The Henry Fund Henry B. Tippie School of Management Husam Atari [husam-atari@uiowa.edu]

Moody’s Corporation (MCO) October 17, 2016

Commercial Services – Financial Publishing and Services Stock Rating Sell

Investment Thesis Target Price $98.00 We recommend a SELL for Moody’s Corporation (MCO), as we believe it is currently overvalued by 9%. On the one hand, MCO has a commanding market position in the oligopolistic credit ratings space and strong operating margins above 40%. On the other hand, MCO is on pace for a slight decline in EPS this year, after essentially no growth in 2015 and is trading at a large premium relative to its intrinsic value. While we expect solid growth for MCO – five-year CAGR of 8% for operating income – it is not enough to justify the current share price.

Drivers: • MCO is a profitable and dominant player in the credit rating oligopoly. The

high barriers to entry, and MCO’s low physical capital intensity, will enableit to sustain its market position and operating margins at 42% through2021.

• Global GDP should continue to grow in the 3% to 3.50% range for the nextfive years, which will foster an 11% CAGR in new debt issuances, and in turn a 6.50% CAGR in ratings based revenue for MCO through 2021.

• An increasingly granular regulatory landscape and big data basedenvironment will boost demand for MCO’s analytics products and services,triggering an organic 9.60% CAGR in analytics based revenue the next fiveyears.

Risks: • Global GDP could grow at a slower rate than we expect, or even worse tip

into recession, thus hindering global debt markets and MCO’s ratings based revenue.

• Debt/EBITDA levels are reaching all-time highs at 2.3x – if this trendcontinues, the capacity for corporate borrowing may lessen, constrictingMCO’s ability to grow its ratings based revenue at a strong pace.

• The analytics space is much more competitive than the ratings space, andsuch competition could inhibit MCO from achieving the organic growth weforecast for its analytics product and services.

Henry Fund DCF $97.73 Henry Fund DDM $94.82 Relative P/E $112.59 Price Data Current Price $107.08 52wk Range $77.76 – $110.83 Mean 1yr Target $111.50 Key Statistics Market Cap (B) $21B Shares Outstanding (M) 192.3 Institutional Ownership 93.10% Beta 1.46 Dividend Yield 1.38% Est. 5yr Growth 9.57% Price/Earnings (TTM) 23.91 Price/Earnings (FY16E) 23.1 Price/Sales (TTM) Price/Book (mrq)

5.98 N/A

Profitability Operating Margin (TTM) 40.55% Net Profit Margin (TTM) 25.81% Return on Assets (TTM) 17.34% Return on Equity (TTM) N/A

Earnings Estimates Year 2013 2014 2015 2016E 2017E 2018E EPS $3.67 $4.69 $4.70 $4.69 $5.23 $5.80

growth 18.61% 27.97% 0.25% -0.26% 11.51% 10.89% 12 Month Performance Company Description

Moody’s Corporation is a powerhouse in the bond rating world. And since 2007, it has also offered a host of analytics based tools and services. Moody’s is truly a global company, doing business in more than 130 countries. Moody’s generated more than $3.4B in revenues in 2015, and is on pace to surpass $4B by 2018.

Tearsheet sources: Yahoo! Finance; FactSet

21.719.2

13.3

26.1

4.8

12.7

28.6

7.3

17.4

0

5

10

15

20

25

30

P/E (FY15) ROA (FY15) EV/EBITDA (FY15)

MCO Sector Industry

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

O N D J F M A M J J A S

MCO S&P 500

Important disclosures appear on the last page of this report.

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EXECUTIVE SUMMARY

Moody’s presents an interesting dilemma. It is a profitable oligopolist in the credit ratings space, a growing player in the analytics realm, and has solid growth prospects. However, it has struggled to achieve accelerated EPS growth since 2014 and its shares are overpriced per our DCF/EP and DDM models.

More specifically, we foresee nearly 8% CAGRs for revenue and operating income, and a CAGR over 10% for EPS through 2021. We also expect it to sustain its impressive operating margins of 42% during that time. Despite such growth and profitability built into our DCF/EP and DDM models, we still get an intrinsic value ranging from $95 to $98 – 9% to 12% lower than its current trading price.

Thus, it seems that Moody’s an investment that requires patience for a better entry point – a great company but a poor investment as of right now. Therefore, our current recommendation is SELL.

COMPANY DESCRIPTION

Moody’s corporation (MCO) is the combination of two operating segments: Moody’s Investors Services (MIS) and Moody’s Analytics (MA). MIS publishes credit ratings, opinions, and research on a wide range of debt commitments and entities that issue such securities.i MIS rates and analyzes debt from 130 countries, 11,000 corporate issuers, 21,000 public finance issuers, and 76,000 structured finance obligations.ii Geographically, MIS makes about 63% of its revenue domestically, and 37% internationally. MA offers a suite of products and services that assist institutions with financial analysis and risk management activities.iii Such products and services include distributing research and internally developed data, software solutions, analytical services, and financial training and certification programs. MA customers comprise nearly 5,000 institutions spanning 140 countries. Geographically, MA is a bit more internationally focused than MIS with 46% of its revenue US based and 54% international. Overall, MIS made up 68% and MA the other 32% of MCO’s $3.48B in 2015 revenue.

Source: MCO 10K

It is worth noting that historically, this mix was in the 70/30 range, but as MA has grown it has incrementally contributed more to MCO’s revenue makeup. We expect this trend to continue, especially given MCO’s increasing investment in MA. More specifically, we expect this breakdown to be closer to 63/37 by 2021.

Source: MCO 10K

How Moody’s Makes Money

Moody’s Investors Services (MIS)

MIS revenue is fee based – a one-time fee for rating a debt issuance (“transactional”) and a recurring fee to monitor the issued securities and/or issuer (“monitoring”). MIS has multiple types of fee arrangements, the specifics of which MCO does not disclose. However, MCO does state that MIS generally ties the two services together, and thus “rarely” sells the rating without monitoring as well.iv Given this packaged deal, the ratio of transactional to monitoring revenues has remained stable in the 60/40 range – a breakdown we expect it to maintain going forward.

MIS transactions are the most important driver of MCO revenue overall. Since MIS can only monitor a debt

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issuance that it has rated, monitoring fees are entirely based on transactions. Thus, while transactional revenue represents 61% of MIS revenue, and 41% of MCO revenue, it is responsible for 100% of MIS revenue, and in turn 63%-68% of MCO revenue overall.

Per MCO, the main driver for global debt issuance is global GDP growth.v Other factors, such as interest rates, mergers and acquisitions, issuer profits, business investment spending, etc. all play a role too, but economic growth matters most. Thus, we took a top-down approach of forecasting global GDP to predict global debt deals, and in turn MIS transactional revenue.

We looked at post-recession data because it represents a low-rate, low-growth environment similar to what we expect going forward. More specifically, from 2010-2015 global GDP grew at an average rate of about 3.50% and global debt issuances grew at an average rate of about 13%.vi Thus, we derived a debt issuance to GDP ratio of 3.70. Since we expect global GDP to grow in the 3%-3.50% range through 2021, we used that ratio to forecast a preliminary global debt issuance growth rate of about 12% through 2021 as well. However, we adjusted that slightly down to 11% to account for an expected downtick in corporate borrowing capacity. The favored metric for measuring corporate borrowing is debt-to-EBITDA, the median of which has risen to a record high of 2.3x this year.vii We expect there to be some pullback in this regard, hence our 1% trim of global debt issuance in our forecast. In terms of rates, while some moderate tightening is expected domestically, we expect rates overseas to hover around 0% for the next five years. Thus, there will not be a material change in the global rate environment that would further alter our forecast.

Source: Bloomberg; MCO 10K; model projections

With global debt issuances forecasted, we were able to forecast the number of transactions we expect MIS to rate based on its share of debt transactions. For example, MIS has rated, on average, about 17% of all debt securities issued in the global market the past five years.viii However, the past two years this proportion has trended closer to 16%, thus we forecasted an average slightly above 15% through 2021. Using 2018E as an example, we expect there to be around 41K global debt issuances, and MIS to rate about 15% of those deals, or 6.3K. With number of transactions rated, we only needed revenue per rated transaction to ultimately forecast transactional revenue.

Source: Bloomberg; MCO 10K; Model Projections

Since we had historical transactional revenue and number of transactions rated, we divided the two to get historical revenue per rated transaction. From 2012 to 2015, revenue per rated transactions has fallen from $318K to $292K, and it is on pace to decrease even further to $280K in 2016. We kept this trend in tow going forward, forecasting a consistent decline to $240K by 2021.

Source: Bloomberg; MCO 10K

Accordingly, with expected revenue per rated transaction, based on historical trends, and expected number of rated

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transactions, based on the market share and top-down global GDP approach, we were able to forecast MIS transactional revenue. And since MIS monitoring is a direct function of transactions, we could forecast MIS monitoring revenues using the 60/40 breakdown discussed above. Thus, we projected total MIS revenue to grow at a 6.50% five-year CAGR, slightly down from the historical 8% through 2015.

Source: MCO 10K; model projections

Most of MA’s revenue comes from subscription based products, such as research and data and certain software-based management products. For example, MIS, as part of its rating process, will develop a host of valuable research and data. For institutions interested in such information, MA distributes it for a subscription fee. On a non-subscription basis, MA will collect fees for certain services it provides. Such services include software maintenance, risk-management assistance such as regulatory capital calculation and scenario analysis, valuation of complex and illiquid securities, as well as financial training and certification programs.

The pace of technological advancement, demand for intricate investment based information, and changing regulatory requirements are all factors that drive MA growth. While such drivers are difficult to predict, it is reasonable to expect that technology will continue to evolve rapidly, investors will want access to the most advanced information possible, and regulations will continue to alter the scope of business. For example, post-crisis regulations such as Dodd-Frank and Basel III are tackling increasingly complex problems and are still being phased-in. Thus, it is reasonable to expect that financial institutions will need assistance regarding the evaluation

of complex securities, stress-testing their loan portfolios, and measuring their regulatory capital.

