Moody's Corporation is a commercial and financial services firm based in the United States. It is the parent business of Moody's Investors Service, an American credit rating agency, and Moody's Analytics, a financial analysis software and services provider based in the United States.

  • John Moody created Moody's in 1909 to produce statistics manuals for equities and bonds
  • Dun & Bradstreet purchased Moody's in 1962 and was spun off from Dun & Bradstreet in 2000 and now trades on the NYSE under the symbol MCO
  • Moody's Corporation was split into two operating divisions in 2007, the rating agency Moody's Investors Service and Moody's Analytics, which included all of the company's other products

INTEGRATED RISK ASSESSMENT FIRM

Over the last 15 years, Moody's has expanded its geographical reach while entering new business verticals. Between 2007 and 2016, it established Moody's Analytics, expanded its ratings services to cover China and built its Enterprise Risk Management business by acquiring Fermat International.

  • Between 2017 and 2021, the company further grew it data and analytics capabilities by complementing its ERS business with private company information
  • It also further expanded its company database, CRE data, ESG data and invested in insurance data and analytics capabilities, including weather and disaster modelling
Moody's Annual Report 2021

The company nows seeks to position itself to serve a wide range of risk assessment markets. As such, Moody's is making further investment in data and analytics capabilities of private companies.


MOODY'S INVESTORS SERVICES

Moody's Investors Service (MIS) publishes credit ratings and assesses a large range of debt obligations, programs, and facilities in global markets, including corporate, institutional, and governmental obligations. The MIS ratings help issuers design debt plans that can attract a broad investor base and provide more liquidity choices. Summarised, MIS helps investors and stakeholders with:

  • Access to capital: Moody’s opinions on credit are used by institutional investors throughout the world, making an issuer’s debt potentially more attractive to a wide range of buyers
  • Transparency, credit comparison and market stability: Signals a willingness by issuers to be transparent and provides issuers with an independent assessment against which to compare creditworthiness
  • Planning and budgeting: May help issuers when formulating internal capital plans and funding strategies
  • Analytical capabilities: Among ratings advisors, Moody’s has a strong position and is well recognised for the depth and breadth of its analytical capabilities

To date, the MIS rated over 35,000 organisations and structured deals. It covered over $ 73 trillion in debt and has also rated 145 sovereign states.


MOODY'S ANALYTICS

Moody's Analytics (MA) is a provider of data and information, research and insights, and decision solutions that help businesses make data-driven decisions. MA delivers integrated risk assessment solutions that enable businesses to identify, measure, and manage the implications of interrelated risks and opportunities across multiple risks such as credit, market, financial crime, supply chain, catastrophe, and climate.

  • MA's data, research, and analytics, along with cloud-based software tools are used by financial and non-financial corporates but also by a wide range of government entities
  • MA's subscription operations provide a strong recurring revenue base, which helps to counteract cyclical swings in debt issuance volumes, which can cause MIS's revenues to fluctuate
Moody's Annual Report 2021

To date, MA serves over 14,900 customers, including 1,800 asset managers, 2,300 commercial banks, more than 5,300 governments & other entities. The service is used in more than 165 countries.


GROWTH PROSPECTS

The growth in the availability of information and solutions encourages the global integration and extension of financial markets by providing market players with access to a broader range of established and emerging capital markets, as well as data and risk management solutions.

As technology expands access to global markets, so does the demand for globally comparable judgments on credit risk, data and analytics. In this light, the company expects the following drivers to push growth in the coming years:

  • Debt market issuance driven by global GDP growth
  • Growth in domestic capital markets through investments in Moody’s Local and affiliates in key markets
  • Bank disintermediation and the expansion of private credit
  • Growth from data and analytics in adjacent markets, including KYC, CRE and ESG
  • Expansion of data sets and delivery options establishing a gateway that supports multiple stakeholders
  • Enhancement of architecture for engineering and data strategies (e.g., SaaS, API, data infrastructure, operational resilience and IT controls)

Moody's also expects that institutions throughout the world will continue to demand data products and services that increase efficiency, provide business insights, and enable compliance with financial legislation, including AML, KYC, and accounting standards. Moody's is therefor actively investing in new products, updated data sets, and improved delivery methods (e.g., software-as-a-service) to respond to different sources of demand and promote growth.


THE MARKET

According to Bain & Company, the global financial data and analytics market is set to reach $ 60 to 70 billion by 2030. From 2017 to 2020, the global financial data and analytics market grew at a compound annual growth rate of 6.5%, reaching $35 billion.

  • Through 2030, Bain & Company forecasts a 5% to 7% annual growth rate, mostly driven by market data but supplemented by an increasing percentage of alternative data, such as carbon, mortgage, or environmental, social, and governance (ESG) data, with a 10 to 20% annual compound annual growth rate
  • The management consulting company expects analytics solutions to increase at an annual pace of 8% to 11%

"On the sell side, clients increasingly want data solutions to streamline labor-intensive tasks such as predictive default analytics, liquidity scoring for individual bonds on secondary markets, or “request for quote” auto-pricing based on trading preferences."

