MCO - Embedded Expectations Analysis - 2020 03 24
Moody's Corporation (MCO:USA) currently trades at recent averages relative to UAFRS-based (Uniform) Earnings, with a 19.6x Uniform P/E, implying bullish expectations for the firm. However, management may be concerned about their revenue growth, credit markets, and RDC acquisitionSpecifically, management may lack confidence in their ability to sustain growth in their US High-yield bond, ERS segment, and China-related revenues, and they may also lack confidence in their ability to expand their free cash flow, and identify cost efficiencies. Furthermore, they may be concerned about investment-related margin headwinds, flat leveraged loan expectations, and geopolitical uncertainty surrounding the US presidential election. They may also be exaggerating the strength of Moody's Analytics' fixed income investor base and the potential of their RDC acquisition to help build an efficient one-stop solution for compliance needs. Finally, they may be concerned about shifts in their ERS business, and they may be overstating their ability to normalize incentive compensation and return capital to shareholders through stock buybacks and dividends
Moody's is a provider of credit ratings and assessment services; credit, capital markets and economic research, data and analytical tools; software solutions that support financial risk management activities; quantitatively derived credit scores; learning solutions and certification services; and company information and business intelligence products. The company's segments are: Moody's Investors Service, which publishes credit ratings on a range of debt obligations and the entities that issue such obligations in markets worldwide; and Moody's Analytics, which provides financial intelligence and analytical tools to assist businesses in making decisions.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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