Moody's (MCO)

Credit rating agency Moody's (NYSE:MCO) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 10.7% year on year to $2.01 billion. Its non-GAAP profit of $3.92 per share was 6.4% above analysts’ consensus estimates.

Company Overview

Founded in 1900 during America's railroad boom when investors needed reliable information on bond risks, Moody's (NYSE:MCO) provides credit ratings, risk assessment tools, and analytical solutions that help organizations evaluate financial risks and make informed investment decisions.

Financial exchanges and data providers operate trading platforms and sell market information. They enjoy relatively stable revenue from trading fees and subscriptions, increasing demand for data analytics, and expansion opportunities in emerging markets. Challenges include regulatory oversight of market structure, competition from alternative trading venues, and substantial technology investments needed to maintain low-latency trading infrastructure and data security.

Moody's main competitors include S&P Global (NYSE:SPGI) and Fitch Ratings (owned by Hearst Corporation), which together form the "Big Three" credit rating agencies. The company also competes with smaller rating agencies like DBRS (owned by Morningstar), as well as financial data and analytics providers such as Bloomberg, FactSet (NYSE:FDS), and MSCI (NYSE:MSCI).

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Moody’s revenue grew at a mediocre 7.1% compounded annual growth rate over the last five years. This wasn’t a great result compared to the rest of the financials sector, but there are still things to like about Moody's.

We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Moody’s annualized revenue growth of 14.5% over the last two years is above its five-year trend, suggesting its demand recently accelerated. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Moody's reported year-on-year revenue growth of 10.7%, and its $2.01 billion of revenue exceeded Wall Street’s estimates by 2.4%.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For Financial Exchanges & Data companies, we look at pre-tax profit rather than the operating margin that defines sectors such as consumer, tech, and industrials.

This is because for financials businesses, interest income and expense should be factored into the definition of profit but taxes - which are largely out of a company's control - should not.

Over the last four years, Moody’s pre-tax profit margin has risen by 4.6 percentage points, going from 44.2% to 39.6%. Luckily, it seems the company has recently taken steps to address its expense base as its pre-tax profit margin expanded by 7.9 percentage points on a two-year basis.

In Q3, Moody’s pre-tax profit margin was 43.2%. This result was 4.4 percentage points better than the same quarter last year.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Moody’s unimpressive 6.4% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

Moody’s two-year annual EPS growth of 22.3% was great and topped its 14.5% two-year revenue growth.

Diving into the nuances of Moody’s earnings can give us a better understanding of its performance. Moody’s pre-tax profit margin has expanded over the last two yearswhile its share count has shrunk 2.4%. Improving profitability and share buybacks are positive signs for shareholders as they juice EPS growth relative to revenue growth.

In Q3, Moody's reported adjusted EPS of $3.92, up from $3.21 in the same quarter last year. This print beat analysts’ estimates by 6.4%. Over the next 12 months, Wall Street expects Moody’s full-year EPS of $13.93 to grow 10.5%.

Return on equity (ROE) reveals the profit generated per dollar of shareholder equity, which represents a key source of bank funding. Banks maintaining elevated ROE levels tend to accelerate wealth creation for shareholders via earnings retention, buybacks, and distributions.

Over the last five years, Moody's has averaged an ROE of 63.9%, exceptional for a company operating in a sector where the average shakes out around 10% and those putting up 25%+ are greatly admired. This shows Moody's has a strong competitive moat.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

Moody's currently has $7.08 billion of debt and $3.96 billion of shareholder's equity on its balance sheet, and over the past four quarters, has averaged a debt-to-equity ratio of 1.9×. We think this is safe and raises no red flags. In general, we’re comfortable with any ratio below 3.5× for a financials business.

It was great to see Moody’s full-year EPS guidance top analysts’ expectations. We were also happy its revenue outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock remained flat at $480.13 immediately following the results.

Updated: December 5, 2025 at 11:13 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Moody's.

Moody's is a high-quality business worth owning. Although the company’s revenue growth was mediocre over the last five years, its stellar ROE suggests it has been a well-run company historically.

Moody’s P/E ratio based on the next 12 months is 30.6x. There’s some optimism reflected in this multiple, but we don’t mind owning a high-quality business, even if it’s slightly expensive. Investments like this should be held patiently for at least three to five years as they benefit from the power of long-term compounding, which more than makes up for any short-term price volatility that comes with relatively high valuations.

Wall Street analysts have a consensus one-year price target of $541.75 on the company (compared to the current share price of $497.77).