穆迪

Moody’s reported a strong second quarter, with 16% organic revenue growth, 25% ratings revenue growth, and 31% adjusted EPS growth. Moody’s only made some small tweaks to its full-year outlook, including increasing its 2026 adjusted EPS outlook by $0.05 at the midpoint to $16.75.

Why it matters: Shares traded sideways, which we attribute to the lack of a meaningful guidance raise in the face of the strong results. Moody’s maintained its outlook in the wake of a weaker first quarter and sees the second quarter as largely a catch-up rather than a new trend. Moody’s rated issuance volume grew 33% in the quarter, up from 6% growth in the first quarter, and volumes are benefiting from the financing of AI-related capital expenditures; Moody's noted that, even excluding AI data centers and hyperscaler activity, issuance still grew by double digits year to date. From a macroeconomic perspective, Moody’s lowered its expectation for euro-area real GDP growth and now views rate hikes by central banks as more probable, which explains some of its caution.

The bottom line: As we digest these results, we expect to increase our $500 fair value estimate on wide-moat- rated Moody’s within a range of 2%-6% to account for the strong quarter and time value of money. Overall, we see little reason to change our long-term view that the ratings business can grow in the high-single-digit range through the cycle, driven by price increases and nominal GDP growth.

Bulls say: Moody’s ratings outlook could prove conservative. Indeed, high-yield spreads remain subdued, indicating an accommodative bond market. In addition, management views the risk of not achieving its maintained full-year guidance as substantially lower than last quarter.

 

Diving deeper into the firm’s segments:

Moody’s Investors Service (57% of firmwide second quarter revenue and 73% of adjusted EBITDA): Moody’s ratings segment grew revenue 25% with growth across all major categories. Corporate finance, the firm’s largest bucket within ratings, grew 27%, with investment-grade, high yield, and leveraged loans transaction-based revenue growing 31%, 33%, and 50%, respectively. Public, project, and infrastructure finance revenue grew 38% to $224 million, which was a quarterly record, driven by issuance activity related to data centers and technology infrastructure. Structured finance and financial institutions grew 12% and 16%, respectively. Moody’s also reentered the insurance-linked securities market in the quarter with the rating of a EUR 100 million catastrophe bond. While catastrophe bonds are a niche market, they could become larger over time given the size of the insurance market.

Last year’s quarter notably included some volatility related to the sweeping 2025 tariffs levied by the US on imports, so this quarter had somewhat of an easy comparison. From a cadence perspective, Moody’s expects third-quarter ratings revenue to be up by a low-single-digit percentage and fourth-quarter revenue to be roughly flat.

While Moody’s maintained its outlook of high-single-digit ratings revenue growth in 2026, it raised its issuance forecast to mid-single-digit versus a previous low-single-digit expectation. It notes that some AI-related issuance has a lower revenue yield, including from the use of frequent issuer programs by hyperscaler companies. In addition, we believe fee structures are tiered so very large issuances likely generate a lower revenue yield.

Private credit ratings revenue continues to be a growth area for Moody’s. Private credit is reported in multiple categories such as structured finance (for CLOs backed by private credit loans) and financial institutions (for business development companies). Moody’s noted that private credit-related transactions grew 40% in the second quarter, and on the first-quarter call, Moody’s mentioned that private credit-related ratings revenue grew 80% in the first quarter of 2026. We estimate that Moody’s generated about $55 million-$60 million of private credit revenue in 2025, and these growth rates suggest that in 2026, private credit revenue could near $100 million or about 2% of ratings revenue.

Against 25% revenue growth, Moody’s reported 9% adjusted EBITDA expense growth, and as a result of this operating leverage, margins rose to 68.3% from 64.2% in the year-ago quarter.

 

Moody’s Analytics (43% of revenue, 27% of adjusted EBITDA): Moody’s Analytics was steady from the first quarter, with 7% organic revenue growth. Decision solutions and data and information organic growth was healthy at 12% and 8%, respectively. Research and insights slowed to 2% organic growth, but with ARR organic growth at 6%, this revenue deceleration feels more like a blip. We believe Moody’s Analytics new segment CEO, Christina Kosmowski, who has decades of experience in the software industry, is a good fit for the role.

