RBC Bullish On Moody's, Projects Sustainable Double-Digit Revenue Growth

Moody's Corporation MCO shares traded lower by 1.2% on Thursday in a difficult day for stocks even after Moody’s received some bullish analyst commentary.

The Analyst: RBC Capital Markets analyst Ashish Sabadra initiated coverage of Moody’s with an Outperform rating and $409 price target.

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The Thesis: In the initiation note, Sabadra said an elevated focus on integrated risk management should drive sustainable double-digit revenue growth for Moody’s.

“Secular trends for credit issuance and pricing increases bode well for high-single-digit revenue CAGR for the MIS (ratings) business in the medium term despite the near-term headwinds,” Sabadra said.

Even after factoring in strategic investments and M&A opportunities, Sabadra said he expects Moody’s will continue to grow its margins in the medium-term.

At the same time, buybacks will provide a boost to EPS, and Sabadra said there could be an upside to Moody’s guidance of low-teens earnings growth.

Sabadra estimates Moody’s risk assessment total addressable market is valued at about $35 billion. Moody’s Analytics has grown at roughly a 12% annual rate since 2008, and RBC estimates about 63% of that growth has been organic.

Sabadra said investors should anticipate a year-over-year decline in credit issuance this year given the difficult year-over-year comps. However, he said secular trends should drive normalized, post-pandemic credit issuance growth above global GDP growth rates.

On the M&A front, Sabadra said investors should expect Moody’s will continue to focus on deals in the tuck-in to medium-sized range, specifically targeting data and analytics companies that could supplement its risk-assessment offerings.

Benzinga’s Take: If RBC’s bullish take on Moody’s doesn’t inspire full confidence in the stock, Moody’s also has another extremely high-profile Wall Street Bull. Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) currently holds about $9.2 billion in Moody’s stock, making it Buffett’s sixth-largest public stock investment.