Moody's Stock Down 8.2% in a Month: Should You Invest Now or Wait?

Moody’s Corp. MCO stock has not been able to remain unaffected by the recent broader market downturn. In the past month, its shares have lost 8.2%. The stock has underperformed the industry,  the Zacks Finance industry and the S&P 500 index.  Also, the stock has fared worse than its peers — Equifax Inc. EFX and MSCI Inc. MSCI.One-Month Price PerformanceImage Source: Zacks Investment ResearchThe recent market slump has been primarily caused by the ongoing tariff war, as President Trump’s tariffs have led to retaliation, raising concerns about a full-scale trade war. Also, economic data reveals a slowdown in the U.S. economy. Inflationary pressure has been high, too. These factors resulted in ambiguity and fear in the market, exacerbating the downturn.Given the uncertain and volatile backdrop, let us decipher whether MCO stock is worth adding to your portfolio.Factors to Drive Moody’s StockBusiness Expansion Initiatives: Moody’s continues to expand its business in areas other than the core credit ratings service. In January 2025, 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.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 Global Credit Rating Company Limited to deepen its presence in Africa’s domestic credit market.Further, Moody’s has enhanced its exposure to the banking and insurance industries and is diversifying into fast-growing professional services and enterprise risk solutions businesses. The growing contribution of the analytics business, which is uncorrelated with interest rate fluctuations, has provided stability to revenue growth.Though the company’s revenues declined in 2022 because of weakness in bond issuance volumes, the same witnessed a five-year (2019-2024) compound annual growth rate (CAGR) of 8%.Revenue TrendImage Source: Zacks Investment ResearchThe company’s revenue growth is likely to continue, given the improved mix, the low-risk nature of its product portfolio, and the rebound in bond issuance volumes alongside strategic buyouts. The company expects revenues to grow in the high single-digit percentage range in 2025.Sales EstimatesImage Source: Zacks Investment ResearchRobust Balance Sheet & Liquidity: As of Dec. 31, 2024, Moody's cash and cash equivalents and short-term investments totaled $2.97 billion. It had a total debt of $7.4 billion and an undrawn revolving credit facility of $1.25 billion as of the same date. These will enable it to continue pursuing growth opportunities. Moody’s expects cash flow from operations in the $2.75-$2.95 billion range, while free cash flow is projected to be in the band of $2.40-$2.60 billion this year.With its decent liquidity position, MCO has regularly paid dividends. Over the past five years, it has raised dividends five times, with the most recent increase of 11% to 94 cents per share announced in February. The company has a dividend payout ratio of 27%.Dividend YieldImage Source: Zacks Investment ResearchSimilarly, MSCI has increased its dividends six times in the last five years, while EFX has not increased it during the same period.Further, Moody’s has a share repurchase plan in place. As of Dec. 31, 2024, the company had nearly $1.6 billion worth of shares available, with no expiration date. For 2025, the company plans to buy back at least $1.3 billion worth of shares.Bullish Analyst Sentiments for MCO StockOver the past two months, the Zacks Consensus Estimate for 2025 and 2026 earnings of $13.89 and $15.60, respectively, has been revised 4.1% and 3.4% upward.Estimate Revision TrendImage Source: Zacks Investment ResearchThe projected figures imply growth of 11.4% and 12.3% for 2025 and 2026, respectively.Moody’s expects 2025 adjusted earnings to be in the range of $14.00-$14.50 per share compared with $12.47 per share in 2024. On a GAAP basis, earnings are projected to be within $12.75-$13.25 per share. Find the latest EPS estimates and surprises on Zacks Earnings Calendar.Is Now the Time to Buy Moody’s Shares?Moody’s is well-positioned for growth, given its business expansion initiatives through opportunistic acquisitions and strategic collaborations. Also, the company’s growing share of analytics revenues and decent liquidity position are tailwinds. Also, analysts are bullish on the stock. However, a steady rise in expenses is a headwind. The company recorded a five-year CAGR of 7.6% (ended 2024) due to higher selling, general and administrative costs. Overall expenses are expected to be elevated in the near term due to the company’s inorganic expansion efforts, investments in franchises and inflationary pressure. Further, heightened regulatory scrutiny will likely lead to higher compliance costs. This year, the company expects operating expenses to rise in the low-to-mid-single-digit percent range.The company approved the Strategic and Operational Efficiency Restructuring Program in December 2024 to simplify its operations to drive profitability and reallocate some investment capacity to strategic growth areas. Though the program is expected to result in total annualized cost savings in the range of $250 million to $300 million upon completion of the plan, the company will likely incur between $200 million and $250 million in restructuring charges by 2027, primarily in personnel-related costs. This will hurt profitability in the near term.Expense TrendImage Source: Zacks Investment ResearchIn terms of valuation, Moody’s price-to-book ratio (P/B) of 22.35X is higher than the industry's 2.62X. Thus, the stock is trading at a premium. This suggests that investors may pay a higher price than the company's expected earnings growth.P/B RatioImage Source: Zacks Investment ResearchThus, investors should watch out for these concerns and monitor how Moody’s integrates the acquisitions into its businesses and generates solid profits before making any investment decision. Those who already own the stock can hold on to it for robust long-term gains.Currently, MCO carries a Zacks Rank #3 (Hold). 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(EFX): Free Stock Analysis Report MSCI Inc (MSCI): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks