Moody’s Corporation Valuation – August 2016 $MCO

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – August 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Moody’s Corporation (MCO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Moody’s Corporation (Moody’s) is a provider of credit ratings; credit, capital markets and economic related research, data and analytical tools; software solutions and related risk management services; quantitative credit risk measures, financial services training and certification services, and outsourced research and analytical services to financial institution customers. It operates in two segments: Moody’s Investors Service (MIS) and Moody’s Analytics (MA). The MIS segment publishes credit ratings on a range of debt obligations and the entities that issue such obligations in markets across the world. It consists of approximately five lines of business, which include corporate finance group (CFG); structured finance group (SFG); financial institutions group (FIG); Public, project and infrastructure finance (PPIF), and MIS Other. The MA segment consists of approximately three lines of business, which include enterprise risk solutions (ERS) and professional service (PS).

MCO Chart

MCO data by YCharts

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of MCO – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $20,312,641,542 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.64 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 121.82% Pass
6. Moderate PEmg Ratio PEmg < 20 24.58 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -34.49 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.64 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.82 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

MCO value chart August 2016

EPSmg $4.30
MG Growth Estimate 11.21%
MG Value $132.98
Opinion Fairly Valued
MG Grade C
MG Value based on 3% Growth $62.35
MG Value based on 0% Growth $36.55
Market Implied Growth Rate 8.04%
Current Price $105.69
% of Intrinsic Value 79.48%

Moody’s Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.46 in 2012 to an estimated $4.3 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 8.04% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Moody’s Corporation revealed the company was trading above its Graham Number of $0. The company pays a dividend of $1.42 per share, for a yield of 1.3% Its PEmg (price over earnings per share – ModernGraham) was 24.58, which was above the industry average of 19.87. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-13.35.

Moody’s Corporation receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

MCO charts August 2016

Net Current Asset Value (NCAV) -$13.35
Graham Number $0.00
PEmg 24.58
Current Ratio 2.64
PB Ratio -34.49
Current Dividend $1.42
Dividend Yield 1.34%
Number of Consecutive Years of Dividend Growth 7


Useful Links:

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Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $3,030,100,000
Total Current Liabilities $1,146,400,000
Long-Term Debt $3,420,400,000
Total Assets $5,044,900,000
Intangible Assets $1,366,400,000
Total Liabilities $5,644,900,000
Shares Outstanding (Diluted Average) 195,800,000

Earnings Per Share History

Next Fiscal Year Estimate $4.38
Dec2015 $4.63
Dec2014 $4.61
Dec2013 $3.60
Dec2012 $3.05
Dec2011 $2.49
Dec2010 $2.15
Dec2009 $1.69
Dec2008 $1.87
Dec2007 $2.58
Dec2006 $2.58
Dec2005 $1.84
Dec2004 $1.40
Dec2003 $1.19
Dec2002 $0.92
Dec2001 $0.66
Dec2000 $0.49
Dec1999 $0.48
Dec1998 $0.82

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.30
Dec2015 $4.07
Dec2014 $3.58
Dec2013 $2.91
Dec2012 $2.46
Dec2011 $2.16
Dec2010 $2.06
Dec2009 $2.04
Dec2008 $2.17
Dec2007 $2.18
Dec2006 $1.85
Dec2005 $1.39
Dec2004 $1.09
Dec2003 $0.87
Dec2002 $0.70
Dec2001 $0.55
Dec2000 $0.45

Recommended Reading:

Other ModernGraham posts about the company

10 Best Stocks For Value Investors This Week – 9/26/15
Moody’s Corporation Analysis – September 2015 Update $MCO
The Best Stocks of the Financial Services Industry – September 2015
The 10 Best Stocks For Value Investors This Week – 6/20/15
Moody’s Corporation Analysis – June 2015 Update $MCO

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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