Intrinsic value of Moody's Corporation - MCO

Previous Close

$214.29

  Intrinsic Value

$86.03

stock screener

  Rating & Target

str. sell

-60%

Previous close

$214.29

 
Intrinsic value

$86.03

 
Up/down potential

-60%

 
Rating

str. sell

We calculate the intrinsic value of MCO stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 40.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  4,532
  4,636
  4,755
  4,889
  5,037
  5,200
  5,377
  5,569
  5,775
  5,997
  6,234
  6,487
  6,756
  7,043
  7,346
  7,668
  8,009
  8,369
  8,750
  9,152
  9,577
  10,024
  10,496
  10,992
  11,516
  12,067
  12,647
  13,257
  13,899
  14,574
Variable operating expenses, $m
  2,559
  2,605
  2,659
  2,718
  2,785
  2,857
  2,936
  3,022
  3,114
  3,213
  2,784
  2,897
  3,018
  3,146
  3,281
  3,425
  3,577
  3,738
  3,908
  4,088
  4,277
  4,477
  4,688
  4,910
  5,144
  5,390
  5,649
  5,921
  6,208
  6,510
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  2,559
  2,605
  2,659
  2,718
  2,785
  2,857
  2,936
  3,022
  3,114
  3,213
  2,784
  2,897
  3,018
  3,146
  3,281
  3,425
  3,577
  3,738
  3,908
  4,088
  4,277
  4,477
  4,688
  4,910
  5,144
  5,390
  5,649
  5,921
  6,208
  6,510
Operating income, $m
  1,973
  2,031
  2,097
  2,171
  2,253
  2,343
  2,441
  2,547
  2,661
  2,784
  3,450
  3,590
  3,739
  3,897
  4,065
  4,243
  4,432
  4,631
  4,842
  5,064
  5,299
  5,547
  5,808
  6,083
  6,372
  6,677
  6,998
  7,336
  7,691
  8,065
EBITDA, $m
  2,611
  2,671
  2,740
  2,817
  2,903
  2,996
  3,098
  3,209
  3,328
  3,455
  3,592
  3,738
  3,893
  4,058
  4,233
  4,419
  4,615
  4,823
  5,042
  5,274
  5,518
  5,776
  6,048
  6,334
  6,636
  6,953
  7,287
  7,639
  8,009
  8,398
Interest expense (income), $m
  137
  307
  290
  300
  313
  326
  341
  358
  376
  396
  417
  440
  464
  490
  517
  547
  578
  611
  646
  682
  721
  762
  806
  852
  900
  951
  1,004
  1,061
  1,120
  1,182
  1,248
Earnings before tax, $m
  1,666
  1,741
  1,796
  1,858
  1,926
  2,001
  2,083
  2,170
  2,265
  2,367
  3,010
  3,126
  3,249
  3,380
  3,518
  3,666
  3,821
  3,986
  4,160
  4,343
  4,537
  4,741
  4,956
  5,183
  5,421
  5,673
  5,937
  6,216
  6,509
  6,817
Tax expense, $m
  450
  470
  485
  502
  520
  540
  562
  586
  612
  639
  813
  844
  877
  913
  950
  990
  1,032
  1,076
  1,123
  1,173
  1,225
  1,280
  1,338
  1,399
  1,464
  1,532
  1,603
  1,678
  1,757
  1,840
Net income, $m
  1,217
  1,271
  1,311
  1,356
  1,406
  1,461
  1,520
  1,584
  1,654
  1,728
  2,197
  2,282
  2,372
  2,467
  2,568
  2,676
  2,789
  2,910
  3,036
  3,170
  3,312
  3,461
  3,618
  3,783
  3,958
  4,141
  4,334
  4,537
  4,751
  4,976

