Moody's Aiming For Analytical Business Leadership With GenAI: Oppenheimer Analyst

Oppenheimer analyst Owen Lau reiterated an Outperform rating on Moody's Corporation MCO, with a price target of $362.

MCO has been using traditional AI in early default warning alerts, contract pricing, and modeling for years. The analyst thinks there will be a steep change in utilizing GenAI. 

The analyst applauds MCO's implementation of its proprietary GenAI tools across the entire organization further to enable innovation in a controlled and secure manner.

However, Lau cautioned that GenAI is an enabler of workflow and not a substitute for credit analyst. The credit review process stays the same, but credit analysts can use GenAI to gather and analyze information quickly. 

Lau thinks information services companies such as MCO are well positioned to leverage GenAI and LLM to improve their competitive strength.

With GenAI, MCO expects revenue "uplift opportunities" to come from enhanced products and new channels, notes the analyst.

Partnership with Microsoft Corporation MSFT also allows MCO to gain new customers through the Microsoft ecosystem, Lau adds.

The analyst thinks MCO strives to become a leader in the analytical business, leveraging its strong fundamentals, including oligopolistic positions in Ratings, a scalable platform, and shareholder-friendly capital return policies to support a premium valuation.

Based on the above, Lau expects 2Q23 revenues to increase by 9.8% Y/Y to $1.52 billion. Diluted EPS GAAP is expected to be $2.13, higher than $1.77 a year ago.

Price Action: MCO shares are trading lower by 0.07% to $341.98 on the last check Friday.