Moody’s Corporation (MCO) DCF Valuation: Is The Stock Undervalued? -

Moody’s Corporation (MCO) DCF Valuation: Is The Stock Undervalued?

Jan 17, 2025Jeremy ParkinsonFinance0

As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that is not currently in our screens, Moody’s Corporation (MCO).
ProfileMoody’s Corporation operates as an integrated risk assessment firm worldwide. It operates in two segments, Moody’s Analytics and Moody’s Investors Services. The Moody’s Analytics segment develops a range of products and services that support the risk management activities of institutional participants in financial markets. It also offers credit research, credit models and analytics, economics data and models, structured finance solutions; data sets on companies and securities; and SaaS solutions supporting banking, insurance, and know your customer workflows. The Moody’s Investors Service segment publishes credit ratings and provides assessment services on various debt obligations, programs and facilities, and entities that issue such obligations, such as various corporate, financial institution, and governmental obligations, as well as structured finance securities. The company was formerly known as Dun and Bradstreet Company and changed its name to Moody’s Corporation in September 2000. Moody’s Corporation was founded in 1900 and is headquartered in New York, New York.
Recent PerformanceOver the past twelve months the share price is up 25.66%.Source: Google FinanceInputs

Discount Rate: 10%

Terminal Growth Rate: 2%

WACC: 10%

Forecasted Free Cash Flows (FCFs)

Year FCF (billions) PV(billions) 2024 1.94 1.76 2025 2.05 1.69 2026 2.17 1.63 2027 2.29 1.56 2028 2.43 1.51

Terminal ValueTerminal Value = FCF * (1 + g) / (r – g) = 30.98 billionPresent Value of Terminal ValuePV of Terminal Value = Terminal Value / (1 + WACC)^5 = 19.24 billionPresent Value of Free Cash FlowsPresent Value of FCFs = ∑ (FCF / (1 + r)^n) = 8.16 billionEnterprise ValueEnterprise Value = Present Value of FCFs + Present Value of Terminal Value = 27.40 billionNet DebtNet Debt = Total Debt – Total Cash = 4.71 billionEquity ValueEquity Value = Enterprise Value – Net Debt = 22.69 billionPer-Share DCF ValuePer-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $123.31
Conclusion

DCF Value Current Price Margin of Safety $123.31 $472.1 -282.86%

Based on the DCF valuation, the stock is overvalued. The DCF value of $123.31 per share is lower than the current market price of $472.1. The Margin of Safety is -282.86%.More By This Author:Sasol Ltd: Is This Deeply Undervalued Stock A Hidden Gem?
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