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  9,541
  9,760
  10,011
  10,293
  10,605
  10,947
  11,320
  11,723
  12,158
  12,625
  13,124
  13,657
  14,224
  14,826
  15,466
  16,144
  16,861
  17,620
  18,422
  19,268
  20,161
  21,103
  22,096
  23,142
  24,244
  25,404
  26,625
  27,909
  29,261
  30,683
Adjusted assets (=assets-cash), $m
  9,541
  9,760
  10,011
  10,293
  10,605
  10,947
  11,320
  11,723
  12,158
  12,625
  13,124
  13,657
  14,224
  14,826
  15,466
  16,144
  16,861
  17,620
  18,422
  19,268
  20,161
  21,103
  22,096
  23,142
  24,244
  25,404
  26,625
  27,909
  29,261
  30,683
Revenue / Adjusted assets
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
Average production assets, $m
  3,068
  3,139
  3,219
  3,310
  3,410
  3,520
  3,640
  3,770
  3,910
  4,060
  4,220
  4,392
  4,574
  4,768
  4,974
  5,191
  5,422
  5,666
  5,924
  6,196
  6,483
  6,786
  7,105
  7,442
  7,796
  8,169
  8,562
  8,975
  9,410
  9,867
Working capital, $m
  -82
  -83
  -86
  -88
  -91
  -94
  -97
  -100
  -104
  -108
  -112
  -117
  -122
  -127
  -132
  -138
  -144
  -151
  -158
  -165
  -172
  -180
  -189
  -198
  -207
  -217
  -228
  -239
  -250
  -262
Total debt, $m
  5,365
  5,563
  5,789
  6,042
  6,323
  6,631
  6,966
  7,330
  7,721
  8,141
  8,590
  9,070
  9,580
  10,122
  10,698
  11,308
  11,954
  12,637
  13,358
  14,120
  14,924
  15,771
  16,665
  17,606
  18,598
  19,642
  20,741
  21,897
  23,114
  24,393
Total liabilities, $m
  8,587
  8,784
  9,010
  9,263
  9,544
  9,852
  10,188
  10,551
  10,942
  11,362
  11,812
  12,291
  12,801
  13,344
  13,919
  14,529
  15,175
  15,858
  16,579
  17,341
  18,145
  18,993
  19,886
  20,828
  21,819
  22,863
  23,962
  25,118
  26,335
  27,614
Total equity, $m
  954
  976
  1,001
  1,029
  1,060
  1,095
  1,132
  1,172
  1,216
  1,262
  1,312
  1,366
  1,422
  1,483
  1,547
  1,614
  1,686
  1,762
  1,842
  1,927
  2,016
  2,110
  2,210
  2,314
  2,424
  2,540
  2,662
  2,791
  2,926
  3,068
Total liabilities and equity, $m
  9,541
  9,760
  10,011
  10,292
  10,604
  10,947
  11,320
  11,723
  12,158
  12,624
  13,124
  13,657
  14,223
  14,827
  15,466
  16,143
  16,861
  17,620
  18,421
  19,268
  20,161
  21,103
  22,096
  23,142
  24,243
  25,403
  26,624
  27,909
  29,261
  30,682
Debt-to-equity ratio
  5.620
  5.700
  5.780
  5.870
  5.960
  6.060
  6.150
  6.250
  6.350
  6.450
  6.550
  6.640
  6.740
  6.830
  6.920
  7.000
  7.090
  7.170
  7.250
  7.330
  7.400
  7.470
  7.540
  7.610
  7.670
  7.730
  7.790
  7.850
  7.900
  7.950
Adjusted equity ratio
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,217
  1,271
  1,311
  1,356
  1,406
  1,461
  1,520
  1,584
  1,654
  1,728
  2,197
  2,282
  2,372
  2,467
  2,568
  2,676
  2,789
  2,910
  3,036
  3,170
  3,312
  3,461
  3,618
  3,783
  3,958
  4,141
  4,334
  4,537
  4,751
  4,976
Depreciation, amort., depletion, $m
  638
  641
  643
  647
  650
  654
  658
  662
  667
  672
  143
  148
  155
  161
  168
  175
  183
  191
  200
  209
  219
  229
  240
  251
  263
  276
  289
  303
  318
  333
Funds from operations, $m
  1,855
  1,912
  1,955
  2,003
  2,056
  2,114
  2,178
  2,247
  2,320
  2,400
  2,340
  2,430
  2,526
  2,628
  2,737
  2,851
  2,973
  3,101
  3,237
  3,380
  3,531
  3,690
  3,858
  4,035
  4,221
  4,417
  4,624
  4,841
  5,069
  5,309
Change in working capital, $m
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
Cash from operations, $m
  1,856
  1,913
  1,957
  2,005
  2,059
  2,117
  2,181
  2,250
  2,324
  2,404
  2,344
  2,435
  2,531
  2,633
  2,742
  2,857
  2,979
  3,107
  3,243
  3,387
  3,538
  3,698
  3,866
  4,044
  4,230
  4,427
  4,634
  4,852
  5,081
  5,322
