Moody's Corporation: The More It Drops The Better It Looks $MCO

Dividend | Stock | Investing | Valuation

Moody's Corporation (MCO) is a business I've had my eye on for quite some time, but could never wrap my head around the valuation. With the share price off 25% since the late October high, and in the 4th deepest drawdown of the last decade, I wanted to take another look at this company to see if now could be the time to add shares to my portfolio.

Data by YCharts

The 3 largest players in the credit ratings space are Moody's, S&P Global, and Fitch. As we can see, S&P is by far the leader in terms of ongoing ratings with ~50% market share, while Moody's is second with ~32% market share. Fitch comes in around 13%. Combined those 3 account for ~95% of the ongoing ratings.

FY 2020 OCG Annual Report on NRSROs

FY 2020 OCG Annual Report on NRSROs


The top players don't necessarily fiercely compete with each other since nearly all major issuances will be rated by 2 of the big 3.

Their client businesses aren't necessarily tied to Moody's; however, they will receive lower interest rates on debt offerings when they have a rating from one of the major agencies and the lower debt service payments far outweigh the fees paid to Moody's.

Moody's is organized in two operating segments: (1) Moody's Investors Service MIS - which provides initial and ongoing ratings on debt offerings, and (2) Moody's Analytics MA - which provides portfolio modeling, data, and risk managements capabilities to institutional investors.

MIS is expected to grow slower in the low-to-mid single digit range, but carries higher margins. Meanwhile, the MA segment is expected to show faster topline growth but carries lower margins.

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