How We Analyze Moody's

How we analyze Moody's: the business first

How we analyze Moody's is the way we analyze any company: business quality first, then the balance sheet, then valuation, then the long-term record. The order is deliberate, and none of the four steps is optional. Moody's does two things: it rates the creditworthiness of bonds and their issuers, and it sells credit data, research and risk software. The first is one of the best businesses in the world; the second is a steady, growing complement. You can follow along in the live Moody's report on Tenet, which pulls the same figures used below.

Understanding Moody's means understanding that it sells trust and judgment, not a product with a factory behind it. When a company or government wants to borrow money at a good rate, it needs a credit rating that big investors recognize, and only a couple of firms can supply one. That position is the heart of the business.

The ratings duopoly and why the moat is so wide

Moody's core moat is its place in a duopoly. Together with S&P Global, Moody's rates the large majority of the world's rated debt, and a third player is a distant follower. The advantage is unusually durable for three reasons that reinforce each other. Regulation and long-standing investor practice make a rating from one of these firms close to mandatory for many bond sales. Reputation built over a century means investors trust their letter grades. And an issuer must pay the agency to be rated, so the customer funds the very toll that stands in its way. This is the kind of entrenched edge covered in identifying competitive advantages (moats).

The financial signature of that moat is high margin on little capital. In fiscal 2025 Moody's reported revenue of about $7.7 billion and operating income that produced an operating margin near 45 percent. A ratings business needs analysts and computers, not factories or inventory, so once the franchise exists it converts a large share of revenue into profit. The way to read a margin like that is explained in operating margin.

There is a subtle strength here that is easy to miss. The ratings business is not just profitable; it barely consumes capital. Moody's does not need factories, inventory or a large asset base to rate a bond, so nearly every dollar of profit is free to be paid out or reinvested. A business that grows without swallowing capital can return almost all its earnings to shareholders and still expand, which is one reason its returns on the capital it does use are extraordinarily high. This is the hallmark of a truly asset-light franchise, and it is rarer than it sounds.

The risk to the moat is less about competition than about reputation and regulation. The ratings agencies were widely blamed for the 2008 financial crisis, when highly rated mortgage securities collapsed, and a serious failure or a regulatory overhaul could dent the trust the whole model rests on. There is also a slower structural question: if borrowers increasingly raise money through private lenders that do not require a public rating, some issuance could bypass the agencies entirely. Neither threat has broken the model, but the moat depends on a credibility and a market structure that are easier to lose than to rebuild, and an honest analysis keeps both in view rather than assuming the franchise is permanent.

Cyclical ratings versus recurring analytics

The most important thing to understand about Moody's numbers is that its two segments behave very differently. Moody's Investors Service, the ratings arm, earns fees when companies and governments issue new debt. That means its revenue rises and falls with issuance volume, which in turn tracks interest rates and market conditions. When borrowing is cheap and markets are open, issuance booms and ratings revenue surges; when rates spike or markets freeze, issuance dries up and ratings revenue falls. In fiscal 2025 the ratings segment produced roughly $2.9 billion of revenue, the cyclical half of the company.

Moody's Analytics is the counterweight. It sells credit data, economic research and risk-management software, mostly through subscriptions that renew year after year. In fiscal 2025 it generated roughly $4.8 billion of revenue, and because it is recurring, it grows more smoothly and does not collapse when bond issuance stalls. This is the recurring-revenue quality explored in recurring revenue business models, and it is why Moody's today is steadier than the pure ratings agency it once was. A careful analyst values the two streams differently: the ratings business as a wide-moat but cyclical toll, the analytics business as a stickier subscription franchise. Judging how the cyclicality affects the whole is part of weighing a company's business risks.

The balance between the two segments has shifted over the years, and that shift matters for how the stock behaves. A decade ago ratings dominated the revenue mix, which made Moody's earnings swing sharply with the bond market. As analytics has grown, often through acquisitions of data providers, the recurring share of revenue has risen, and the company's results have become less violent from year to year. For an investor, that means the Moody's of today deserves a somewhat steadier valuation than the Moody's of the past, though the ratings arm is still large enough that a bad issuance year will always be felt. The direction of that mix, more recurring revenue over time, is one of the most important trends to track in the business.

Balance sheet and valuation discipline

Moody's balance sheet is best described as adequate rather than fortress-like, which is common for a high-return business that returns most of its cash to shareholders. At the end of fiscal 2025 it held about $2.4 billion in cash against total debt near $7.4 billion, leaving modest net debt of around $5 billion. Because the business needs almost no physical capital and generates strong, fairly predictable cash flow, that debt is comfortably serviceable. One quirk worth noting is that years of buybacks have pushed Moody's tangible book value negative, so the balance sheet has to be judged on cash generation rather than on net asset value.

Business quality is only half of an investment decision. The other half is price. In July 2026 Moody's shares traded around $499, giving a market value near $87 billion and a trailing price-to-earnings multiple of about 37 based on fiscal 2025 diluted earnings of $13.67 a share. That is a premium the market has long assigned to the ratings duopoly, and for good reason, but it prices in continued healthy issuance and analytics growth. A prolonged bond-market slump would hit the cyclical half of the company and could compress both earnings and the multiple at once. We keep the quality judgment and the price judgment separate, and never let admiration for the moat answer the question of value. The other half of this duopoly is examined in how we analyze S&P Global.

The long-term record: growth with a cyclical dip

Moody's track record shows both the strength of the franchise and the cyclicality of the ratings half. Over the five fiscal years from 2020 through 2025, revenue grew from about $5.4 billion to $7.7 billion, and net income grew from $1.8 billion to $2.5 billion. Diluted earnings per share climbed from $9.39 to $13.67. The path was not smooth: in 2022, a sharp drop in bond issuance as interest rates rose pulled ratings revenue down and dented total results before the recovery resumed.

Figures are from Moody's fiscal 2025 10-K and Tenet data as of July 2026. Past results do not predict future returns; the record shows what the business has done, not what it will do. The 2022 dip is the clearest lesson in the table: a wide-moat business can still have a bad year when its cyclical driver turns down, which is exactly why the recurring analytics revenue matters so much. The same lens applied to the other ratings giant and to a fellow toll-taking network appears in how we analyze S&P Global and how we analyze Visa.

Where to go from here

Moody's is a clear example of the Tenet lens in action: half of a ratings duopoly that is one of the widest moats anywhere, balanced by a recurring analytics arm, run at high margins, and offered at a premium price with a cyclical soft spot. To see the other half of the duopoly, read how we analyze S&P Global, then open the live Moody's report on Tenet and check the current multiple against the record above for yourself.