Is Moody's Stock a Buy Now?

The latest quarterly update from Moody's (NYSE: MCO) delivered mixed signals for investors to interpret. For the period ended March 31, the financial services intelligence giant posted an 8% year-over-year increase in quarterly revenue, while adjusted earnings per share (EPS) were up 14% to $3.83, with both metrics surpassing Wall Street estimates.

On the other hand, a revision lower in the company's full-year profit guidance overshadowed the report, adding to a volatile start for the stock in 2025. Shares of Moody's are currently down about 19% from its 52-week high at the time of writing amid renewed economic uncertainties.

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Does the recent weakness offer investors a buy-the-dip opportunity, or could it signal the potential for more downside ahead? Let's discuss what to do with Moody's stock now.

Rock-solid fundamentals

Moody's is recognized for its financial analytics technology platform that includes credit ratings, investment research, and technical market data. The company has capitalized on a global trend as corporations, financial institutions, and government agencies increasingly outsource critical parts of their investing workflow as a more cost-effective approach.

The company has captured strong demand for its cloud-based subscriptions and data licensing agreements amid the bull market in financial assets in recent years. These high-level themes were evident as Moody's started fiscal 2025 with strong performance. The company kicked off the year on a high note.

Image source: Getty Images.

With record revenue and earnings in the first quarter, the Moody's Investor Service (MIS) segment, which issues credit ratings, has been a growth driver. Momentum in global bond issuances, alongside favorable market conditions between tight credit spreads and lower interest rates as the key indicator for ratings demand, propelled Q1 MIS revenue up by 8% year over year.

Additionally, results from the Moody's Analytics (MA) group have been solid with a 9% increase in annualized recurring revenue (ARR) at the end of Q1, coupled with a 93% retention rate, suggesting durable growth. Profitability is another highlight. Moody's adjusted operating margin reached 51.7%, up 100 basis points over the past year.

Strong free cash flow has allowed Moody's to hike its dividend by 11% to the new quarterly rate of $0.94 per share, yielding 0.9%. The company has also been active with stock buybacks, including $1.2 billion remaining under an existing authorization to repurchase shares. Overall, beyond the stock market turbulence, Moody's fundamentals remain solid.

A more cautious outlook

While it was largely business as usual for Moody's at the start of the year, the company now faces the challenge of navigating a rapidly evolving operating environment. Recent changes to U.S. trade policy have rocked markets, with experts predicting disruptions to the economy, forcing some businesses to rethink their investment plans.

For Moody's, the concern is that a slowdown, particularly in global debt issuances, could directly impact its credit ratings business while limiting new growth opportunities. The company is taking these risks seriously and has tempered its full-year growth and earnings expectations.

Compared to a prior 2025 revenue growth estimate in the high single digits, Moody's now expects just a mid-single-digit percentage increase. Similarly, the full-year target for adjusted EPS guidance was lowered to a range of $13.25 to $14, from the prior $14 to $14.25 estimate issued earlier in the year.

Data source: Moody's Corp.

Despite Moody's overall solid fundamentals, including an outlook for continued profitable growth, the clear slowdown compared to stronger trends in 2024 has made it more difficult for investors to justify the stock's valuation premium. Even following the sharp sell-off from recent highs, shares of Moody's are trading at a price-to-earnings (P/E) ratio of 38, above the five-year average multiple of around 35. As such, the stock seems relatively expensive with room for the price to fall a bit further before standing out as a clear bargain.

MCO PE Ratio data by YCharts

A wait-and-see approach

I believe shares of Moody's are simply too pricey to buy today, considering its subdued outlook. There are likely enough strong points for current shareholders to continue holding, but investors watching from the sidelines may find more compelling opportunities elsewhere in the stock market that offer better value and greater upside potential.

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Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Moody's. The Motley Fool has a disclosure policy.