Maintenance CAPEX, $m
  -102
  -104
  -106
  -109
  -112
  -115
  -119
  -123
  -127
  -132
  -137
  -143
  -148
  -155
  -161
  -168
  -175
  -183
  -191
  -200
  -209
  -219
  -229
  -240
  -251
  -263
  -276
  -289
  -303
  -318
New CAPEX, $m
  -62
  -71
  -81
  -91
  -100
  -110
  -120
  -130
  -140
  -150
  -161
  -171
  -182
  -194
  -206
  -218
  -231
  -244
  -258
  -272
  -287
  -303
  -319
  -336
  -354
  -373
  -393
  -413
  -435
  -457
Cash from investing activities, $m
  -164
  -175
  -187
  -200
  -212
  -225
  -239
  -253
  -267
  -282
  -298
  -314
  -330
  -349
  -367
  -386
  -406
  -427
  -449
  -472
  -496
  -522
  -548
  -576
  -605
  -636
  -669
  -702
  -738
  -775
Free cash flow, $m
  1,693
  1,739
  1,770
  1,806
  1,847
  1,892
  1,942
  1,997
  2,057
  2,121
  2,046
  2,121
  2,200
  2,285
  2,375
  2,471
  2,573
  2,680
  2,794
  2,915
  3,042
  3,176
  3,318
  3,467
  3,625
  3,791
  3,965
  4,149
  4,343
  4,546
Issuance/(repayment) of debt, $m
  -311
  197
  226
  253
  281
  308
  336
  363
  391
  420
  449
  479
  510
  542
  576
  610
  646
  683
  721
  762
  804
  848
  894
  941
  992
  1,044
  1,099
  1,156
  1,216
  1,280
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -311
  197
  226
  253
  281
  308
  336
  363
  391
  420
  449
  479
  510
  542
  576
  610
  646
  683
  721
  762
  804
  848
  894
  941
  992
  1,044
  1,099
  1,156
  1,216
  1,280
Total cash flow (excl. dividends), $m
  1,382
  1,937
  1,996
  2,059
  2,127
  2,200
  2,278
  2,360
  2,448
  2,541
  2,496
  2,600
  2,711
  2,827
  2,951
  3,081
  3,218
  3,363
  3,516
  3,676
  3,846
  4,024
  4,211
  4,409
  4,616
  4,835
  5,064
  5,306
  5,559
  5,826
Retained Cash Flow (-), $m
  -494
  -22
  -25
  -28
  -31
  -34
  -37
  -40
  -43
  -47
  -50
  -53
  -57
  -60
  -64
  -68
  -72
  -76
  -80
  -85
  -89
  -94
  -99
  -105
  -110
  -116
  -122
  -128
  -135
  -142
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  888
  1,915
  1,971
  2,031
  2,096
  2,166
  2,241
  2,320
  2,405
  2,495
  2,446
  2,547
  2,654
  2,767
  2,887
  3,013
  3,147
  3,287
  3,436
  3,592
  3,756
  3,930
  4,112
  4,304
  4,506
  4,719
  4,942
  5,177
  5,424
  5,684
Discount rate, %
  7.30
  7.67
  8.05
  8.45
  8.87
  9.32
  9.78
  10.27
  10.79
  11.32
  11.89
  12.49
  13.11
  13.77
  14.45
  15.18
  15.93
  16.73
  17.57
  18.45
  19.37
  20.34
  21.35
  22.42
  23.54
  24.72
  25.96
  27.25
  28.62
  30.05
PV of cash for distribution, $m
  827
  1,652
  1,562
  1,468
  1,370
  1,269
  1,166
  1,061
  957
  853
  711
  621
  535
  455
  381
  314
  255
  203
  159
  122
  91
  67
  48
  34
  23
  15
  10
  6
  4
  2
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Moody's Corporation (Moody's) is a provider of credit ratings; credit, capital markets and economic related research, data and analytical tools; software solutions and related risk management services, quantitative credit risk measures, financial services training and certification services, and research and analytical services to financial institution customers. The Company operates in two segments: Moody's Investors Service (MIS) and Moody's Analytics (MA). The MIS segment includes its ratings operations. The MA segment develops a range of products and services that support financial analysis and risk management activities of institutional participants in financial markets. The MIS segment includes corporate finance group; structured finance group; financial institutions group; public, project and infrastructure finance, and MIS Other. The MA segment consists of three lines of business: data and analytics business, enterprise risk solutions and professional service.

