Moody’s Corporation (NYSE:MCO), featured in Insider Monkey’s 10 Best Financial Stocks to Buy According to Warren Buffett, has an opportunity beyond rating debt when it is issued. Private lenders need to track borrowers throughout a loan’s life. Selling that monitoring through subscriptions could make earnings less dependent on new financing.
Moody’s Corporation trades at a forward P/E of 24x, versus 30x trailing and roughly 25x forward for MSCI Inc. (NYSE:MSCI). Trailing P/E uses earnings from the past twelve months; forward P/E uses forecast earnings. The valuation looks reasonable if recurring earnings keep expanding. The peer’s second-quarter 2026 GAAP operating margin was 56%, compared with 48% here. Its asset-based index fees fluctuate with markets, while ratings fees depend on issuance. Similar multiples therefore price different sources of earnings risk.
For Moody’s Corporation, stronger ratings activity and improving Analytics margins support earnings growth. Separately, management’s fiscal 2026 adjusted EPS guidance of $16.50–$17.00 implies approximately 12% growth over 2025 at the midpoint. Reported second-quarter earnings included $0.72 per share of divestiture gains; adjusted earnings exclude those gains, acquisition amortization, and restructuring. Forecast periods and accounting adjustments also affect P/E comparisons. Investors should examine the cash behind durable customer relationships.
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Risk Monitoring Continues After a Loan Closes
Moody’s Corporation launched its EDF-X Private Credit Model with Allvue Systems, LLC on October 1. It uses borrower-performance data to estimate both missed-payment risk and earlier warning events, including covenant waivers and payment-in-kind arrangements. These analytical signals are separate from issuer credit ratings.
As private lending expands, fragmented borrower disclosures make consistent portfolio comparisons harder. Monitoring remains useful when originations slow because existing loans still require oversight. For customers, better borrower information must improve lending economics; earlier intervention and less manual review could justify recurring fees. Contract design matters: fixed platform subscriptions would be steadier than charges linked to new deals or portfolio size. Renewals must survive weaker fundraising and tighter customer budgets.
Moody’s Corporation already has a subscription foundation. Analytics annualized recurring revenue reached $3.7 billion in the second quarter, up 9% organically at constant currencies, with trailing 12-month retention of 95%. Recurring revenue represented 99% of segment sales. Adjusted operating margin improved to 33.6% from 32.1%. Private credit must build on this base; its subscription revenue is not separately disclosed.
Turning Better Information Into Pricing Power
Moody’s Corporation can combine broad credit models with de-identified private-credit performance data from Allvue Systems, LLC. That provides a potential advantage over an investment manager’s narrower internal history. Embedding alerts in monitoring and reporting workflows could increase switching costs and support renewals.
For Moody’s Corporation, pricing power still depends on information customers cannot readily reproduce. Large managers can retain internal systems, and cheaper AI-assisted analysis could pressure generic reporting fees. Data licensing, model validation, and customer integration also consume resources. The relevant test is whether recurring software revenue leaves more cash after reinvestment.
Moody’s Corporation must convert subscription growth into cash. First-half free cash flow increased 34% to $1.53 billion, after capital spending. Yet management cut annual free-cash-flow guidance by $100 million to $2.7 billion–$2.9 billion, citing working capital and restructuring. Cash tied up in receivables or restructuring is unavailable for product development or shareholder returns. Subscription growth must cover those demands alongside investment in reliable data and software.
Conclusion
Moody’s Corporation looks fairly valued at 24x forward earnings. Private credit can strengthen earnings durability if customers keep paying for monitoring through weaker lending periods. Sustaining the valuation requires strong retention, high-single-digit recurring growth, and progress toward the guided 34%–35% Analytics-adjusted operating margin. Falling renewals or repeated cuts to cash-flow expectations would weaken the case, even if private-credit assets keep growing.
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This article is originally published at Insider Monkey.
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