Moody's CorporationMCONYSE

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $253.06 per share(market-calibrated)

-46.0%

Upside to Fair Value

Current

$468.35

Pure Model

$233.14

Fair Value

$253.06

Bull Case

$297.60

Bear Case

$175.03

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

7.49%

Calibrated Growth

4.25%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $233.14.

What's Driving This Ratingfor MCO

↓

CapEx normalizing toward maintenance

Historical CapEx is 3.46% of revenue (heavy investment phase). Model fades this to 1.50% by Year 10, freeing up ~$253M in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 41.26% — below the sector mature average of 44.77%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $5.3B (41.26% margin).

→

Moderate revenue growth

Analyst consensus projects 7.43% revenue growth, fading to 2.50% by Year 10. Revenue reaches $12.9B (vs $7.7B today).

🎯

Market pricing in higher long-term growth

To justify $468.35, the market implies 7.49% perpetual growth — 499bps above the model's 2.50%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 77.60% indicates efficient cash generation. FCF reaches $4.6B by Year 10 (35.78% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.44

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)10.98%

Cost of Debt

Pre-tax Cost of Debt2.88%

Tax Rate21.34%

After-tax Cost of Debt2.27%

Equity Weight (E/V)91.94%

Debt Weight (D/V)8.06%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (91.94% × 10.98%) + (8.06% × 2.27%)

= 10.27%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$8.3B	$9.6B	$10.6B	$11.7B	$12.9B
EBIT	$3.4B	$4.0B	$4.4B	$4.8B	$5.3B
Tax	$730M	$844M	$930M	$1.0B	$1.1B
NOPAT	$2.7B	$3.1B	$3.4B	$3.8B	$4.2B
+ Depreciation	$402M	$465M	$512M	$568M	$626M
- Capex	$287M	$290M	$274M	$252M	$194M
- Δ NWC	$6M	$7M	$7M	$6M	$3M
Free Cash Flow	$2.8B	$3.3B	$3.7B	$4.1B	$4.6B
Discount Factor	0.907	0.746	0.613	0.504	0.376
Present Value	$2.5B	$2.4B	$2.2B	$2.1B	$1.7B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$4.6B

Terminal Growth Rate2.50%

WACC10.27%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$60.9B

PV of Terminal Value$22.9B

Exit Multiple Method

Year 10 EBITDA$6.0B

Exit Multiple (EV/EBITDA)12.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$71.4B

PV of Terminal Value$26.9B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$21.8B

PV of Terminal Value$22.9B

Enterprise Value$44.7B

(-) Net Debt$5.0B

Equity Value$39.8B

Shares Outstanding179M

Price per Share$222.08

Exit Multiple Method

PV of Projected FCFs$21.8B

PV of Terminal Value$26.9B

Enterprise Value$48.7B

(-) Net Debt$5.0B

Equity Value$43.7B

Shares Outstanding179M

Price per Share$244.19

Pure Model Fair Value

$233.14

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.50%	2.00%	2.50%	3.00%	3.50%
8.27%	$283.78	$291.20	$299.90	$310.26	$322.78
9.27%	$251.62	$256.75	$262.64	$269.47	$277.48
10.27%	$225.30	$228.98	$233.14	$237.87	$243.29
11.27%	$203.22	$205.94	$208.97	$212.37	$216.20
12.27%	$184.37	$186.42	$188.69	$191.20	$193.99

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$175.03

-62.6% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.80

Base Case

$233.14

-50.2% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 1.44

Bull Case

$297.60

-36.5% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 1.22

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Financial Services Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth7.43%

Year 3 Revenue Growth7.51%

Year 5 Revenue Growth6.51%

Year 7 Revenue Growth4.91%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin41.26%

Terminal EBIT Margin44.77%

Tax Rate21.34%

Historical Capex / Rev3.46%

Terminal Capex / Rev1.50%

NWC / Revenue1.02%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 12x EV/EBITDA (Financial Services sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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