Overall, MA has experienced an 11.50% CAGR the past five years. However, some of this growth was accelerated via acquisitions, such as the 2015 purchase of BlackBox Logic – a residential mortgage backed securities (RMBS) data and analytics tool.ix While we expect MA to grow in line with its historical pace, we adjusted its CAGR down to 9.60% for the next five years to better reflect organic growth.

Source: MCO 10K; model projections

Based on the above, we project MCO total revenue to grow at about a 7.65% CAGR through 2021, just below the 2011-2015 CAGR of 9%. This makes sense – we expect the global debt environment to look essentially the same as the past five years, and are only forecasting organic growth for MA.

Source: MCO 10K; model projections

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How Moody’s Spends Money

MCO maintains a lean cost structure. Overall, total expenses make up less than 58% of MCO’s total revenue. Within that 58% it is nearly an even split between cost of services and SG&A. Cost of services is the money spent on developing and producing MIS and MA products and services. This includes employee compensation and benefits, and work-related travel. SG&A represents corporate officer compensation, office rent, business insurance, and professional fees. The only other expense is Depreciation and Amortization, which makes up about 5% of total expenses. In short, MCO’s costs stem mostly from human capital, and not physical capital. This is further borne out by the fact that net PP&E represents less than 10% of MCO’s assets.

Source: MCO 10K

Historically, MCO has sustained this level expenses relative to revenues, and we expect it to do so through 2021. We expect cost of services and SG&A to hold steady, and a slight uptick in Depreciation and Amortization due to increased investments in MA intangible assets. In short, we foresee MCO maintaining its operating margin of around 42% through 2021. This makes sense given the capital lightness of its costs and historical consistency.

Source: MCO 10K; Model Projections

RECENT DEVELOPMENTS

Recent Earnings

After impressive growth from 2012 to 2014, MCO EPS was essentially flat in 2015. Furthermore, EPS is on pace to remain flat or even decline slightly this year. Thus, MCO has struggled to sustain its high EPS growth prior to 2015. As profit margins have remained stable, the culprit here appears to be slower growth in revenues. It seems though that this is more of a foreign exchange headwind, rather than a structural issue. For example, excluding such headwinds MIS revenue grew by 8% in 2015, but after netting out the currency translation, it only grew 3%. We project our revenue on a net of foreign exchange basis, so while we expect the dollar to keep strengthening, we are confident in the growth expectations we laid out in the Company Description. Nonetheless, the relatively weak EPS for 2015 and 2016, provide a lower reference point to grow the remaining years from, likely contributing to our target price below the current trading price.

Source: MCO 10K; model projections

However, relative to expectations, MCO has performed quite well recently. Specifically, on an annual basis, after missing by 2 cents in 2011, it has beat estimates four years in a row by an average of 8 cents, or 2.12%.x

Source: FactSet

On a quarterly basis, MCO has also outperformed expectations, beating estimates 9/10 last quarters by an average of 6 cents, or 5.76%.xi

2011 2012 2013 2014 2015MCO EPS $2.46 $3.04 $3.65 $4.21 $4.60Analyst Mean $2.48 $3.00 $3.56 $4.05 $4.57

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Source: FactSet

We expect MCO to continue to outperform analyst estimates, on a GAAP-basis, for the next four years. Given MCO’s strong earnings history and consistency, this is a reasonable expectation.

Source: Model projections; FactSet

Since management provides guidance and the year is nearly over, our 2016 numbers are close. In fact, our net income numbers are nearly identical, which indicates the four cents difference in our EPS projections stems from divergent repurchase expectations. For 2017 and 2018, we are slightly more optimistic on the revenue front, by about $17MM and $15MM respectively. However, we both forecast about a 42% operating margin for those years. Thus, the difference in EPS estimates stems from our slightly more aggressive revenue projections and some disagreement regarding pace of repurchases. For example, we forecast 188K basic shares outstanding in 2018, whereas the analysts expect just over 190K. That said, we are confident in our repurchasing forecast because such expectations are based on MCO’s authorized amount and historical pace.

Mini-Acquisitions

MCO has a habit of acquiring stakes in and/or outright purchases of smaller data and software companies and foreign credit rating agencies. In 2016, MCO has made three such investments: (1) Finagraph; (2) GGY; (3) Korea Investors Service (KIS).

Finagraph provides financial data collection and business intelligence solutions geared toward SMEs.xii The idea here is that MA will be able to broaden its small business client base with an enhanced offering of credit risk solutions covering SMEs. MCO obtained a minority ownership stake and a seat on Finagraph’s board of directors. Terms of the deal were not disclosed but it was not expected to have an impact on 2016 EPS.xiii

GGY provides advanced actuarial software for the global life insurance industry.xiv The aim here is for MA to combine GGY with its existing insurance risk products into the premier offering suite for the global life insurance and reinsurance industry.xv This was a full acquisition and is expected to be $0.02 dilutive to MCO EPS this year.xvi The terms of the deal were not disclosed but GGY was a small company, making only $28MM in revenue in 2015.xvii

KIS is a leading provider of domestic credit ratings in Korea.xviii While MIS and KIS have had a long-standing partnership, acquiring full ownership in KIS enables MIS to further solidify its presence in the Korean capital markets. The terms of the deal were not disclosed but it is not expected to have a significant impact on 2016 EPS.xix

Overall, while none of these transactions are large enough to materially impact MCO EPS and/or share price, they are still notable for strategic reasons. In other words, these investments demonstrate that MCO is committed to expanding MA and strengthening MIS’s international position.

INDUSTRY TRENDS

Debt Disintermediation

MIS is part of the credit rating industry – although industry may be a generous term since three rating agencies rate 96% of all rated securities.xx Nonetheless, the credit rating industry hinges on the broader global debt markets. Thus, trends in debt overall are most relevant for credit rating agencies such as MIS.

An important, and secular, trend in this regard is the disintermediation of credit markets. This is the process by which companies bypass banks and borrow directly from the capital markets. This matters because a typical bank loan is not a rated security, but a bond issued to the capital markets is. Thus, as disintermediation increases so does the number of ratable debt securities.

2016E 2017E 2018EHenry Fund $4.69 $5.23 $5.80Analyst Mean GAAP-basis $4.65 $5.12 $5.77

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Currently, in the US the split between banks and capital markets for corporate financing is about 30/70.

xxiii

xxi However, in Europe it is a mirror image - 70% of companies still use traditional bank financing.xxiiThis indicates there is room for more disintermediation in the European markets, especially as the banking system there struggles with capitalization and growth issues. Data supports this indication. More specifically, from 2006-2014, bond financing increased, as a percentage of corporate funding, by 7% in the UK, 6% in France, and 5% in Italy. Additionally, European high-yield bonds have more than doubled in volume since 2012, further suggesting that disintermediation is increasing across the European credit spectrum.xxiv As this trend is expected to continue, it will drive higher levels of European bond deals. This will create revenue opportunities for rating agencies, including MIS.

The Regulation Stimulant

MA is part of the broader financial information industry, which includes other key players such as FactSet, Thomson Reuters, and Bloomberg. In recent years, this industry has seen a clear shift toward big data and predictive analytics. This is unsurprising given the complexities of new regulation, quantifying risks, and valuing esoteric securities. In short, investors want to know if they’re pricing opportunities accurately and banks want to know how vulnerable their balance sheet is to external shocks.

Increased regulation of banks and insurance companies has been a trend that started after the financial crisis and continues today. More specifically, we’ve seen passage of the Dodd-Frank Act, Basel III, and Solvency II (European legislation on the insurance industry). Additionally, even further regulation for banks operating in emerging markets is expected.xxv Thus, throughout the world regulation will continue to expand – both in scope and depth.

Such expansion will trigger a need for banks and insurers to measure, monitor, and manage a host of different risk-based variables. This will stimulate a demand for qualitative and quantitative tools that focus specifically on risk management and complex measurements. And the industry best positioned to serve this demand, is the financial information industry. In short, as regulation increases, so will growth of the financial information industry. The expected continuation of this trend fits with our growth story for MA going forward.

MARKETS AND COMPETITION

Credit Rating Oligopoly

As mentioned above, MIS competes in the credit ratings market. There are three main players in this market (The Big Three): (1) MIS, (2) S&P Global Ratings (a division of S&P Global, or SPGI), and (3) Fitch Ratings. There are various ways to define a market, but the way the SEC defines the market is by number of rated securities in circulation.xxvi Using that metric, The Big Three makes up 96% of the market. Within that, MIS and S&P Global Ratings account for 83%.

Source: SEC

Additionally, the credit rating industry sports a Herfindhal-Hirschman Index inverse (HHI Inverse) of 2.68.xxvii

xxviii

The HHI is an index that economists use to measure industry concentration, and by proxy market competition. And the HHI Inverse can be used to estimate the market share necessary to replicate such concentration.xxix For example, an HHI Inverse of 3.00 represents a market shared evenly among three firms.xxxThus, the 2.68 HHI inverse further indicates that the market for credit ratings is a oligopoly.

Within this oligopoly S&P Global Ratings leads MIS, in terms of rated securities market share. However, it is unclear how many rated securities utilize both MIS and S&P Global Ratings, which makes any overlap impossible to discern between the two firms. Additionally, while MIS likely attempts to compete with S&P Global Ratings on differentiation via various bundling packages with MA products/services, it seems that price is still the sharpest competition point. Especially since S&P Global Ratings has

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its own analytics partner under the SPGI umbrella. The price competition is indicated by the consistent, year-after-year, decline in MIS revenue per rated transaction as illustrated in the graph in our Company Description. In terms of new competitors disrupting the oligopoly, it seems unlikely. The high concentration, regulatory requirements to rate securities, and the brand entrenchment of Moody’s and S&P create nearly insurmountable barriers to entry. Thus, we have a stable oligopoly with a commoditized product.

