Moody's is facing headline risk due to litigation risk associated with the high ratings they had on CDO's and other structured finance paper. I expect they will continue to face this headline risk for a while so you will have to be patient with this investment. I believe this litigation issues are overblown. I'd be more concerned with loss of revenue due less structured finance issues coming to market . Okay, that was the bear case.
Bull case is pretty self-evident if you dig through their annual reports. It's nice non-capital intensive business that generates exceptionally high returns on invested capital. With free cash flow yields north of 30% in the last 3 years and having bought back significant amount of stock, I'm pretty comfortable with management's use of capital and decision making.
If you can weather through the tough times and are willing to add to your position opportunistically, this would be an ideal investment. Warren Buffet's on board if it's any comfort.
My cost basis is around $60.
$57.15 (08/09/07)