Relative to consensus estimates, Moody’s firmwide second quarter revenue of $2.19 billion came in 5% above the FactSet consensus of $2.09 billion, and adjusted EPS of $4.68 came in 10% above the consensus estimate of $4.26. We attribute the beat to a strong ratings quarter. On a segment basis, Moody’s did not change its 2026 financial guidance, which for ratings includes high-single-digit revenue growth and approximately 65% adjusted EBITDA margins. Firmwide, the firm made modest tweaks, including lowering its GAAP EPS outlook by $0.05 but raising its adjusted EPS outlook by $0.05 at the midpoint. Moody’s raised its share repurchase outlook to up to $3.0 billion versus a previous $2.5 billion expectation. Given that we do not view shares as overvalued, we do not object to this capital allocation.

After updating our model, we are raising our fair value estimate for Moody's to $550 per share from $520 as we calibrate our incremental margin assumptions in ratings. Our discounted cash flow-based fair value estimate corresponds to approximately 32 times our adjusted 2026 EPS estimate and 28 times our adjusted 2027 EPS estimate. We peg Moody’s weighted average cost of capital at 7.7%.

We model 12% ratings revenue growth in 2026 and 4% ratings revenue growth in 2027 due to a strong 2026 creating a somewhat tough comparison. From 2028 to 2030, we expect ratings revenue growth in the 7% to 8% range. This latter range is consistent with our expectation of high-single-digit average annual revenue growth through the cycle, driven by price increases and GDP growth. For Moody’s Analytics, we expect robust subscription growth from pricing and new sales, supported by strong retention, to drive segment organic growth at about 8%. Overall, we model average annual firmwide revenue growth of 7.4% per year between 2025 and 2030.

Turning to margins, we project that Moody's adjusted EBITDA margin will grow to 58% in 2030 from 51% in 2025. This is up from our previous forecast of 55%. With Moody’s ratings segment margins strong at 64% in 2025, we had previously assumed little room to run. However, we think the firm can keep a count on US-staff and we also think AI is a plausible margin booster as it allows the firm to rate a greater volume of debt with fewer analysts. In addition, given the firm’s wide moat, we think its unlikely any of these savings will have to be passed on to its customers. Thus, we now think Moody’s ratings margin can cross 70% in 2030. Moody’s Analytics, generated 33% margins in 2025. We forecast 34.3% margins in 2026 (in line with the firm’s midpoint outlook of 34.5%) and expect 38% margins by 2030. While this might seem high, we believe revenue growth, efficiencies, and the high incremental margins of selling software and data make this achievable. Lastly, we note that many software and services firms and segments, such as SS&C and MSCI’s Analytics segment, have margins near or above 40%.

Given the size of the ratings segment, trends in issuance are the most salient profit driver, in our view. Nonetheless, investors should not forget Moody’s Analytics. This segment should benefit from new product development, the need for data-driven solutions, and regulatory and compliance use cases. In addition, the recurring nature of the revenue helps smooth out the more lumpy ratings segment.

In our view, Moody’s warrants a Morningstar Economic Moat Rating of Wide, based on intangible assets and network effects from its ratings business.

Credit ratings provide value to bond issuers as well as bond investors; this creates a network effect. Bond issuers value credit ratings from Moody’s and S&P because of their wide acceptance among asset owners and asset managers. This is particularly important in cross-border bond issuance deals. While a local country’s domestic rating agency could have value for its domestic bonds, a rating from a Big Three firm is critical for a cross-border marketed security, as global investors desire broad comparability across global bonds. For example, an investor wants to know that a B1 rating for a company in California is similar to a B1 rating for a company in Chile or a B1 rating for a company in India.

This broad acceptance makes it essential for corporate issuers to get a rating on any debt they issue. By getting a bond rating from a market leader such as Moody's, the bond issuer pays less in interest (often 30-65 basis points in savings per year). The cost of a vanilla corporate bond credit rating is around 8 basis points and is typically much less than the underwriting fees and legal fees (50-100 basis points combined).