Source: FactSet

As can be seen in the table above, while ratings revenue is a wash, MCO, as an overall company and equity investment, compares favorably to SPGI. Specifically, MCO’s operating profit is nearly 10% higher than SPGI and its ROA more than doubles SPGI. This would indicate that MCO is the more profitable company. However, it is worth noting with ROA that SPGI has about $8B in total assets, whereas MCO has a lighter balance sheet at just over $5B in assets. The leverage comparisons are a bit trickier because MCO tends to have an equity deficit. In fact, MCO has recorded negative shareholder equity in seven of the past ten years. This seems to stem from losses in foreign currency translations, large-scale repurchases, and actuarial losses related to pension adjustments. And while not negative, SPGI seems to have a very small equity base – also due to repurchases and foreign exchange losses. This is illustrated well by its astounding 1,788% LT Debt-to-Equity ratio above. In terms of growth expectations, the market seems to be projecting similar stories going forward, as evidenced by the forward P/E ratio and Est. LT Growth rates. Both companies should grow in the low double-digits, and neither is trading cheap or expensive relative to the other. In short, MCO and SPGI represent very similar investments, with comparable outlooks, but MCO is a bit more profitable.

More Data, More Players

MA as part of the financial information world, competes in a very different market than MIS, with a higher number of players. Of the publicly traded firms, MA’s closest competitors include S&P Global Market Intelligence (a division of SPGI), Morningstar (MORN), FactSet (FDS), Thomson Reuters (TRI), and MSCI Inc. (MSCI). All of these companies provide financial data and information services in some form or another.

Source: FactSet

If we sum up all the revenue of these key players (see table above) to get a proxy for market size, we see that MA has about a 10% share of the financial analytics and services market. And while this market is more fragmented than the credit rating side, TRI seems to be the clear leader in earning 60% of analytics based revenue. Thus, it will be interesting to see how competition develops in this space with one market leader and a handful of other players in the 4% to 14% market share range.

In terms of investment comparison, MCO still has the highest operating margin, but FDS, SPGI and MSCI are not far behind. Looking at ROA as another profit metric, FDS is the clear leader, but MCO remains respectable. Ironically, TRI despite being the revenue leader and second largest by market cap, is the least profitable company – both by operating margin and ROA. Using LT debt-to-assets as the metric, because of MCO and SPGI’s uniquely small equity base, MCO is the most levered, with MSCI just behind it. Regarding growth expectations, the market is most optimistic MSCI and MORN, as demonstrated both by their Est. LT Growth rates and forward P/E ratios. And least optimistic about TRI. The market seems to expect essentially the same growth stories for MCO, SPGI, and FDS.

MCO SPGI Market Cap $20.6B $32.5B P/E (forward) 23.1 23.8ROA (5 yr. avg) 20.32% 9.14%ROE (5 yr. avg) - 97.82%OM (5 yr. avg) 41.25% 32.13%LT Debt/Assets (2015) 66% 42%LT Debt/Equity (2015) - 1787.60%Est. LT Growth 11% 12%Ratings Based Revenue (2015) $2.43B $2.43B

MCO SPGI MORN FDS TRI MSCIMarket Cap $20.6B $32.5B $3.3B $6.2B $30B $7.9BP/E (forward) 23.1 23.8 25.3 22.4 20.1 28.3ROA (5 yr. avg) 20.32% 9.14% 10.10% 32.19% 2.59% 6.61%ROE (5 yr. avg) - 97.82% 14.92% 44.54% 5.48% 15.11%OM (5 yr. avg) 41.25% 32.13% 23.08% 32.49% 13.44% 36.00%LT Debt/Assets (2015) 66.00% 42.00% 3.40% 4.75% 24.74% 50%LT Debt/Equity (2015) - 1787.60% 5.47% 6.58% 57.08% 175%Est. LT Growth 11% 12% 14% 11% 8% 15%Analytics Based Revenue (2015) $1.16B $1.41B $789M $1.1B $6.1B $433M

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Overall, MCO represents an investment in a powerful oligopolist in part of its business and a solid competitor in the other part. It is more profitable than its competitors across both spaces, but also slightly more levered. And going forward, one can expect solid growth in the high single-digit to low double-digit range.

ECONOMIC OUTLOOK

As discussed earlier, MIS, which drives most MCO revenue, hinges on the global debt markets. In turn, activity in the global debt markets depends greatly on the performance of the overall economy.

GDP

On the most macro-level, economists expect real US GDP and real global GDP to grow at approximately 2%-2.50% and 3%-3.50%, respectively over the next three years.xxxi We foresee similar growth domestically, as our September Economic Outlook produced a median two-year real US GDP of 2.3%. In other words, the post-crisis status quo of sluggish growth is likely to endure. Such expectations support our case for debt market activity to resemble the previous five years, and thus align well with our growth story for MIS.

Interest Rates

The Federal Reserve raised rates for the first time since the financial crisis last December. In our September Economic Outlook, we forecasted another 25 bps rate hike this year and another two to three 25 bps rate hikes through 2018. From there, we could see anywhere from zero to two more 25 bps rate hikes through 2020. These expectations are based on the Fed’s cautious tone, and indications that rate normalization will be a slow and steady process. However, we should note that the Bank of Japan and the European Central Bank continue to ease their monetary policy, with Japan even veering into negative rate territory. Thus, while domestically rates will be only slightly higher, globally rates will likely be lower. Put differently, we’ll still be living in a low-rate environment that will not in and of itself hamper borrowing activity. As such, this economic variable also supports our forecast for global debt activity and MIS revenue.

Consumer Confidence

A more confident consumer is more willing to spend, and thus better for business activity in general. As business activity picks up, borrowing tends to increase as well, which boosts the likelihood of debt deals. In September, consumer confidence in the US reached a 12-month high, as the index hit 104.1.xxxii

xxxiii

Additionally, global consumer confidence, as measured by Nielsen, is also trending positive. Specifically, it was at 98 for Q2 2016, up two points YOY. We expect these trends to continue as GDP remains positive (see above) and the labor market strengthens even further (see below). As a result, we foresee consumer spending leading to more corporate borrowing, and contributing to MIS’s revenue growth highlighted in the Company Description.

Labor Market

This summer the US unemployment rate fell below 5% for the first time since before the Great Recession. Our two-year forecast produced a median unemployment rate of 4.8%. In other words, the US labor market has rebounded well from the crisis and we expect that to continue. In fact, the labor market hast tightened so much in the past year or so, that it is starting to flow through to wages and income. In fact, median household income grew 5.2% YOY in 2015, the largest jump since 2007.xxxiv This is crucial for consumer confidence, and in turn corporate borrowing, as the link between the two is explained above.

In terms of global unemployment, it stood at ~5.8% for 2015, down from ~6.2% in 2009.

xxxvi

xxxv However, while the rate is expected to stay steady, the number of unemployed people globally is expected to rise, at least through 2017. Thus, while the global labor market picture is murkier than the US, we do not believe it is pessimistic enough to detract from our overall economic growth expectations.

Foreign Exchange

With nearly 40% of MCO’s overall revenue generated abroad, currency translation and foreign exchange rates are relevant to our outlook. This is evident in the large deficits MCO has posted in AOCI the past two years. More specifically, MCO recorded losses -$340MM in 2015 and -$235MM in 2014, most of which was due to currency translation losses as the dollar has strengthened. Currently, the EURUSD is trading at $1.10, and we expect

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the dollar to strengthen even more with EURSD reaching $1.05 by 2018. Moreover, as discussed in the Interest Rates section above, we believe domestic monetary policy will be tighter than international monetary policy over the next five years. Such divergence will further contribute to foreign exchange headwinds for MCO. Given that we project revenues net of currency translation, and we have kept a large AOCI loss of -$320MM stable throughout our forecast, we believe our DCF/EP model accounts for such headwinds.

VALUATION

MCO currently trades at a market price of $107.08, and our models (all dated 10/7/2016) produce an intrinsic value in the range of $93 to $112. We favor our DCF/EP model, which gives a price of about $96. This indicates that MCO is currently overpriced by about 11.50%. Hence, our SELL recommendation.

Income Statement: Our predictions and underlying reasoning for our revenue and cost projections are discussed at length in the Company Description. We based non-operating items such as interest income and expenses on the corresponding asset/liability. For example, we used MCO’s cost of debt of 4%, relative to its outstanding debt to project our interest expense. Depreciation and amortization were based on historical percentages relative to net PP&E and net intangibles.

Balance Sheet: We based nearly all assets and liabilities on corresponding revenue and expense accounts. For example, we tied accounts receivable to revenue and accounts payable to total operating expenses – both at percentages in line with historical patterns (23% and 1.5% respectively). Without a clear CapEx budget provided, we based CapEx spending on historical patterns, which averaged $61MM the past five years. But we adjusted this figure upward to $75MM (average through 2021) because we think CapEx will increase due to more overseas expansion for MIS and greater investment in computers and related hardware for MA. We also grew intangible assets, in line with historical patterns, because we believe MCO will continue to invest in MA IP, software, etc. As for debt, we kept the capital structure consistent with historical standards, and paid down principal per the repayment schedule provided in the 2015 10K. Remaining assets and liabilities, such as deferred taxes and goodwill were kept constant due to inherent unpredictability. Regarding equity, we discussed our AOCI forecast above in

the Economic Outlook and our expected stock repurchase pace in the Recent Developments section. We forecasted common stock in line with the expected exercise of options and we kept the non-controlling interest account constant due to its unpredictability.

Risk premium: The Henry Fund consensus is 5%.

Beta: We used a Beta of 1.46 because this was the median of the weekly Betas over the last ten years, as calculated by Bloomberg.

CV growth: We believe long-term nominal US GDP will be about 3.50%-4.00% and nominal global GDP about 5.00%-5.50%. Thus, we set MCO’s NOPLAT CV growth rate at 3.50% since we do not expect it to outgrow the US nor the global economy. Considering US and global nominal GDP is appropriate here because MCO has both domestic and international operations. As for the EPS CV growth rate, we set it at slightly higher 4% due to continued repurchases.

DDM: The DDM produced a price of $94.82. We grew MCO’s dividends in line with our EPS projections, which we discussed in the Recent Developments section. Moreover, our payout ratio is consistent with MCO’s pace. MCO has gone from a 25% payout ratio in 2013 to 29% in 2015, and is expected to be 32% this year. Thus, we kept the payout ratio at around 31%-33% for the next four years, then 34% for the final year of our forecast. This is reasonable based on MCO’s pace and the notion that as MCO continues to mature it will pay a higher dividend.

