Moody’s MCO shares touched an all-time high of $531.93 on Friday, the day after announcing solid fourth-quarter 2024 results and an impressive 2025 outlook.

Its fourth-quarter adjusted earnings of $2.62 per share surpassed the Zacks Consensus Estimate of $2.60 and jumped 20% from the year-ago quarter figure. Robust global bond issuances and steady demand for analytics supported the results. 

Additionally, Moody’s came out with a strong 2025 outlook. The company projects adjusted earnings to be in the range of $14.00-$14.50 per share. In 2024, the metric was $12.47.

Moody’s shares have gained 10.5% this year, outperforming the industry’s rally of 5.2%. The stock has fared better than its close peers – S&P Global Inc. SPGI, MSCI Inc. MSCI and Dun & Bradstreet Holdings, Inc. DNB.

Year-to-Date MCO Stock Price Performance
 

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Let’s first discuss the company’s 2025 outlook in detail and then check out other factors at play.

Revenues are anticipated to increase in the high-single-digit percent range. 

Further, operating expenses are expected to rise in the low-to-mid-single-digit percent range. The company projects $80 million to $100 million in restructuring charges related to the Strategic and Operational Efficiency Restructuring Program.

Adjusted operating margin is expected to be approximately 50%. Last year, it was 43.8%. 

On a GAAP basis, earnings are projected to be within $12.75-$13.25 per share. In 2024, GAAP earnings were $11.26 per share.

Other Major Factors at Play for Moody’s

Inorganic Expansion Initiatives: In January, Moody’s announced a deal to acquire CAPE Analytics, a leader in geospatial artificial intelligence (AI) for residential and commercial properties. Further, in 2024, the company acquired Numerated Growth Technologies and Praedicat. Through these buyouts, the company intends to pursue growth in areas outside the core credit ratings service.

Moreover, in July 2024, MCO established a strategic alliance with MSCI to enhance its environmental, social and governance (ESG) solutions and acquired a 100% stake in GCR to deepen its presence in Africa’s domestic credit market. 

Over the years, Moody’s has been strengthening its footprint and credit rating solutions through strategic acquisitions/partnerships. In 2023, it acquired SCRiesgo to boost its presence in Central America and the Dominican Republic. It announced a partnership in Vietnam, VIS Rating, to bolster its presence in the country’s financial sector. Its inorganic growth efforts are expected to help diversify revenues and provide it with increased scale and cross-selling opportunities across products and vertical markets.

Strong Balance Sheet & Liquidity: Moody’s diversifying efforts are well supported by a strong balance sheet position. As of Dec. 31, 2024, it had total debt worth $6.73 billion, an undrawn revolving credit facility of $1.25 billion, and cash and cash equivalents and short-term investments of $2.97 billion. These will enable it to continue pursuing growth opportunities.

For 2025, Moody’s expects cash flow from operations of $2.75-$2.95 billion and free cash flow in the range of $2.40-$2.60 billion.

Driven by a solid liquidity position, MCO has an impressive capital distribution activity. In February, Moody’s announced an 11% hike in quarterly dividend to 94 cents per share. The company increased its dividend six times in the past five years, and its payout has grown 10.65% over the same period. MCO's payout ratio currently sits at 27% of earnings.

Further, in October 2024, the company announced an additional $1.5 billion in share repurchase authority. As of Dec. 31, 2024, it had nearly $1.6 billion worth of shares available. Driven by its earnings strength and a strong balance sheet position, Moody's is expected to continue efficient capital distributions.

A Few Concerns Persist for Moody’s

Mounting Costs: Moody’s has been witnessing a persistent rise in expenses. Operating expenses witnessed a five-year (2019-2024) CAGR of 7.1%, mainly due to an increase in selling, general and administrative costs. Costs are expected to remain elevated as the company continues to invest in franchises and grow inorganically. Inflation, too, is likely to contribute to the cost increase.

Stiff Competition: Moody’s faces severe competition in most of the markets in which it operates. In the credit rating sector, it faces competition from Fitch, S&P Ratings Services (a division of S&P Global), Morningstar and many other regional providers. In the analytics segment, it faces competition from Dun & Bradstreet, Bloomberg, IBM and Fiserv, among others.

Further, in the risk management software market, MCO competes with large software developers like SAS, Oracle, IBM and Mysis. Stiff competition will likely continue to put pressure on pricing, which may hurt its profitability.

MCO’s Bullish Analyst Expectations

Earnings estimates for Moody’s have moved upward for both 2025 and 2026 in the past week. The positive estimate revision depicts bullish sentiments for the stock.

Earnings Estimate Trend
 

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Further, driven by upward estimate revision activity, the estimate for 2025 indicates year-over-year growth of 8.1% and the same for 2026 suggests a 13.7% rise. MCO has a long-term EPS growth rate of 12.8%.

Earnings Estimates
 

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Find the latest earnings estimates and surprises on Zacks Earnings Calendar.

Moody’s Stock: A Perfect Investment

As the operating environment continues to improve, issuance volumes are expected to keep rising. Further, demand for corporate refinancing is expected to rise as the monetary policy gradually changes globally. Also, demand for analytics will likely support profitability driven by the company’s inorganic growth efforts.

Yet, elevated expenses and pricing pressure because of stiff competition across its businesses are woes. Nonetheless, Moody’s solid liquidity and balance sheet position and enhanced capital distributions are tailwinds. With strong earnings projections, the company is well-poised to deliver sustained growth. We believe the MCO stock is an ideal candidate for investors' portfolio.

At present, Moody’s carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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