Moody's Trades at 37 Times Earnings Ahead of Its July 22 Report. Is the Wide-Moat Ratings Giant Worth the Premium?

Moody's (NYSE: MCO), one of the largest providers of financial data, analytics, and credit rating services in the U.S., is often considered an evergreen stock. It shares a near-duopoly in the financial data market with S&P Global (NYSE: SPGI), and both companies serve a broad range of businesses and financial institutions.

However, Moody's stock has stayed nearly flat year to date, underperforming the S&P 500's 9% gain. It also looks historically expensive at 37 times its trailing earnings, while the S&P 500 trades at 32 times earnings. Should you still invest in Moody's before its second-quarter earnings report on July 22, or should you wait for it to cool off to more reasonable valuations?

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What is Moody's stock treading water?

Moody's usually thrives in bull and bear markets, since its customers will use its services to make informed financial decisions regardless of the market's overall direction. In 2022 and 2023, rising interest rates curbed demand for its credit rating services, which are used to approve new debt offerings, but that business recovered as interest rates fell in 2024 and 2025.

Moody's has also been upgrading its platform with new AI features to process its financial data more efficiently and widen its moat against AI-powered challengers. It's also integrating those services into Amazon Web Services (AWS) and Microsoft's Copilot to keep pace with the shift toward cloud and AI services.

For 2026, Moody's expects its revenue to grow by the high single digits, its adjusted operating margin to expand from 51.1% in 2025 to 52%-53%, and for its adjusted EPS to rise 10%-14%. It also aims to allocate most of its free cash flow (FCF) of $2.8-$3.0 billion toward $2.5 billion in buybacks (equivalent to nearly 3% of its market cap of $89.2 billion).

That outlook is bright, but two major issues are weighing down its stock. First, many analysts expect interest rate hikes in the second half of 2026 if inflation doesn't cool down. That pressure could impact its rating services for new debt issuances. Second, the market's enthusiasm for its AI initiatives -- along with its rosy guidance for the rest of the year -- inflated its valuations. Rising interest rates could compress those valuations and drive investors toward cheaper stocks.

Should you buy Moody's before its next earnings report?

Moody's is still a solid long-term investment, but I wouldn't rush to buy it before its next earnings report. I'd wait to see what it says about the current macro environment, the monetization of its AI integrations, and its full-year guidance before assuming that it will regain its mojo in the second half of the year.

Leo Sun has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Microsoft, Moody's, and S&P Global. The Motley Fool has a disclosure policy.