MCO Investment Analysis Report & Stock Research, Moody's Corp.

Ockham's Rating/Recommendation Summary

Rating specific information requires Premium Access.
Buy Now or Learn More about Ockham's Features and Services.

MCO Revenue

As a value investing shop, we are interested in seeing how MCO's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 7.95x and the low end of the range at 4.45x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for MCO of 3.77x is well below its normal historic Price to Sales levels. At a price of $27.34, MCO is 40% below where we would expect to see it. Clearly, this stock looks undervalued compared to historical levels, at least on a Price to Sales basis. This will positively affect our analysis because it is rare to find a stock this far below historical norms, and we would expect some price appreciation to bring this metric back towards a more normal range.

MCO Cash Earnings

As a value investment framework, Ockham Research is similar to a private equity firm in terms of our valuation methods. We are always on the lookout for value in the form of sales and cash numbers. In the case of MCO, Ockham views their current Cash Earnings as significantly below its historical average multiple of cash earnings as calculated by Ockham. Similar to our analysis of sales per share, Ockham looks at the last 10 years of cash earnings levels for MCO to identify where the current high and low price levels have been historically in relation to profit per share. Again, we utilize a weighted average methodology which relies more heavily on recent years of data. This weighted average framework provides us with an average high Price to Cash Earnings ratio per share of 24.73 and a 13.67 low over the same period.

Now that MCO’s current price is $27.34 and its Price to Cash Earnings ratio is 13.74, we are very positive on its outlook from the cash earnings perspective. In fact, MCO is now trading a full 29% below its average historical Price to Cash Earnings ratio at these profit per share levels. When our clients ask us why MCO has great long term potential, the Cash Earnings levels to current stock is one of our primary reasons. But naturally, now we need for the overall market to recognize this disparity.

MCO Dividends

A strong dividend payment history is looked upon as a favorable characteristic on a company’s future and potentially can receive a positive Ockham rating. That being said, we don't require dividend payments for company's whose management has elected to forgo them entirely.

When reviewing dividend yields for MCO, we compare the historic high and low levels over the past, which is similar to our evaluation of Sales and Cash Earnings per share. Paying a dividend is not necessary for any company, but changes in dividend often can lend clues as to the health of the business. A rising dividend is a strong sign for an established company, as it reflects management's confidence in the company. MCO’s estimated annual dividend is $0.42 resulting in a current dividend yield of 1.54%. The highest dividend yield from MCO over recent history was 2.70% while the lowest dividend yield was 0.30%. Management at MCO has encouraged us with a current dividend yield of 2.67% above the historical median.