Relative valuation: The relative valuation model produces a price of $112.59, the highest of all our models. This means that its peers are trading high relative to their earnings, which indicates that the market is a bit more optimistic about their prospects. However, SPGI is the only true pure-play competitor, and while its P/E is about the same (23.8) as the average of our selected peer group (24), a relative valuation model is not robust with only one true peer. Thus, we do not use this model to arrive at our target price.

Henry Fund vs. other analysts: Our EPS and revenue projections relative to analyst estimates was analyzed in the Recent Development sections. While our forecasts do not differ materially from the analysts, and if anything, are more optimistic in many respects, our target prices differ substantially. More specifically, the mean one-year target price for MCO is about $111, while our current target price is $98. The lapse of time is likely a key factor here – our

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target price is for the value today, and analysts are targeting one-year out. Assuming MCO’s stock grows at its cost of equity, our $98 target price today would translate into a one-year target price of about $107. However, that still represents about a 4% difference – which is strange given that our forecasts are more optimistic. Therefore, the analysts must be pricing in something that we are missing.

Model evaluation: We used the DCF/EP model to determine our target price. It is the most comprehensive model, and thus best captures the underlying economics of MCO and its operations. In terms of robustness, we tested several variables, including beta, risk premium, growth rates, tax-rates, revenue projections, share of debt transactions, etc., and in the clear majority of scenarios MCO’s price was lower than the current market price. For example, it would take a 2021E EBITA 10% higher than our projection to turn the price bullish. Alternatively, it would take a 95 bps drop in the 30-year UST or a 7% decrease in MCO’s marginal tax-rate to turn the price bullish. Similarly, it would take a CV NOPLAT growth 100 bps higher for MCO to be currently considered undervalued. However, the model does remain sensitive to the risk premium and beta combination. For example, it would take a 50 bps decrease in risk premium, at the same beta level, for the price to turn bullish – not an implausible scenario.

Overall, the DCF/EP value best reflects the fundamentals of MCO’s business and our beliefs about its future. Accordingly, we used it to arrive at a price of $98. This represents about an 9% discount to current market price.

CONCLUSION

Ultimately, while MCO is a profitable company with solid growth prospects, its shares are overpriced relative to the intrinsic value. In other words, MCO has many traits of an attractive investment, but not at $107. We are confident our model projections are reasonable, if not optimistic, and we arrive at $96 for MCO’s current fair value. Hence, MCO is currently overpriced by about 11.50% and we recommend a SELL.

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REFERENCES

i Moody’s 10K, February 2016 ii Moodys.com, https://www.moodys.com/Pages/atc002.aspx iii Moody’s 10K, see i iv Moody’s 10K, see i v Moody’s 10K, see i vi IMF 2016; Bloomberg Terminal, Fixed Income SRCH vii Haver Analytics, Thomson Reuters, Barclays Research, http://www.zerohedge.com/news/2016-08-04/debt-ebitda-ratios-are-now-highest-history viii Bloomberg Terminal, Fixed Income SRCH ix Moody’s 10K, see i x FactSet, Company/Security, MCO-US, Surprise History, October 2016 xi FactSet, see x xii Moody’s Press Release, February 2016, http://ir.moodys.com/news-and-financials/press-releases/press-release-details/2016/Moodys-Acquires-Stake-in-Finagraph-Expanding-Commitment-to-Small-Business-Lending-Solutions/default.aspx xiii Moody’s Press Release, see xii xiv Moody’s Press Release, March 2016, http://ir.moodys.com/news-and-financials/press-releases/press-release-details/2016/Moodys-Acquires-GGY-Significantly-Enhances-Insurance-Risk-Offerings/default.aspx xv Moody’s Press Release, see xiv xvi Moody’s Press Release, see xiv xvii Moody’s Press Release, see xiv xviii Moody’s Press Release, July 2016, http://ir.moodys.com/news-and-financials/press-releases/press-release-details/2016/Moodys-Acquires-Full-Ownership-of-Korea-Investors-Service-KIS/default.aspx xix Moody’s Press Release, see xviii xx SEC, Annual Report on Nationally Recognized Statistical Rating Organizations, December 2015, https://www.sec.gov/ocr/reportspubs/annual-reports/2015-annual-report-on-nrsros.pdf xxi S&P Ratings Direct, Banking Disintermediation in Europe – A Slow Growing Trend, October 2015 xxii S&P Ratings Direct, see xxi xxiii S&P Ratings Direct, see xxi xxiv S&P Ratings Direct, see xxi xxv McKinsey & Company, The Future of Bank Management, July 2016, http://www.mckinsey.com/business-functions/risk/our-insights/the-future-of-bank-risk-management xxvi SEC, see xx xxvii SEC, see xx xxviii SEC, see xx

xxix SEC, see xx xxx SEC, see xx xxxi FactSet, Economics, US, Estimates, Country Summary, September 2016; Statista, IMF https://www.statista.com/statistics/273951/growth-of-the-global-gross-domestic-product-gdp/ xxxii The Conference Board, Consumer Confidence Index, September 2016, https://www.conference-board.org/data/consumerconfidence.cfm xxxiii Nielsen, Q2 2016 Consumer Confidence Report, August 2016, http://www.nielsen.com/us/en/insights/reports/2016/q2-2016-consumer-confidence-report.html xxxiv Mutikani, Lucia and Heavey, Susan. “U.S. household income posts record surge in 2015, poverty falls”, Reuters, September 2016, http://www.reuters.com/article/us-usa-economy-poverty-idUSKCN11J1PP?il=0 xxxv International Labour Organization, World Employment and Social Outlook – Trends 2016, January 2016, http://www.ilo.org/global/research/global-reports/weso/2016/lang--en/index.htm xxxvi ILO, see xxxvii

IMPORTANT DISCLAIMER

Henry Fund reports are created by student enrolled in the Applied Securities Management (Henry Fund) program at the University of Iowa’s Tippie School of Management. These reports are intended to provide potential employers and other interested parties an example of the analytical skills, investment knowledge, and communication abilities of Henry Fund students. Henry Fund analysts are not registered investment advisors, brokers or officially licensed financial professionals. The investment opinion contained in this report does not represent an offer or solicitation to buy or sell any of the aforementioned securities. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Henry Fund may hold a financial interest in the companies mentioned in this report.

Moody's Revenue Decomposition (in thousands)

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021EMoody's Investor Services (MIS) Corporate finance (CFG) 996,800 1,109,300 1,112,700 1,094,000 1,175,081 1,246,906 1,330,832 1,420,526 1,520,552 YOY growth 16.23% 11.29% 0.31% ‐1.68% 7.41% 6.11% 6.73% 6.74% 7.04%

Structured finance (SFG) 382,500 426,500 449,100 418,000 434,269 460,813 491,829 524,977 561,943 YOY growth 0.39% 11.50% 5.30% ‐6.92% 3.89% 6.11% 6.73% 6.74% 7.04%

Financial institutions (FIG) 338,800 354,700 365,600 379,000 395,951 420,153 448,432 478,655 512,360 YOY growth 4.09% 4.69% 3.07% 3.67% 4.47% 6.11% 6.73% 6.74% 7.04%

Public, project and infrastructure finance (PPIF) 341,300 357,300 376,400 400,000 421,496 447,260 477,364 509,536 545,415 YOY growth 5.76% 4.69% 5.35% 6.27% 5.37% 6.11% 6.73% 6.74% 7.04%Total ratings revenue 2,059,400 2,247,800 2,303,800 2,291,000 2,426,798 2,575,131 2,748,457 2,933,694 3,140,270 YOY growth 9.15% 9.15% 2.49% ‐0.56% 5.93% 6.11% 6.73% 6.74% 7.04%

MIS Other 12,200 18,000 30,400 31,000 31,932 33,883 36,164 38,601 41,319 YOY growth N/A 47.54% 68.89% 1.97% 3.01% 6.11% 6.73% 6.74% 7.04%Total external revenue 2,071,600 2,265,800 2,334,200 2,322,000 2,458,729 2,609,014 2,784,621 2,972,295 3,181,589 YOY growth 9.79% 9.37% 3.02% ‐0.52% 5.89% 6.11% 6.73% 6.74% 7.04%

Intersegment royalty  78,600 87,600 93,500 95,000 95,795 101,650 108,492 115,804 123,958 YOY growth 9.93% 11.45% 6.74% 1.60% 0.84% 6.11% 6.73% 6.74% 7.04%

Transactional  1,333,124 1,435,574 1,480,897 1,474,370 1,532,714 1,626,399 1,735,868 1,852,860 1,983,328 YOY growth 9.80% 7.68% 3.16% ‐0.44% 3.96% 6.11% 6.73% 6.74% 7.04%

Monitoring  817,076 917,826 946,803 942,630 1,021,810 1,084,266 1,157,245 1,235,240 1,322,219 YOY growth 9.80% 12.33% 3.16% ‐0.44% 8.40% 6.11% 6.73% 6.74% 7.04%

Total MIS Revenue 2,150,200 2,353,400 2,427,700 2,417,000 2,554,524 2,710,664 2,893,113 3,088,099 3,305,547 YOY growth 9.80% 9.45% 3.16% ‐0.44% 5.69% 6.11% 6.73% 6.74% 7.04%

Moody's Analytics (MA)Research, data and analytics (RD&A) 519,800 571,800 626,400 677,000 739,530 813,483 894,831 975,366 1,063,149 YOY Growth 5.39% 10.00% 9.55% 8.08% 9.24% 10.00% 10.00% 9.00% 9.00%

Enterprise risk solutions (ERS) 262,500 328,500 374,000 407,000 451,935 497,129 546,841 596,057 649,702 YOY growth 8.20% 25.14% 13.85% 8.82% 11.04% 10.00% 10.00% 9.00% 9.00%

