Chuck Akre’s ‘Three-Legged Stool’ Approach and His Top 5 Stock Picks

2. Moody’s Corporation (NYSE:MCO)

Akre Capital Management’s Stake Value: $1.9 billion

Percentage of Akre Capital Management’s Portfolio: 13%

Number of Total Hedge Fund Holders: 56

Moody’s Corporation (NYSE:MCO) is a financial-services corporation. It is the holding company for Moody’s Investment Services, a credit rating and risk assessment company and Moody’s Analytics, a provider of analytics software and data driven financial insights. 

In the Q1, 2022 results, Moody’s Corporation posted a revenue of $1.52 billion, exceeding consensus estimates by $17 million while its EPS was in line with what analysts had estimated, at $2.89.

Moody’s was downgraded from ‘Overweight’ to ‘Neutral’ by Atlantic Equities analyst, Simon Clinch, who set a price target of $298 for the stock, down from $370. 

Clinch told investors in a research note that S&P Global Inc. “recently rang the alarm bell” on global issuance by suspending fiscal guidance for 2022. The analyst says the magnitude of the weakness in global issuance was further explained by both S&P Global and Moody’s Corporation at last week’s conferences. The “uniqueness of the macro and geopolitical risks today creates exceptionally low visibility with too wide a range of outcomes,” wrote Clinch. 

Qualivian Investment Partners mentioned Moody’s in their Q2, 2021 investor letter. Here’s what they said:

“Moody’s: Revenue, operating profit margins, and EPS all exceeded expectations, and annual guidance for these items (and for free cash flow) was raised. In MIS (Moody’s Investors Service) which houses the traditional ratings business, the outlook for debt issuance was raised for the remainder of the year, while MA (Moody’s Analytics) also came in ahead of expectations. The company leveraged strong revenue growth with strong operating profit margin improvement of 200 bps, with EPS coming in $0.22 ahead of consensus estimates. Management alluded to having interesting opportunities in their M&A pipeline, which we will have to assess when the time comes, but Moody’s management team has been very effective at allocating capital in the past toward value-creating bolt-on acquisitions, especially in their Moody’s Analytics business, a key growth driver for the company.”