Moody's Corporation (MCO)

Total return at 5 years: 7.9%/year = 6.9% appreciation + 1.0% dividend. The target price ($657) is ex-dividend; the $28 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $530 · Multiples $551) exceeds the market price ($471).

Today — fairly valued: at $471 trades ~14.7% below its value discounted to today (~$551); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($657) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$345.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($471) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (5.9%/year) than we project (8.5%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$4 bn of owner earnings in year 5 (vs ~$4.5 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on P/E sobre ganancias del dueño (owner earnings). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Moody's reports two segments —MIS (credit ratings, transactional, tied to debt issuance volume) and MA (data/analytics, mostly subscription, ARR +8%)— but both are capital-light, high-margin businesses (EBIT ~45% consolidated) with no piece of a financial nature that would warrant a different multiple, so it is valued on a consolidated basis on P/E over owner earnings (NOPAT + D&A − maintenance capex), with starting cash and debt at zero in the waterfall — like KO/PG/GIS/KHC/ROST — because the funding is already practically incorporated in earnings: the TTM goes from EBIT of $3,655M to pre-tax income of $3,595M, a difference of barely 1.6%, so ignoring real net debt (~US$5,450M) in the waterfall is a minor simplification, not a material distortion. Maintenance capex = 100% of total capex (TTM capex of US$352M sits comfortably below D&A of US$495M — no sign of growth capex, so the Greenwald shortcut holds). Year 1 is anchored in the band of the recent trajectory (FY23 +8.2% / FY24 +19.8% / FY25 +8.9% / TTM +11.7%, already including the quarter ended Jun-2026) blended with organic constant-currency growth (+7% consolidated, +7% MA, MA ARR +8%) — the 8-K of 22-Jul-2026 (Q2 2026 results, Item 2.02) was incorporated for the TTM level, but its quantitative full-year guidance was not available in the facts extract for this synthesis; this is declared explicitly rather than assuming a number. From there it decays smoothly toward high-single-digit terminal growth, consistent with MA's organic pace and the cyclical nature of MIS (tied to debt issuance volume in the capital markets). TTM buybacks (US$3,115M) are far above the historical pace (US$1,607M in FY2025) — probably accelerated in the first half of 2026 under the US$4,000M authorization of Oct-2025 — so the share path models a sustainable pace of ~2%/year of net reduction in the base case, not an extrapolation of the recent peak.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $657 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $471, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $657 in 5 years plus $28 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $551. Against the current market price ($471), the margin of safety is 14.7% (trades below the maximum → there is margin) and the total return at that price would be 7.9% annually.

• Multiple vs quality. P/E 27× (TTM) above the projection's terminal range (20-26x) — an entry multiple rich even for exceptional ROIC.
• Reverse-DCF. The current price discounts growth close to the base case — little room for error if MIS's cyclicality disappoints.
• Margin of safety. Total return +8%: Fairly valued, without visible discount to 5-year value.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (105%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• ROIC exceeds cost of capital. ~34% ROIC vs the 10% bar — well above, solid value creation in a capital-light model.
• Margin and stability. Operating margin TTM 44.8%, expanding. The MA piece (recurring) reduces volatility of consolidated vs a purely transactional MIS.
• Cash quality. OCF TTM $3,319M vs net income $2,795M — healthy cash conversion (>100%), no signs of inflated accruals.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

MIS is transactional: revenue = volume of ratable debt issued × per-issuance fee, with a portion mitigated by annual agreements and monitoring fees. MA is recurring: revenue ≈ ARR × customer retention/expansion, with KYC (+15% ARR) as the fastest-growing sub-business within Decision Solutions.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real, not nominal. Organic at constant FX (+7%) is less than reported (+11.7% TTM) — part of TTM comes from a strong debt issuance year, not extrapolable without more.
• Growth engine. MIS: debt issuance volume × fee. MA: ARR × retention/expansion (KYC +15% the strongest).
• Deceleration and cycle. The projection decays from the current environment (TTM +11.7%) to high-single-digit terminal, consistent with MA's organic pace and normalization of MIS's issuance cycle.

• Relevant in 10 years (recurrence). Credit ratings and financial data are capital markets infrastructure — high recurrence and predictability.
• Pricing power. Strong in MIS (regulatory barrier) and MA (switching cost from regulatory compliance), but threatened by generative AI at the margin.
• Moat and its direction. Wide and stable moat: regulation (NRSRO) + data scale + growing recurring revenue in MA.
• Capital cycle. MIS is sensitive to the debt issuance cycle (volume rises and falls with rates); MA is more structural and less cyclical.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• !Leverage (net debt / EBITDA)Net debt / EBITDA 1.3x
• ✓Interest coverage (EBIT / interest)60.9x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 105% of ROIC
• ✓Value creation (ROIC − 10% bar)+24pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.7x — no over-investment
• –Float / working capitalNeutral WC
• ✓Dilution (SBC % of revenue + shares)SBC 2.8% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Net debt ~$5,450M, modest effect on earnings (EBIT to pre-tax income with only 1.6% difference in TTM).
• Coverage and cash. OCF TTM $3,319M covers debt service ample; actual FCF $2,967M.
• Aggressive payout. TTM buybacks + dividend exceed actual FCF — sustainable if cash generation holds, but leaves less margin before a shock.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Skin in the game. Berkshire Hathaway as largest shareholder (13.9%), a long-term anchor. No disclosure of individual insider ownership in the proxy.
• Capital allocation. Aggressive returner: buybacks + dividend exceed actual TTM FCF — funded partially with cash/debt. Low capex, no material recent M&A beyond already-integrated acquisitions.
• Integrity / normalization. Reports Adjusted Operating Income by segment with clear reconciliation of restructuring/asset abandonment; ARR broken down with consistent methodology.

• No clear source of discount: There is no recent spin-off, no one-off/restructuring that depresses GAAP disproportionately, and with broad analyst coverage.
• The business continues executing well (TTM revenue +11.7%, MA ARR +8%, margin expanding) — no media noise or discrete event that explains a decline.

Without identifiable missing-buyers or motivated-sellers → likely not cheap at this price; the market already recognizes the business quality. The total return (+8%) reflects that: Fairly valued, without visible discount to 5-year value.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -3%/year (-13% total): the margin of safety protects the downside. The bull (+14%/year, +93% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Cyclicality of debt issuance volume. The primary disconfirmer: a rate rise or recession directly hits MIS's transactional revenue.
• Generative AI competition. Free/cheap information and quantitative workflows could pressure research and rating pricing.
• Rich entry multiple. 27× above terminal range — multiple compression expected, not expansion.
• Growing regulation. DORA (EU, since Jan 2025) and the new ESG rating regulation (since Jul 2026) could introduce additional competition or restrictions.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 34% above the 10% bar, but the margin is limited (+15%) → excellent business at a fair price.

• Peter Lynch Growth at a reasonable price (GARP)

  A fast grower growing 9% at a multiple/growth of 3.2 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 4% (EBIT/EV) + ROIC 34% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 6% vs our 9%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -4%/yr, bull-scenario ceiling +13%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, efficient scale, switching costs, cost advantage → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting 6%, within what we project (9%) — the story squares with the numbers.