Professional services (PS) 118,600 168,200 149,900 148,000 164,340 180,774 198,851 216,748 236,255 YOY growth 10.12% 41.82% ‐10.88% ‐1.27% 11.04% 10.00% 10.00% 9.00% 9.00%Total external revenue 900,900 1,068,500 1,150,300 1,232,000 1,355,805 1,491,386 1,640,524 1,788,171 1,949,107 YOY growth 6.80% 18.60% 7.66% 7.10% 10.05% 10.00% 10.00% 9.00% 9.00%

Intersegment revenue  12,400 13,300 13,100 13,000 13,695 15,065 16,571 18,062 19,688 YOY growth 5.08% 7.26% ‐1.50% ‐0.76% 5.35% 10.00% 10.00% 9.00% 9.00%

Total MA Revenue 913,300 1,081,800 1,163,400 1,245,000 1,369,500 1,506,450 1,657,095 1,806,234 1,968,795 YOY growth 6.78% 18.45% 7.54% 7.01% 10.00% 10.00% 10.00% 9.00% 9.00%

Eliminations (91,000) (100,900) (106,600) (108,000) (113,400) (119,070) (125,024) (131,275) (137,838) YOY growth 9.24% 10.88% 5.65% 1.31% 5.00% 5.00% 5.00% 5.00% 5.00%

Total MCO Revenue 2,972,500 3,334,300 3,484,500 3,554,000 3,810,624 4,098,044 4,425,184 4,763,058 5,136,504 YOY growth 8.87% 12.17% 4.50% 1.99% 7.22% 7.54% 7.98% 7.64% 7.84%

Moody's Income Statement (in thousands except per share data)

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021EOperating revenuesRevenue 2,972,500 3,334,300 3,484,500 3,554,000 3,810,624 4,098,044 4,425,184 4,763,058 5,136,504Total operating revenues 2,972,500 3,334,300 3,484,500 3,554,000 3,810,624 4,098,044 4,425,184 4,763,058 5,136,504

Operating expensesOperating expenses 822,400 930,300 976,300 1,007,000 1,066,975 1,137,207 1,227,989 1,333,656 1,438,221Selling, general & administrative expenses 822,100 869,300 921,300 944,000 1,009,815 1,085,982 1,172,674 1,262,210 1,386,856Depreciation & amortization 93,400 95,600 113,500 123,000 125,250 128,232 131,149 139,919 148,938Total expenses 1,737,900 1,895,200 2,011,100 2,074,000 2,202,040 2,351,421 2,531,812 2,735,786 2,974,015

Operating income 1,234,600 1,439,100 1,473,400 1,480,000 1,608,584 1,746,623 1,893,373 2,027,272 2,162,489

Non‐Operating Interest income  5,500 6,700 9,700 11,400 8,875 10,916 12,181 13,511 14,947Expense on borrowings (92,300) (118,400) (120,600) (140,000) (147,452) (158,905) (172,729) (187,430) (202,655)Other non‐operating income (expense), net 26,500 35,900 21,300 13,400 21,000 21,000 21,000 21,000 21,000ICRA gain 0 102,800 0 0 0 0 0 0 0Non‐operating income (expense), net (65,300) 21,900 (93,800) (119,700) (117,577) (126,989) (139,548) (152,919) (166,708)

Pre‐tax incomeIncome (loss) before provision for income taxes 1,169,300 1,461,000 1,379,600 1,360,300 1,491,007 1,619,634 1,753,824 1,874,353 1,995,781

Provision for income taxes 353,400 455,000 430,000 435,296 477,122 518,283 561,224 599,793 638,650

Net incomeNet income (loss) 815,900 1,006,000 949,600 925,004 1,013,885 1,101,351 1,192,601 1,274,560 1,357,131Less: net loss (income) attributable to noncontrolling interests (11,400) (17,300) (8,300) (11,162) (10,000) (10,000) (10,000) (10,000) (10,000)Net income attributable to Moody's 804,500 988,700 941,300 913,842 1,003,885 1,091,351 1,182,601 1,264,560 1,347,131

Weighted average shares outstanding ‐ basic 219,400 210,700 200,100 194,764 191,933 188,316 183,957 179,149 174,284Year end shares outstanding 213,961 204,363 196,076 193,452 190,415 186,218 181,695 176,604 171,965

Net earnings (loss) per share ‐ basic $3.67 $4.69 $4.70 $4.69 $5.23 $5.80 $6.43 $7.06 $7.73YOY Growth 18.61% 27.97% 0.25% ‐0.26% 11.47% 10.80% 10.93% 9.80% 9.50%

Total dividends paid 197,460 235,984 272,136 288,250 322,448 354,035 393,667 421,001 467,082Dividends paid per share $0.90 $1.12 $1.36 $1.48 $1.68 $1.88 $2.14 $2.35 $2.68YOY Growth 41% 24% 21% 9% 14% 12% 14% 10% 14%

Moody's Balance Sheet (in thousands except par value data)

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021ECurrent assetsCash & cash equivalents 1,919,500 1,219,500 1,757,400 2,141,196 2,692,000 3,088,104 3,491,770 3,910,397 4,385,737Short‐term investments 186,800 458,100 474,800 355,000 363,875 374,791 386,035 398,581 414,524Accounts receivable, net 694,200 792,400 802,000 850,000 876,444 942,550 1,017,792 1,095,503 1,181,396Deferred tax assets, net 53,900 43,900 29,300 0 0 0 0 0 0Prepaid taxes 40,000 65,400 83,300 70,000 66,797 72,560 78,571 83,971 89,411Prepaid expenses 48,100 59,900 66,900 65,000 68,591 73,765 79,653 85,735 92,457Other current assets 26,300 47,200 29,400 45,000 45,900 46,818 47,754 48,709 49,684Total current assets 2,968,800 2,686,400 3,243,100 3,526,196 4,113,606 4,598,588 5,101,577 5,622,897 6,213,209

‐61360Non‐current assets (61,400)$              (75,800)$               (67,400)$               (46,100)$             Total property & equipment, at cost 654,400 753,800 825,300 890,000 955,000 1,025,000 1,105,000 1,190,000 1,280,000Less: accumulated depreciation & amortization (375,700) (451,500) (518,900) (565,000) (633,250) (697,600) (759,806) (825,393) (894,668)

Property & equipment, net 278,700 302,300 306,400 325,000 321,750 327,400 345,194 364,607 385,332Goodwill 665,200 1,021,100 976,300 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000Intangible assets, net 221,600 345,500 299,100 300,000 354,900 383,018 412,957 442,568 472,238Deferred tax assets, net 148,700 167,800 137,700 150,000 150,000 150,000 150,000 150,000 150,000Other assets 112,100 145,900 160,800 160,000 171,478 184,412 199,133 214,338 231,143Total non‐current assets 1,426,300 1,982,600 1,880,300 1,935,000 1,998,128 2,044,830 2,107,284 2,171,513 2,238,712

Total assets 4,395,100 4,669,000 5,123,400 5,461,196 6,111,735 6,643,418 7,208,861 7,794,410 8,451,921

Current liabilities Accrued liabilities 522,500 538,200 544,400 562,000 591,885 633609 684189 739822 805147Accounts payable 16,400 19,400 22,200 40,000 31,152 33,348 36,010 38,938 42,376Deferred tax liabilities, net 4,000 17,500 16,700 0 0 0 0 0 0Current portion of long‐term debt 0 0 0 0 300,000 0 452,000 510,000 0Deferred revenue 598,400 624,600 635,200 650,000 704,965 758,138 818,659 881,166 950,253Total current liabilities 1,141,300 1,199,700 1,218,500 1,252,000 1,628,002 1,425,095 1,990,858 2,169,926 1,797,776

Non‐current liabilities Non‐current portion of deferred revenue 109,200 132,200 132,500 135,000 144,804 155,726 168,157 180,996 195,187Total debt 2,101,800 2,547,300 3,401,000 3,420,000 3,686,307 3,972,627 4,318,222 4,685,760 5,066,366Less: current portion 0 0 0 0 (300,000) 0 (452,000) (510,000) 0

Long‐term debt 2,101,800 2,547,300 3,401,000 3,420,000 3,386,307 3,972,627 3,866,222 4,175,760 5,066,366Deferred tax liabilities, net 59,100 95,700 83,800 105,000 105,000 105,000 105,000 105,000 105,000Unrecognized tax benefits 195,600 220,300 203,400 195,000 195,000 195,000 195,000 195,000 195,000Other liabilities  360,200 430,900 417,200 400,000 457,275 491,765 531,022 571,567 616,380Total non‐current liabilities  2,825,900 3,426,400 4,237,900 4,255,000 4,288,386 4,920,118 4,865,401 5,228,323 6,177,934

Total liabilities 3,967,200 4,626,100 5,456,400 5,507,000 5,916,388 6,345,213 6,856,259 7,398,249 7,975,710

Contingencies Redeemable noncontrolling interest 80,000 0 0 0 0 0 0 0 0

EquityCommon stock and capital surplus  409,200 387,300 454,700 509,104 568,818 634,359 699,824 699,824 699,824Retained earnings (accumulated deficit) 5,302,100 6,044,300 6,709,000 7,334,592 8,016,029 8,753,345 9,542,279 10,385,838 11,265,887Treasury stock, at cost (5,319,700) (6,384,200) (7,389,200) (7,800,000) (8,300,000) (9,000,000) (9,800,000) (10,600,000) (11,400,000)Accumulated other comprehensive income (loss) (54,600) (235,200) (339,500) (320,000) (320,000) (320,000) (320,000) (320,000) (320,000)Total Moody's shareholders' equity (deficit) 337,000 (187,800) (565,000) (276,304) (35,154) 67,705 122,102 165,661 245,711Noncontrolling interests 10,900 230,700 232,000 230,500 230,500 230,500 230,500 230,500 230,500Total equity (deficit) 347,900 42,900 (333,000) (45,804) 195,346 298,205 352,602 396,161 476,211

Total liabilities and equity 4,395,100 4,669,000 5,123,400 5,461,196 6,111,735 6,643,418 7,208,861 7,794,410 8,451,921

Moody's Cash Flow Statement (in millions)