Bond investors and bond issuers aren't the only ones who value credit ratings. In our view, acceptance among index providers and government regulators also supports the rating agencies’ wide moat. For example, the Bloomberg US Aggregate Bond Index, which, among other uses, serves as the index for the $300 billion-plus Vanguard Total Bond Market exchange-traded fund, only considers ratings from either S&P, Moody’s, or Fitch. Among banking regulators, rating agencies are used extensively to determine a bank’s capital adequacy. Also, as the number of ratings increases, the value of ratings research subscriptions sold to buy-side investors increases as well.

In our view, the credit rating agencies such as Moody's have built a moat source through intangible assets. The incumbent players are advantaged by their multidecade record that allows investors to see how credit ratings performed. For example, it would be difficult for a new player to establish what the absolute and relative probabilities of a B1 versus Ba1 versus Baa1 defaulting are over the next 10 years without a sufficient sample size and time. Another hurdle for a new entrant would be establishing management relationships with the thousands of companies that issue debt. Given the strong record of incumbents, corporate management teams are unlikely to find much value in investing time and resources in another ratings provider.

Regulations provide other hurdles. To receive a nationally recognized statistical rating organization designation (which bestows many advantages) from the Securities and Exchange Commission, the agency must be nationally recognized, "meaning the rating agency is recognized in the United States as an issuer of credible and reliable ratings by the predominant users of securities markets." However, this creates a bit of a chicken-and-egg issue because for a rating agency to be credible in the eyes of capital markets participants and corporate issuers, it needs to be an NRSRO. Even though the number of firms with an NRSRO designation has increased to about 10 since the introduction of the Credit Rating Agency Reform Act of 2006, we believe the network effects have been strong enough to result in only limited traction for other rating agencies.

Moody’s has leveraged its moat to obtain solid pricing power, typically around 3%-4% per year. Moody’s doesn’t disclose pricing specifics, but peer S&P’s rack rate for corporate finance ratings (in 2026) is 8.35 basis points, which compares with 6.25 basis points in 2016 and 4.25 basis points in 2007 and implies a fee compound annual growth rate of 3% and 4%, respectively.

Overall, we believe Moody’s Analytics is a narrow-moat business based on intangible assets and switching costs. Originally providing quantitative ratings and research reports for its credit ratings, Moody’s has greatly expanded this segment over the last several years, expanding into private company data, know-your-customer tools, and commercial real estate analytics. Roughly speaking, we estimate that Moody’s Analytics is split evenly among credit research subscriptions, Bureau van Dijk, enterprise risk solutions, and other products. Because credit research subscriptions are based on data from Moody’s Investor Service, we believe the moat of this product should be reflected in MIS. In 2017, Moody’s acquired Bureau van Dijk, a provider of data on private and public companies based in Europe. While BvD boasts strong EBITDA margins (50% or more), we believe that little data is proprietary and that BvD’s advantage lies in its data breadth and quality; we would regard this as a source of intangible asset moat. Enterprise risk solutions provide risk-management tools and loan origination solutions to the banking and insurance industry. Moody’s competitors in ERS include various software providers such as Fidelity National Information Services, SS&C, Verisk Analytics, and in-house solutions. Given the complexity of changing software systems, we would view switching costs as a moat source. Moody’s Analytics' other products include commercial real estate solutions with its acquisition of REIS, but it is significantly smaller than market leader CoStar.

Even if issuance volume turns south, strong pricing power and GDP growth should cause a rebound in ratings revenue over time. In addition, maturing debt should support issuance levels.

Moody's Analytics can be an important driver with high recurring revenue growth and operating margin expansion.

Ratings revenue has often surprised to the upside, such as in 2020, 2021, and 2024.

Higher interest rates, corporate deleveraging, and higher spreads could cause a decline in bond issuance that will weigh on ratings revenue. Notably, spreads in 2024 and 2025 for high-yield were lower than normal, indicating relatively loose credit conditions.

The rise of private credit poses a challenge for rating agencies as private credit is typically unrated.

Some of Moody's Analytics' solutions could face growing competition from other companies using generative AI, applying pressure to segment growth and margins.