"In addition, expansion of regulatory reporting requirements on both the sell and buy sides has heightened demand, as has further adoption of AI in the financial sector, which requires huge volumes of data and advanced analytics for use cases such as fraud detection and risk mitigation." Bain & Company


EXPERIENCED MANAGEMENT

Moody's is led by Robert Fauber who joined Moody's in 2005 and held various positions within the company before becoming CEO in 2021. Stephen Tulenko, another Moody's veteran is the President of Moody's Analytics.

Robert Fauber

  • Robert Fauber has served as the Company’s President and Chief Executive Officer since January 2021
  • Joined the Board of Directors in October 2020 and he currently serves on the Executive Committee of the Board of Directors. Prior to serving as CEO, he served as Chief Operating Officer from November 2019 to December 2020, as President of Moody’s Investors Service, Inc. from June 2016 to October 2019, as Senior Vice President—Corporate & Commercial Development of Moody’s Corporation from April 2014 to May 2016, and was Head of the MIS Commercial Group from January 2013 to May 2016. Prior to joining Moody’s, he served in several roles at Citigroup and its investment banking subsidiary Salomon Smith Barney from 1999 to 2005
  • Earned his B.A. in economics from the University of Virginia and his M.B.A. from the Johnson School of Management at Cornell University

Mark Kaye

  • Has served as the Company’s Executive Vice President—Chief Financial Officer since August 2018
  • Prior to joining the Company, he was Senior Vice President and Head of Financial Planning and Analysis at Massachusetts Mutual Life Insurance Company (MassMutual) since February 2016, and Chief Financial Officer of MassMutual U.S. since July 2015. Prior to that, he served as Chief Financial Officer and Senior Vice President, Retirement Solutions, at Voya Financial from 2011 to 2015. He previously held various senior financial and risk reporting positions at ING U.S. and ING Group, and was in the investment banking division of Credit Suisse First Boston
  • Earned his B.S. in economics from the University of Pennsylvania and his M.B.A. from the Warthon School at the University of Pennsylvania

Stephen Tulenko

  • Has served as President of Moody’s Analytics since November 2019
  • Served as Executive Director of Enterprise Risk Solutions from 2013 to October 2019 and as Executive Director of Global Sales, Customer Service and Marketing from 2008 to 2013. Prior to the formation of Moody’s Analytics, he held various sales, product development and product strategy roles at Moody’s Investors Service, Inc.
  • Earned his B.A. in economics from the University of Notre Dame and his M.B.A. from the Stern School of Business at New York University

TAKE A BREATH

So… This is a lot of information. Let’s summarise:

  1. Moody's Corporation is a commercial and financial services firm based in the United States. It is the parent business of Moody's Investors Service, an American credit rating agency, and Moody's Analytics, a financial analysis software and services provider based in the United States
  2. The company nows seeks to position itself to serve a wide range of risk assessment markets
  3. The firms also bets that a deeper integration of data and analytics combined with expertise and technology can act a key competitive differentiator
  4. Moody's is led by Robert Fauber who joined Moody's in 2005 and held various positions within the company before becoming CEO in 2021. Stephen Tulenko, another Moody's veteran is the President of Moody's Analytics
  5. According to Bain & Company, the global financial data and analytics market is set to reach $ 60 to 70 billion by 2030. From 2017 to 2020, the global financial data and analytics market grew at a compound annual growth rate of 6.5%, reaching $35 billion

FINANCIAL CHECK

Moody's Corporation reported sales of $1.5 billion for the three months ended December 31, 2021, up 19% from the prior-year period. Foreign currency translation unfavourably impacted Moody's revenue by 1%.  FY 2021 revenue of $6.2 billion, up 16% from FY 2020. 4Q 2021 diluted EPS of $2.28, up 37% from 4Q 2020 and adjusted diluted EPS1 of $2.33, up 22%; FY 2021 diluted EPS of $11.78, up 25% from FY 2020 and adjusted diluted EPS1 of $12.29, up 21%.

  • Moody's Investors Service fourth quarter revenue was up 19%. Revenue for MIS in the fourth quarter of 2021 was $871 million, up 19% from the prior-year period
  • Moody's Analytics fourth quarter revenue was up 20%. Revenue for MA in the fourth quarter of 2021 was $668 million, up 20% from the prior-year period. Recurring revenue grew 22% and comprised 93% of total MA revenue, up from 91%
  • Moody's introduced a new medium-term guidance , including for revenue to grow by at least 10% on an average annualised basis

THE BOTTOM LINE

The Good

  • Moody's is a leading provider of financial information services. It also provides credit ratings to a vast number of companies and entities at a global scale
  • Through its analytics offering, the company manages to offset the volatility in demand for its debt ratings activities
  • Demand for data services is experiencing a steady growth as the market for financial information grows by 8 to 11% a year until 2030

The Bad

  • The company is trading at a slight premium versus its historical valuation

THE STAKE

We do not have a stake in Moody's yet. Moody's is a growing and profitable credit ratings and analytics provider active at a global scale. In the coming years, growth is expected to be pushed forward by the growing demand for its MA solutions.

  • We will start a stake if it manages grow its analytics business while protecting its debt rating activities
  • We will stop considering if growth across MIS and MA decreases and margins get pressured

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