Analyst Note| Rajiv Bhatia, CFA |
We consider Moody’s announcement that it is acquiring RMS for $2.0 billion a good use of capital. RMS is a provider of climate and natural disaster risk modeling and analytics primarily for the property and casualty insurance market. Moody’s expects $150 million in incremental annualized revenue by 2025, so it is essentially betting that it can raise RMS’ current low-single-digit underlying revenue growth rate to around 10%. Though we’d normally be skeptical of such goals, we have high regard for Moody’s management, given its track record. Also, the firm gave several examples of revenue synergies, something often lacking during acquisition conference calls. We will maintain our wide moat rating and $327 fair value estimate for Moody’s.