we will maintain our wide moat rating and fair value estimate of $335. Even with the stock down 7%, we don't view the risk-reward profile of Moody's as compelling at this stage.