Moody’s (MCO, Financial) provides essential information to the world’s capital markets. We have a long history with Moody’s, dating back to the 1990s when it was a part of Dun & Bradstreet. The stock briefly traded for less than 17x 2018 earnings estimates because investors feared that rising interest rates and changing tax policies would depress debt issuance. Although such events would likely result in slower growth in the short term, we believe the company’s long-term prospects remain compelling. Bonds issued with a Moody’s rating pay meaningfully lower interest rates than those without a Moody’s rating, and the price paid to Moody’s is much lower than the interest savings the issuer realizes. We believe this will create consistent demand for bond ratings as debt markets grow. Management is cognizant of the value that the Moody’s rating provides, and they are able to steadily raise prices year after year. In our view, Moody’s is a great business with growing profits, run by a management team we’ve known and respected for years, and the shares trade at a price that is well below our estimate of intrinsic value.
From the Oakmark Select Fund first-quarter 2017 shareholder letter.