Fiscal Years Ending Dec. 31 2013 2014 2015Operating Activities Net Income  815,900 1,006,000 949,600Adjustments to reconcile net income to net cash provided by operating activities:Depreciation & amortization 93,400 95,600 113,500Stock‐based compensation expense 67,100 80,400 87200Goodwill impairment charge 0 0 0Deferred income taxes (27,200) 29,900 18100Excess tax benefits from exercise of stock‐based compensation awards (38,800) (58,700) (44,500)ICRA loss (gain) 0 (102,800) 0Legacy tax matters (19,200) (6,400) (6,400)

Change in operating assets and liabilities:Accounts receivable (67,000) (98,300) (25,400)Other current assets (21,700) (41,000) (28,900)Other assets (700) (1,700) (13,100)Accounts payable and accrued liabilities  (2,900) 59,200 51,400Deferred revenue  66,100 38,400 31,600Unrecognized tax benefits and other non‐current tax liabilities

30,900 30,600 (10,900)

Other liabilities  30,900 (12,600) 31,400Net cash flows from operating activities 926,800 1,018,600 1,153,600

Investing Activities Capital additions (42,300) (74,600) (89,000)Purchases of investments (225,900) (406,300) (688,200)Sales & maturities of investments 57,000 134,000 653,100Cash paid for acquisitions & investment in affiliates, net of cash acquired

(50,700) (239,700) (7,600)

Payments for settlements of net investment hedges 0 (500) 0Settlement of net investment hedges 0 0 39,700Receipts from settlement of net investment hedges 0 22,200 0Net cash flows used in investing activities (261,900) (564,900) (92,000)

Financing Activities Issuance of notes 497,200 747,700 852,800Repayment of notes (63,800) (300,000) 0Proceeds from stock‐based compensation plans 0 0 89,200Repurchase of shares related to stock‐based compensation

0 0 ‐59,500Net proceeds from stock plans 136,000 98,000 0Excess tax benefits from exercise of stock based compensation awards 38,800 58,700 44,500Cost of treasury shares repurchased (893,100) (1,220,500) (1,098,100)Payment of dividends (197,300) (236,000) (272,100)Payment of dividends to noncontrolling interests (12,200) (11,800) (6,800)Payment to redeem noncontrolling interest 0 ‐183,800 0Contingent consideration paid (300) (10,300) (1,500)Debt issuance costs & related fees (4,100) (6,500) (9,500)Net cash flows used in financing activities (498,800) (1,064,500) (461000)

Effect of exchange rate changes on cash & cash equivalents (2,000) (89,200) (62,700)Increase (decrease) in cash & cash equivalents 164,100 (700,000) 537,900Cash & cash equivalents at beginning of year 1,755,400 1,919,500 1,219,500Cash & cash equivalents at end of year 1,919,500 1,219,500 1,757,400

VisaCash Flow Statement (in thousands)

Fiscal Years Ending Sept. 30 2016E 2017E 2018E 2019E 2020E 2021EOperating Activities Net Income  913,842 1,003,885 1,091,351 1,182,601 1,264,560 1,347,131Adjustments to reconcile net income to net cash provided by operating activities:

Change in current deffered tax assets, net  29,300 0 0 0 0 0Change in non‐current deffered tax assets, net  (12,300) 0 0 0 0 0Change in current deffered tax liabilities, net  (16,700) 0 0 0 0 0Change in non‐current deffered tax liabilities net  21,200 0 0 0 0 0Change in prepaid taxes  13,300 3,203 (5,763) (6,012) (5,400) (5,440)Change in unrecognized tax benefits (8,400) 0 0 0 0 0

Change in operating assets and liabilities:Accounts receivable, net (48,000) (26,444) (66,107) (75,242) (77,711) (85,892)Prepaid expenses 1,900 (3,591) (5,174) (5,889) (6,082) (6,722)Other current assets (15,600) (900) (918) (936) (955) (974)Other assets 800 ‐11,478 ‐12,934 ‐14,721 ‐15,204 ‐16,805Accrued liabilities 17,600 29,885 41,724 50,580 55,633 65,325Accounts payable 17,800 (8,848) 2,196 2,662 2,928 3,438Deferred revenue 14,800 54,965 53,173 60,521 62,507 69,087Non‐current deferred revenue 2,500 9,804 10,922 12,431 12,839 14,191Other liabilities  (17,200) 57,275 34,490 39,257 40,545 44,813

Net cash flows from operating activities 914,842 1,107,756 1,142,962 1,245,252 1,333,660 1,428,152

Investing ActivitiesChange in PP&E, net (18,600) 3,250 (5,650) (17,794) (19,413) (20,725)Change in short‐term investments 119,800 (8,875) (10,916) (11,244) (12,546) (15,943)Change in intangibles, net (900) (54900) (28118) (29939) (29611) (29670)Change in goodwill, net (23,700) 0 0 0 0 0Change in non‐controlling interest (1,500) 0 0 0 0 0Change in AOCI  19,500 0 0 0 0 0Net cash flows used in investing activities 94,600 (60,525) (44,684) (58,976) (61,570) (66,338)

Financing Activities Change in treasury stock  (410,800) (500,000) (700,000) (800,000) (800,000) (800,000)Dividends paid (288,250) (322,448) (354,035) (393,667) (421,001) (467,082)Proceeds from issuance (payment) of long‐term debt 19,000 266,307 286,320 345,594 367,538 380,607Change in CS 54,404 59,714 65,542 65,464 0 0Net cash flows used in financing activities (625,646) (496,427) (702,173) (782,609) (853,463) (886,475)

Increase (decrease) in cash & cash equivalents 383,796 550,804 396,105 403,666 418,627 475,340Cash & cash equivalents at beginning of year 1,757,400 2,141,196 2,692,000 3,088,104 3,491,770 3,910,397Cash & cash equivalents at end of year 2,141,196 2,692,000 3,088,104 3,491,770 3,910,397 4,385,737

Moody's Common Size Income Statement(as % of sales)Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021EOperating revenuesRevenue 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%Total operating revenues 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Operating expensesOperating expenses 27.67% 27.90% 28.02% 28.33% 28.00% 27.75% 27.75% 28.00% 28.00%Selling, general & administrative expenses 27.66% 26.07% 26.44% 26.56% 26.50% 26.50% 26.50% 26.50% 27.00%Goodwill impairment charge 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Depreciation & amortization 3.14% 2.87% 3.26% 3.46% 3.29% 3.13% 2.96% 2.94% 2.90%Total expenses 58.47% 56.84% 57.72% 58.36% 57.79% 57.38% 57.21% 57.44% 57.90%

Operating income 41.53% 43.16% 42.28% 41.64% 42.21% 42.62% 42.79% 42.56% 42.10%42.33% 42.32%

Non‐Operating Interest income  0.19% 0.20% 0.28% 0.32% 0.23% 0.27% 0.28% 0.28% 0.29%Expense on borrowings ‐3.11% ‐3.55% ‐3.46% ‐3.94% ‐3.87% ‐3.88% ‐3.90% ‐3.94% ‐3.95%Other non‐operating income (expense), net 0.89% 1.08% 0.61% 0.38% 0.55% 0.51% 0.47% 0.44% 0.41%ICRA gain 0.00% 3.08% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Non‐operating income (expense), net ‐2.20% 0.66% ‐2.69% ‐3.37% ‐3.09% ‐3.10% ‐3.15% ‐3.21% ‐3.25%

Pre‐tax incomeIncome (loss) before provision for income taxes 39.34% 43.82% 39.59% 38.28% 39.13% 39.52% 39.63% 39.35% 38.85%

Income taxesTotal current provision (benefit) for income taxes 12.80% 12.75% 11.82% 11.48% 12.52% 0.00% 0.00% 0.00% 0.00%

Deferred taxesTotal deferred provision (benefit) for income taxes ‐0.92% 0.90% 0.52% 0.56% 0.39% 0.49% 0.45% 0.42% 0.00%

Provision for income taxes 11.89% 13.65% 12.34% 12.25% 12.52% 12.65% 12.68% 12.59% 12.43%

Net incomeNet income (loss) 27.45% 30.17% 27.25% 26.03% 26.61% 26.88% 26.95% 26.76% 26.42%Less: net loss (income) attributable to noncontrolling interests ‐0.38% ‐0.52% ‐0.24% ‐0.31% ‐0.26% ‐0.24% ‐0.23% ‐0.21% ‐0.19%Net income attributable to Moody's 27.06% 29.65% 27.01% 25.71% 26.34% 26.63% 26.72% 26.55% 26.23%

Moody's Common Size Balance Sheet (as % of sales)

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021ECurrent assetsCash & cash equivalents 64.58% 36.57% 50.43% 60.25% 70.64% 75.36% 78.91% 82.10% 85.38%Short‐term investments 6.28% 13.74% 13.63% 9.99% 9.55% 9.15% 8.72% 8.37% 8.07%Accounts receivable, net 23.35% 23.77% 23.02% 23.92% 23.00% 23.00% 23.00% 23.00% 23.00%Deferred tax assets, net 1.81% 1.32% 0.84% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Prepaid taxes 1.35% 1.96% 2.39% 1.97% 1.75% 1.77% 1.78% 1.76% 1.74%Prepaid expenses 1.62% 1.80% 1.92% 1.83% 1.80% 1.80% 1.80% 1.80% 1.80%Other current assets 0.88% 1.42% 0.84% 1.27% 1.20% 1.14% 1.08% 1.02% 0.97%Total current assets 99.88% 80.57% 93.07% 99.22% 107.95% 112.21% 115.29% 118.05% 120.96%

Non‐current assetsTotal property & equipment, at cost 22.02% 22.61% 23.68% 25.04% 25.06% 25.01% 24.97% 24.98% 24.92%Less: accumulated depreciation & amortization ‐12.64% ‐13.54% ‐14.89% ‐15.90% ‐16.62% ‐17.02% ‐17.17% ‐17.33% ‐17.42%

