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Moody's Corporation MCO

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Morningstar’s Analysis

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While a Full Valuation, We Like Moody’s Announced Acquisition of RMS

Rajiv Bhatia, CFA Equity Analyst

Analyst Note

| Rajiv Bhatia, CFA |

We consider Moody’s announcement that it is acquiring RMS for $2.0 billion a good use of capital. RMS is a provider of climate and natural disaster risk modeling and analytics primarily for the property and casualty insurance market. Moody’s expects $150 million in incremental annualized revenue by 2025, so it is essentially betting that it can raise RMS’ current low-single-digit underlying revenue growth rate to around 10%. Though we’d normally be skeptical of such goals, we have high regard for Moody’s management, given its track record. Also, the firm gave several examples of revenue synergies, something often lacking during acquisition conference calls. We will maintain our wide moat rating and $327 fair value estimate for Moody’s.

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Company Profile

Business Description

Moody's (along with S&P Ratings) is a leading provider of credit ratings on fixed income securities. Moody's ratings segment, known as Moody's Investors Service or MIS, includes corporates, structured finance, financial institutions, and public finance ratings. MIS represents a majority of the firm's revenue and profits. Moody's other segment is Moody's Analytics and consists of Research, Data, and Analytics or RD&A and Enterprise Risk Solutions or ERS. RD&A's products include credit research, quantitative credit scores, economic research, business intelligence, know your customer (KYC) tools, commercial real estate data and analytical tools, and training services. ERS includes risk management software solutions to financial institutions.

7 World Trade Center at 250 Greenwich Street
New York, NY, 10007
T +1 212 553-0300
Sector Financial Services
Industry Financial Data & Stock Exchanges
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2020
Stock Type Cyclical
Employees 11,542