A large-cap financial services company, Moody’s (MCO) provides credit ratings on 11,000 corporate issuers and 18,000 public finance issuers in 120 countries, notes John Eade, an analyst with Argus Research, a leading independent Wall Street research firm.

Its analytics division provides clients with financial analysis and risk management services. The company has an impressive track record, with historical compound annual growth rates for sales and EPS in the low double-digit range. We expect Moody’s to benefit over the long run from the secular trends of global GDP growth and debt market disintermediation.

Management also has opportunities to develop new products and raise margins, and to expand through targeted acquisitions. Management recently navigated through a legal issue involving the company’s performance during the financial crisis.

The company now faces COVID-19-related risks related to defaults in the corporate bond market and uneven conditions in corporate debt issuance as interest rates rise. However, we think that management will be able to navigate through these challenges as well.

The MCO share price has risen steadily over the past five years, as have earnings. Moody’s recently reported 3Q adjusted EPS that were flat year-over-year but topped analyst expectations.

Along with the 3Q report, management raised its 2021 guidance for the third time. It expects low-teens revenue growth, up from its earlier forecast of mid-single-digit growth, and adjusted EPS of $12.15-$12.35, up from its prior forecast of $11.55-$11.85.

We think that MCO shares are attractively valued at current prices near $404. The shares have traded between $259 and $407 over the past 52 weeks and are currently near the high end of the range.

From a technical standpoint, apart from the pandemic selloff, the shares have been in a bullish pattern of higher highs and higher lows since December 2018. Looking ahead, we expect solid earnings growth, multiple expansion, and a higher share price as the company continues to refine its business model.

We have examined a group of the company’s publicly traded peers, including Morningstar, IHS Markit, FactSet Research Systems, and S&P Global, among others. Moody’s trades at a P/E of 30-times our 2022 EPS estimate, below the peer average.

On price/sales, the stock is trading at a multiple of 12, near the high end of the peer group range of 6-13. However, we believe this is warranted given the company’s record of high profitability and consistent growth. Blending our approaches, we arrive at a revised target price of $450.

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