Property & equipment, net 9.38% 9.07% 8.79% 9.14% 8.44% 7.99% 7.80% 7.65% 7.50%Goodwill 22.38% 30.62% 28.02% 28.14% 26.24% 24.40% 22.60% 20.99% 19.47%Intangible assets, net 7.46% 10.36% 8.58% 8.44% 9.31% 9.35% 9.33% 9.29% 9.19%Deferred tax assets, net 5.00% 5.03% 3.95% 4.22% 3.94% 3.66% 3.39% 3.15% 2.92%Other assets 3.77% 4.38% 4.61% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%Total non‐current assets 47.98% 59.46% 53.96% 54.45% 52.44% 49.90% 47.62% 45.59% 43.58%

Total assets 147.86% 140.03% 147.03% 153.66% 160.39% 162.11% 162.91% 163.64% 164.55%

Current liabilities Accrued liabilities 17.58% 16.14% 15.62% 15.81% 15.53% 15.46% 15.46% 15.53% 15.68%Accounts payable 0.55% 0.58% 0.64% 1.13% 0.82% 0.81% 0.81% 0.82% 0.83%Deferred tax liabilities, net 0.13% 0.52% 0.48% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Current portion of long‐term debt 0.00% 0.00% 0.00% 0.00% 7.87% 0.00% 10.21% 10.71% 0.00%Deferred revenue 20.13% 18.73% 18.23% 18.29% 18.50% 18.50% 18.50% 18.50% 18.50%Total current liabilities 38.40% 35.98% 34.97% 35.23% 42.72% 34.78% 44.99% 45.56% 35.00%

Non‐current liabilities Non‐current portion of deferred revenue 3.67% 3.96% 3.80% 3.80% 3.80% 3.80% 3.80% 3.80% 3.80%Total debt 70.71% 76.40% 97.60% 96.23% 96.74% 96.94% 97.58% 98.38% 98.63%Less: current portion 0.00% 0.00% 0.00% 0.00% ‐7.87% 0.00% ‐10.21% ‐10.71% 0.00%

Long‐term debt 70.71% 76.40% 97.60% 96.23% 88.86% 96.94% 87.37% 87.67% 98.63%Deferred tax liabilities, net 1.99% 2.87% 2.40% 2.95% 2.76% 2.56% 2.37% 2.20% 2.04%Unrecognized tax benefits 6.58% 6.61% 5.84% 5.49% 5.12% 4.76% 4.41% 4.09% 3.80%Other liabilities  12.12% 12.92% 11.97% 11.25% 12.00% 12.00% 12.00% 12.00% 12.00%Total non‐current liabilities  95.07% 102.76% 121.62% 119.72% 112.54% 120.06% 109.95% 109.77% 120.28%

Total liabilities 133.46% 138.74% 156.59% 154.95% 155.26% 154.84% 154.94% 155.33% 155.28%

Contingencies Redeemable noncontrolling interest 2.69% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

EquityCommon stock and capital surplus  13.77% 11.62% 13.05% 14.32% 14.93% 15.48% 15.81% 14.69% 13.62%Retained earnings (accumulated deficit) 178.37% 181.28% 192.54% 206.38% 210.36% 213.60% 215.64% 218.05% 219.33%Treasury stock, at cost ‐178.96% ‐191.47% ‐212.06% ‐219.47% ‐217.81% ‐219.62% ‐221.46% ‐222.55% ‐221.94%Accumulated other comprehensive income (loss) ‐1.84% ‐7.05% ‐9.74% ‐9.00% ‐8.40% ‐7.81% ‐7.23% ‐6.72% ‐6.23%Total Moody's shareholders' equity (deficit) 11.34% ‐5.63% ‐16.21% ‐7.77% ‐0.92% 1.65% 2.76% 3.48% 4.78%Noncontrolling interests 0.37% 6.92% 6.66% 6.49% 6.05% 5.62% 5.21% 4.84% 4.49%Total shareholders' equity (deficit) 11.70% 1.29% ‐9.56% ‐1.29% 5.13% 7.28% 7.97% 8.32% 9.27%

Total liabilities and equity 147.86% 140.03% 147.03% 153.66% 160.39% 162.11% 162.91% 163.64% 164.55%

Moody's Capital Structure

Coupon Maturity Rating Price YTM Size Outstanding (in millions) Bond MV (in millions) Op. Lease PV (in millions) MV Debt (in millions) MV Equity (in millions) Total MV (in millions) Debt % Equity %6.06% 2017 BBB+ 106.00 2.90% 3 3182.75% 2019 BBB+ 102.85 1.69% 4.5 4635.50% 2020 BBB+ 112.07 2.25% 5 5604.50% 2022 BBB+ 111.12 2.46% 5 5564.88% 2024 BBB+ 112.84 2.92% 5 5641.75% 2027 BBB+ 106.43 1.12% 5.55 5915.25% 2044 BBB+ 120.55 4.01% 6 723

$3,052 $665 $3,716 $21,227 $24,944 14.90% 85.10%

Debt % Equity % 2016E 14.90% 85.10%

Moody's Weighted Average Cost of Capital (WACC) Estimation

Weekly Beta (Bloomberg)  2016E Firm Value 1 yr.  1.745 Equity MV $21,2272 yr.  1.406 Debt MV $3,7163 yr.  1.405 Total MV $24,9444 yr. 1.4355 yr.  1.494 Est. Capital Structure  2016E‐2021E10 yr.  1.513 Equity %  85.10%

Debt % 14.90%Cost of equity  9.76%Risk Free Rate  2.46% Implied Constant WACC  2016E‐2021EBeta 1.46 8.71%Market Risk Premium  5%

Cost of debt 4.01% Marginal Tax Rate 32%30‐Year Bond YTM  4.01%

Moody's Value Driver Estimation

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021EKey assumptions:

Marginal tax rate 31% 31% 31% 32% 32% 32% 32% 32% 32%WACC 8.71% 8.71% 8.71% 8.71% 8.71% 8.71% 8.71% 8.71% 8.71%Normal Cash (% of sales)  35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00%Cost of Debt 4.01% 4.01% 4.01% 4.01% 4.01% 4.01% 4.01% 4.01% 4.01%

NOPLAT Computation

Revenue 2,972,500 3,334,300 3,484,500 3,554,000 3,810,624 4,098,044 4,425,184 4,763,058 5,136,504Total operating revenues 2,972,500 3,334,300 3,484,500 3,554,000 3,810,624 4,098,044 4,425,184 4,763,058 5,136,504

Operating expenses 822,400 930,300 976,300 1,007,000 1,066,975 1,137,207 1,227,989 1,333,656 1,438,221Selling, general & administrative expenses 822,100 869,300 921,300 944,000 1,009,815 1,085,982 1,172,674 1,262,210 1,386,856Depreciation & amortization 93,400 95,600 113,500 123,000 125,250 128,232 131,149 139,919 148,938Total operating expenses  1,737,900 1,895,200 2,011,100 2,074,000 2,202,040 2,351,421 2,531,812 2,735,786 2,974,015Implied interest on op. leases 24,907 24,877 26,675 26,655 28,273 27,990 28,482 30,030 31,719EBITA 1,259,507 1,463,977 1,500,075 1,506,655 1,636,857 1,774,613 1,921,854 2,057,302 2,194,208

Income tax provision  353,400 455,000 430,000 435,296 477,122 518,283 561,224 599,793 638,650

(‐)Tax shield on non‐operating income (expense) 8,215 11,129 6,603 4,288 6,720 6,720 6,720 6,720 6,720(‐) Tax on interest income 1,705 2,077 3,007 3,648 2,840 3,493 3,898 4,324 4,783(+) Tax shield on interest expense 28,613 36,704 37,386 44,800 47,185 50,850 55,273 59,978 64,849(+) Tax shield on implied interest 7,721 7,712 8,269 8529.55 9047.34 8956.87 9114.15 9609.50 10149.92Adjusted Taxes 379,814 486,210 466,045 480,690 523,794 567,876 614,993 658,337 702,146

Change in deferred taxes 9,600 41,000 32,000 21,500 0 0 0 0 0

NOPLAT: EBITA ‐ Adjusted Taxes + Change in DT 920,693 1,009,767 1,055,530 1,047,465 1,113,063 1,206,737 1,306,861 1,398,965 1,492,061

Invested Capital Computation:Normal cash 1,040,375 1,167,005 1,219,575 1,243,900 1,333,718 1,434,316 1,548,815 1,667,070 1,797,776Accounts receivable, net  694,200 792,400 802,000 850,000 876,444 942,550 1,017,792 1,095,503 1,181,396Prepaid taxes  40,000 65,400 83,300 70,000 66,797 72,560 78,571 83,971 89,411Prepaid expenses 48,100 59,900 66,900 65,000 68,591 73,765 79,653 85,735 92,457Other current assets 26,300 47,200 29,400 45,000 45,900 46,818 47,754 48,709 49,684Operating Current Assets 1,848,975 2,131,905 2,201,175 2,273,900 2,391,450 2,570,008 2,772,586 2,980,989 3,210,724

Accrued liabilities 522,500 538,200 544,400 562,000 591,885 633,609 684,189 739,822 805,147Accounts payable 16,400 19,400 22,200 40,000 31,152 33,348 36,010 38,938 42,376Deferred revenue 598,400 624,600 635,200 650,000 704,965 758,138 818,659 881,166 950,253Operating Current Liabilities 1,137,300 1,182,200 1,201,800 1,252,000 1,328,002 1,425,095 1,538,858 1,659,926 1,797,776

Net Operating WC 711,675 949,705 999,375 1,021,900 1,063,448 1,144,913 1,233,728 1,321,063 1,412,948

PP&E, net 278,700 302,300 306,400 325,000 321,750 327,400 345,194 364,607 385,332PV of operating leases 620,386 665,212 664,710 705,061 698,010 710,267 748,870 790,985 835,946

Intangibles, net  221,600 345,500 299,100 300,000 354,900 383,018 412,957 442,568 472,238Operating portion of other assets  56,050 72,950 80,400 80,000 85,739 92,206 99,567 107,169 115,571Other LT operating assets 277,650 418,450 379,500 380,000 440,639 475,224 512,523 549,737 587,809

