President and Portfolio Manager Matthew Dent of D.F. Dent and Company says Moody’s Corporation (NYSE:MCO) checks all the boxes in terms of what he is looking for in a stock.
“One company that fits our criteria is Moody’s. Moody’s is a leading provider of credit ratings for publicly traded bonds combined with a subscription-oriented analytics business. The company is niche-focused and has significant barriers to entry,” Dent says.
Matthew Dent
Dent adds that based on new regulations, compliance and infrastructure requirements, the barriers to entry have gotten even higher in the last five years.
“So they check the box on being a niche-focused company with significant barriers to entry. They have a very strong business model with significant recurring revenues and high margins. This enables Moody’s to reinvest its capital in high-return opportunities or to return it to shareholders through dividends and share repurchases,” Dent says.
Dent says Moody’s management team is doing a great job running the company for the benefit of shareholders. He says they have a strong track record of both operational excellence and capital allocation.
“Specifically, on the capital allocation side, Moody’s has been very disciplined. They’ve made small, tuck-in acquisitions and have returned capital to shareholders. In fact, over the last 10 years, they have bought back over 30% of the shares outstanding on a net basis. Actually, if you go back further, you’ll see that percentage increases to over 50%. So Moody’s checks all three boxes in terms of what we are looking for and has nice growth potential going forward,” Dent says.
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