- Investors may be wondering if Moody's current share price really reflects what the business is worth, especially after a strong multi year run and the recent pullback.
- The stock closed at US$438.67, with a 1.6% decline over the last 7 days, a 2.9% gain over 30 days, a 12.1% decline year to date, and returns of a 3.9% decline over 1 year, 54.6% over 3 years, and 54.4% over 5 years.
- Recent news flow around credit markets, interest rate expectations, and issuance volumes has kept attention on businesses like Moody's that sit at the heart of credit ratings and analytics. These developments help explain why the share price has seen swings as investors reassess both risk and long term growth potential.
- Moody's currently has a valuation score of 1 out of 6. The next sections will walk through what that means across different valuation methods and then finish with a framework that can help you interpret those signals in a more complete way.
Moody's scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
Approach 1: Moody's Excess Returns Analysis
The Excess Returns model looks at how much profit a company is expected to earn over and above the return that shareholders require, then links that to the value of its equity today.
For Moody's, the model starts with a Book Value of $22.83 per share and a Stable EPS estimate of $19.80 per share, based on weighted future Return on Equity estimates from 7 analysts. The implied Average Return on Equity is 69.47%, compared with a Cost of Equity of $2.28 per share. That gap produces an Excess Return of $17.52 per share, which is what this framework treats as value created beyond the required shareholder return.
The Stable Book Value used in the model is $28.50 per share, sourced from weighted future Book Value estimates from 5 analysts. Combining these inputs, the Excess Returns model produces an intrinsic value estimate of about $411.31 per share.
Against the recent share price of $438.67, this implies Moody's is around 6.7% overvalued. This sits well within a reasonable margin of error for this type of analysis.
Result: ABOUT RIGHT
Moody's is fairly valued according to our Excess Returns, but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.
Approach 2: Moody's Price vs Earnings
For a profitable business like Moody's, the P/E ratio is a common way to think about valuation because it links what you pay today to the earnings the company is already generating. Investors usually accept a higher P/E when they expect stronger growth or view the earnings as relatively predictable, and a lower P/E when growth is modest or the risks feel higher.
Moody's currently trades on a P/E of 31.75x. That sits above the Capital Markets industry average P/E of 25.82x and the peer average of 27.54x, which suggests the market is currently paying a higher price for each dollar of Moody's earnings than for many peers.
Simply Wall St's Fair Ratio for Moody's is 17.52x. This proprietary metric aims to estimate what a "normal" P/E might look like after accounting for factors such as earnings growth, profit margins, market cap, risk profile and the industry Moody's operates in. Because it adjusts for these elements, the Fair Ratio can be more tailored than a simple comparison against broad industry or peer averages. Compared with the current P/E of 31.75x, the Fair Ratio points to Moody's trading at a richer multiple than this framework would suggest.
Result: OVERVALUED
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Upgrade Your Decision Making: Choose your Moody's Narrative
Earlier the article mentioned that there is an even better way to understand valuation. This is where Narratives come in, a simple tool on Simply Wall St's Community page that lets you attach a clear story about Moody's future to concrete assumptions about revenue, earnings, margins and fair value. You can then compare your Fair Value to the current price to decide whether the stock fits your buy or sell plan. Each Narrative updates automatically when fresh information such as earnings or news is added. One investor might build a Moody's story around strong operating margins, high returns on capital and a wide moat to arrive at a Fair Value of about US$551.41 per share. Another might focus more on regulatory and technology risks and current analyst assumptions to land closer to US$475.00. Both can see in one place how their story, numbers and valuation link together.
Do you think there's more to the story for Moody's? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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