Non‐current portion of deferred revenue  109,200 132,200 132,500 135,000 144,804 155,726 168,157 180,996 195,187Operation portion of other liabilities  144,080 172,360 166,880 160,000 182,910 196,706 212,409 228,627 246,552Other LT operating liabilities  144,080 172,360 166,880 160,000 182,910 196,706 212,409 228,627 246,552

Invested Capital 1,744,331 2,163,307 2,183,105 2,271,961 2,340,937 2,461,099 2,627,907 2,797,766 2,975,482

ROIC  57% 58% 49% 48% 49% 52% 53% 53% 53%Ending NOPLAT  920,693 1,009,767 1,055,530 1,047,465 1,113,063 1,206,737 1,306,861 1,398,965 1,492,061Beg. Invested Capital  1,606,894 1,744,331 2,163,307 2,183,105 2,271,961 2,340,937 2,461,099 2,627,907 2,797,766Ending NOPLAT/Beg. Invested Capital  57% 58% 49% 48% 49% 52% 53% 53% 53%

EP 780,795 857,904 867,189 857,401 915,263 1,002,932 1,092,594 1,170,176 1,248,484Beg. Invested Capital  1,606,894 1,744,331 2,163,307 2,183,105 2,271,961 2,340,937 2,461,099 2,627,907 2,797,766ROIC  57% 58% 49% 48% 49% 52% 53% 53% 53%WACC 8.71% 8.71% 8.71% 8.71% 8.71% 8.71% 8.71% 8.71% 8.71%Beg. Invested Capital*(ROIC ‐ WACC) 780,795 857,904 867,189 857,401 915,263 1,002,932 1,092,594 1,170,176 1,248,484

FCF 783,257 590,791 1,035,732 958,609 1,044,086 1,086,576 1,140,053 1,229,106 1,314,345Ending NOPLAT 920,693 1,009,767 1,055,530 1,047,465 1,113,063 1,206,737 1,306,861 1,398,965 1,492,061Beg. Invested Capital 1,606,894 1,744,331 2,163,307 2,183,105 2,271,961 2,340,937 2,461,099 2,627,907 2,797,766Ending Invested Capital  1,744,331 2,163,307 2,183,105 2,271,961 2,340,937 2,461,099 2,627,907 2,797,766 2,975,482Ending NOPLAT ‐ (Ending Invested Capital ‐ Beg. Invested Capital)

783,257 590,791 1,035,732 958,609 1,044,086 1,086,576 1,140,053 1,229,106 1,314,345

Moody's Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs:     CV Growth 3.50%     CV ROIC 44.56%     WACC 8.71%     Cost of Equity 9.76%

Fiscal Years Ending Dec. 31 2016E 2017E 2018E 2019E 2020E 2021E1 2 3 4 5 6

DCF ModelNOPLAT  1,047,465 1,113,063 1,206,737 1,306,861 1,398,965 1,492,061Beg. IC 2,183,105 2,271,961 2,340,937 2,461,099 2,627,907 2,797,766End IC  2,271,961 2,340,937 2,461,099 2,627,907 2,797,766 2,975,482Change in IC 88,856 68,976 120,161 166,808 169,859 177,716ROIC 48% 49% 52% 53% 53% 53%

FCF 958,609 1,044,086 1,086,576 1,140,053 1,229,106 1,314,345CV 26,408,508PV of FCF 881,835 883,544 845,859 816,411 809,691 17,396,966

Value of Operating Assets 21,634,306Excess Cash 537,825Pension deficit (405,000)Investment securities ST 474,800Bond MV (3,051,662)PV of Operating Leases  (664,710)PV of ESOP (280,457)Noncontrolling Interest (232,000)Value of Equity  18,013,103Year End Shares Outstanding 196,076

Price (12/31/15) $91.87Price today  $97.73

EP ModelNOPLAT  1,047,465 1,113,063 1,206,737 1,306,861 1,398,965 1,492,061Beg. IC 2,183,105 2,271,961 2,340,937 2,461,099 2,627,907 2,797,766End IC  2,271,961 2,340,937 2,461,099 2,627,907 2,797,766 2,975,482ROIC 48% 49% 52% 53% 53% 53%

EP 857,401 915,263 1,002,932 1,092,594 1,170,176 1,248,484CV 23,610,742PV of EP  788,733 774,529 780,745 782,425 770,870 15,553,900

Sum PV of EP 19,451,201Beg. IC 2,183,105Value of Operating Assets 21,634,306Excess Cash 537,825Pension deficit (405,000)Investment securities ST 474,800Bond MV (3,051,662)PV of Operating Leases  (664,710)PV of ESOP (280,457)Noncontrolling Interest (232,000)Value of Equity  18,013,103Year End Shares Outstanding 196,076

Price (09/30/15) $91.87Price today  $97.73

Moody's Dividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending Dec. 31 2016E 2017E 2018E 2019E 2020E 2021E1 2 3 4 5 6

EPS $4.69 $5.23 $5.80 $6.43 $7.06 $7.73

Key Assumptions   CV growth 4.00%   CV ROE 384.90%   Cost of Equity 9.76%

Future Cash Flows     P/E Multiple (CV Year) 17.18     EPS (CV Year) $7.73     Future Stock Price $132.80     Dividends Per Share     Future Cash Flows $1.48 $1.68 $1.88 $2.14 $2.35 $2.68

     Discounted Cash Flows $1.35 $1.39 $1.42 $1.47 $1.48 $83.36

Intrinsic Value (12/31/2015) $89.13Price Today $94.82

Moody's Relative Valuation Models

EPS EPS Est. 5yr Ticker Company Price 2016E 2017E P/E 16 P/E 17 EPS gr. (%) PEG 16 PEG 17SPGI S&P Global $123.86 $5.20  $5.83  23.8 21.2 12.15 1.96  1.75MORN Morningstar Inc. $77.06 $3.04  $3.34  25.3 23.1 16.00 1.58  1.44MSCI MSCI Inc.  $82.66 $2.92  $3.47  28.3 23.8 15.78 1.79  1.51FDS FactSet $157.38 $7.04  $7.75  22.4 20.3 9.83 2.27  2.07TRI Thomson Reuters  $40.50 $2.01  $2.31  20.1 17.5 11.35 1.78  1.54

Average 24.0       21.2       1.9 1.7Source: Yahoo! Finance

MCO  Moody's  $108.26 $4.69  $5.23  23.1 20.7           8.45  2.7           2.4         

Implied Value:   Relative P/E (EPS16)  $ 112.59    Relative P/E (EPS17) 110.86$    PEG Ratio (EPS16) 74.49$      PEG Ratio (EPS17) 73.50$   

CV Growth NOPLAT 2021E EBITA$97.73 1.50% 2.50% 3.50% 4.50% 5.50% $97.73 1,800,000 2,000,000 2,194,145 2,400,000 2,600,00025% $72.81 $80.59 $91.35 $107.23 $133.02 1,250,000 $70.93 $83.58 $95.87 $108.89 $121.5535% $74.08 $83.04 $95.45 $113.75 $143.48 1,400,000 $71.62 $84.27 $96.56 $109.58 $122.24

CV ROIC 45% $74.76 $84.36 $97.73 $117.25 $149.09 2017E EBITA 1,636,801 $72.70 $85.36 $97.73 $110.67 $123.3355% $75.23 $85.27 $99.17 $119.68 $152.99 1,900,000 $73.91 $86.57 $98.85 $111.88 $124.5365% $75.54 $85.87 $100.18 $121.28 $155.55 2,150,000 $75.06 $87.72 $100.00 $113.03 $125.6875% $75.77 $86.32 $100.91 $122.45 $157.43

Risk Premium Risk-Free Rate$97.73 4.00% 4.50% 5.00% 5.50% 6.00% $97.73 1.50% 2.00% 2.46% 3.00% 3.50%

1.15 $189.12 $159.30 $136.97 $119.63 $105.76 20% $144.31 $130.02 $118.93 $107.86 $99.091.30 $158.19 $133.65 $115.09 $100.56 $88.87 25% $133.86 $120.46 $110.06 $99.68 $91.45

Beta 1.46 $133.98 $113.36 $97.73 $85.26 $75.26 Marginal Tax 32% $119.23 $107.08 $97.73 $88.23 $80.771.60 $117.65 $99.57 $85.72 $74.76 $65.87 Rate 35% $112.96 $101.34 $92.32 $83.32 $76.191.75 $103.63 $87.67 $75.38 $65.62 $57.67 40% $102.51 $91.78 $83.45 $75.14 $68.55

Moody's Key Management Ratios

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E

Liquidity RatiosQuick Ratio  2.45 2.06 2.49 2.67 2.42 3.09 2.46 2.49 3.33(cash+ST investments+AR/current liabilities)

Current Ratio  2.60 2.24 2.66 2.82 2.53 3.23 2.56 2.59 3.46(current assets/current liabilities)

Activity or Asset‐Management RatiosAR turnover 4.52 4.49 4.37 4.30 4.41 4.51 4.51 4.51 4.51(operating rev/AR)

Asset turnover 0.71 0.74 0.71 0.67 0.66 0.64 0.64 0.63 0.63(sales/avg. total assets)

Financial Leverage RatiosDebt as % of total assets 47.82% 54.56% 66.38% 62.62% 60.32% 59.80% 59.90% 60.12% 59.94%(BV total debt/BV total assets) 

Debt‐to‐Equity Ratio  6.24 (13.56) (6.02) (12.38) (104.86) 58.68 35.37 28.29 20.62(BV total debt/BV equity)

Interest Coverage Ratio  13.38 12.15 12.22 10.57 10.91 10.99 10.96 10.82 10.67(op. income/int. exp.)

Profitability RatiosROA  16.52% 17.75% 20.19% 17.79% 15.79% 15.74% 15.76% 15.76% 15.57%(NI/avg. BV assets)

ROE  130.29% ‐4168.39% ‐150.05% ‐168.45% ‐527.30% 2002.65% 699.79% 521.63% 384.90%(NI/avg. BV equity)

Payout Policy RatiosDividend payout  24.54% 23.87% 28.91% 31.54% 32.12% 32.44% 33.29% 33.29% 34.67%