FINANCIAL RATIOS  of  Moody's Corporation (MCO)

Valuation Ratios
P/E Ratio 153
Price to Sales 11.3
Price to Book -33.4
Price to Tangible Book
Price to Cash Flow 33.3
Price to Free Cash Flow 36.8
Growth Rates
Sales Growth Rate 3.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 29.2%
Cap. Spend. - 3 Yr. Gr. Rate 22.3%
Financial Strength
Quick Ratio 7
Current Ratio 0
LT Debt to Equity -250%
Total Debt to Equity -274.5%
Interest Coverage 5
Management Effectiveness
Return On Assets 6.4%
Ret/ On Assets - 3 Yr. Avg. 16.9%
Return On Total Capital 10.8%
Ret/ On T. Cap. - 3 Yr. Avg. 29.5%
Return On Equity -29.8%
Return On Equity - 3 Yr. Avg. 349.3%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 71.5%
Gross Margin - 3 Yr. Avg. 71.9%
EBITDA Margin 22.8%
EBITDA Margin - 3 Yr. Avg. 39.6%
Operating Margin 17.7%
Oper. Margin - 3 Yr. Avg. 35.4%
Pre-Tax Margin 15.5%
Pre-Tax Margin - 3 Yr. Avg. 33%
Net Profit Margin 7.4%
Net Profit Margin - 3 Yr. Avg. 21.4%
Effective Tax Rate 50.5%
Eff/ Tax Rate - 3 Yr. Avg. 37.6%
Payout Ratio 106.7%

MCO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MCO stock intrinsic value calculation we used $4443 million for the last fiscal year's total revenue generated by Moody's Corporation. The default revenue input number comes from 0001 income statement of Moody's Corporation. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our MCO stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7.3%, whose default value for MCO is calculated based on our internal credit rating of Moody's Corporation, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Moody's Corporation.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of MCO stock the variable cost ratio is equal to 56.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for MCO stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Moody's Corporation.

Corporate tax rate of 27% is the nominal tax rate for Moody's Corporation. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the MCO stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for MCO are equal to 67.7%.

Life of production assets of 29.6 years is the average useful life of capital assets used in Moody's Corporation operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for MCO is equal to -1.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $459.9 million for Moody's Corporation - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 188.805 million for Moody's Corporation is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Moody's Corporation at the current share price and the inputted number of shares is $40.5 billion.

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