• Wondering if Moody's current share price lines up with its underlying worth, or if the market is mispricing it right now? This article walks through the numbers so you can judge the value story for yourself.
• The stock last closed at US$470.05, with returns of a 2.0% decline over 7 days, a 0.2% decline over 30 days, a 5.8% decline year to date, 0.8% over 1 year, 63.3% over 3 years and 68.1% over 5 years. This gives a mixed picture of short term softness and longer term strength.
• Recent coverage of Moody's has focused on its role as a key credit rating and analytics provider, as investors reassess how interest rate trends and debt markets affect firms in this space. Commentary has also highlighted how data and analytics segments can influence sentiment, which helps explain some of the recent share price moves.
• On our valuation checks Moody's scores 0 out of 6 for being undervalued, giving it a 0/6 valuation score. Next we will walk through the main valuation approaches used to assess the stock and then finish with a different way of thinking about value that can tie all of these methods together.

Moody's scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Moody's Excess Returns Analysis

The Excess Returns model looks at how much profit a company is expected to generate over and above the return that shareholders require, then capitalizes those extra profits into an estimate of intrinsic value per share.

For Moody's, the model starts with a Book Value of US$22.83 per share and a Stable Book Value estimate of US$28.50 per share, based on weighted future Book Value estimates from 5 analysts. On this equity base, Stable EPS is estimated at US$19.37 per share, sourced from weighted future Return on Equity estimates from 7 analysts.

The required return for shareholders, or Cost of Equity, is put at US$2.28 per share. The difference between the expected earnings and this required return is the Excess Return, which is US$17.09 per share. With an Average Return on Equity of 67.96%, the model assumes Moody's continues to earn substantially more on its equity than the cost of that equity.

Putting these inputs together, the Excess Returns model produces an intrinsic value of about US$400.81 per share. Compared with the recent share price of US$470.05, this implies the stock is around 17.3% overvalued.

Result: OVERVALUED

Our Excess Returns analysis suggests Moody's may be overvalued by 17.3%. Discover 47 high quality undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Moody's Price vs Earnings

For a profitable company like Moody's, the P/E ratio is a useful shorthand for how much investors are paying for each dollar of earnings. It connects directly to what you see on the income statement and is widely used across the Capital Markets industry.

What counts as a "normal" P/E depends on how the market views a company's growth prospects and risk. Higher expected growth and lower perceived risk usually support a higher multiple, while slower growth or higher uncertainty tend to pull it down.

Moody's currently trades on a P/E of 33.89x. That sits above the Capital Markets industry average of 22.97x and the peer group average of 28.64x. Simply Wall St also calculates a proprietary Fair Ratio of 17.58x for Moody's. This Fair Ratio is designed to reflect what a reasonable P/E could be given factors like earnings growth, profit margins, industry, market cap and risk profile.

Because it pulls all of those company specific drivers together into a single number, the Fair Ratio aims to be more tailored than a simple comparison with industry or peers. When set against the current P/E of 33.89x, the Fair Ratio of 17.58x suggests Moody's shares are trading above what this framework would call fair value.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Moody's Narrative

Earlier we mentioned that there is an even better way to understand valuation. Narratives on Simply Wall St let you turn your view of Moody's into a clear story that links assumptions about future revenue, earnings and margins to a forecast and a fair value. It then constantly compares that fair value to the live share price to help you decide when to buy or sell. All of this happens within an accessible Community page where different investors can share perspectives, such as a more optimistic view that sees fair value around US$575.53 based on assumptions like revenue growth near 7.76%, profit margins around 34.74% and a future P/E of 38.51x, or a more cautious view closer to the lower analyst target of US$475.00. Each Narrative automatically refreshes as new news or earnings arrive.

Do you think there's more to the story for Moody's? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.