02.20.09 

morn: MARKET TURMOIL IMPACTS FEE-BASED BUSINESSES, 4Q:08 RESULTS TRAIL EXPECTATIONS WITH LITTLE RELIEF IN SIGHT; LOWERING RATING TO HOLD ON MARKET VOLATILITY
Morningstar 4Q:08 results highlight the challenging environment experienced by practically every company involved with financial services. While the company is still best characterized as a financial technology firm, it has made great strides over the past several years into the investment advisement business, which tied its profitability far more closely to market performance than in the past. The company's 4Q:08 results were therefore highly tied to the bear market results that ensued over the latter half of 2008. 4Q:08 revenues were $119.3 million, while EPS was $0.39, both lower on a linked quarter basis and below our and consensus expectations. Organic revenues were 3.2% below 3Q:08 results, primarily due to lower revenues from assets under advisement. Given the continued decline in equity values this quarter, along with our belief that any market rebound will be long and protracted (versus a V-shaped recovery), we are lowering our guidance for 2009 to reflect these challenging times. Our FY:09 revenue expectations are set at $491 million, 2.3% below FY:08, while our EPS estimate is $1.80, 4.4% lower y/y. We are also lowering our rating to Hold, given our expectation of weak organic results until market conditions improve significantly. Contact Us for Full Report - PDF

10.31.08 

morn: NO ONE IS IMMUNE FROM THE FINANCIAL CRISIS; REPORTS WEAKER 3Q:08 RESULTS ON SLOWING ORGANIC BUSINESS
Morningstar reported 3Q:08 EPS of $0.45, well behind our estimate of $0.54 and the $0.51 consensus figure. In a nutshell, the company was impacted by the financial crisis to a greater extent than we expected. Organic growth was just 8% y/y, its slowest level since going public. Additionally, the improving margin trends that we expected were not maintained in the quarter, reflecting the strength in the Company's cost structure when organic revenues are growing strongly, but highlighting the disadvantage when this growth slows. As far as our model is concerned, our expectations were too aggressive for each of the company's operating groups, with the most important group (Institutional) registering an estimated 6% y/y organic growth rate. Given that the financial crisis continues to challenge practically all companies, we have adjusted our estimates for the remainder of 2008 and most of 2009. Our EPS estimates are now $0.47, $1.96 and $2.20 for 4Q:08, FY:08 and FY:09, respectively. With the company trading at 18x our FY:09 estimate (and likely lower following Friday's open) we are maintaining our Buy rating, while reducing our price target to $50. Contact Us for Full Report - PDF

09.19.08 

morn: BUSINESS MODEL AND BALANCE SHEET PROVIDE STABILITY AND OPPORTUNITY IN CURRENT MARKET TURMOIL
Morningstar stock traded near its lows of the year yesterday and is now down 26% YTD. With all things financial at the epicenter of the bear market, we are not necessarily surprised by the weakness in MORN stock. The volatility of the stock over the past several days, however, indicates to us a potential guilt by association (to all things financial) for the company. We ultimately feel that this is an incorrect association and feel that Morningstar''s business model and balance sheet should warrant investor interest at these levels. We are sticking by our estimates at this time, as we still believe that a large portion of revenues are protected from the current market turmoil and that management has plenty of operating leverage in its business model to extract additional gains. We are establishing a $65 price target, which represents 26x our 2009 EPS estimate, which is at the low end of historical forward P/E performance. The 13% of potential upside is consistent with our Buy rating. Contact Us for Full Report - PDF

08.01.08 

morn: MORNINGSTAR POSTS SOLID Q2:08 RESULTS AS MARGIN IMPROVEMENT DRIVES SIGNIFICANT EPS OUTPERFORMANCE
Morningstar reported a solid Q2:08, with topline and EPS results that exceeded our and street expectations. Revenues were $132 million, $5 million or 4% above our expectations, while EPS was reported at $0.57 versus our $0.48 estimate. Operating leverage improved dramatically during the quarter with EBITDA margins of 36.2% expanding 530 bps y/y and 360 bps sequentially. While currency translations contributed a positive $3.1 million to revenues during the quarter, this does not diminish the solid performance posted by the company in our opinion. Organic growth proved a potential concern, with the 13% increase the slowest in the company's history as a public company. We have adjusted our estimates upwards, driven largely by the solid gains in operating margins. As a result, our FY:08 EPS estimate moves to $2.13 from $1.98, while our FY:09 expectations are now $2.47, up from $2.41. Contact Us for Full Report - PDF

05.02.08 

morn: FQ1:08 RESULTS BEAT EXPECTATIONS; COMMENTARY PROVIDES MIXED VIEW ON IMPACT FROM GLOBAL FINANCIAL TURMOIL; H2:09 EXPIRATION OF WALL STREET SETTLEMENT LOOMS
Morningstar reported FQ1:08 results last night that exceeded our and consensus expectations. Revenues were $125.4 million, 4.7% above our estimate while EPS of $0.47 was $0.03 above our and street expectations. While on the surface these numbers indicate strong out performance, a $2.3 million positive currency translation and much lower than expected tax rate accounted for most if not all of the positive surprise. The company reported y/y organic growth of 17.4% in the current quarter, which we believe is one of the slowest organic growth rates over the past several years, as the turmoil in the financial markets apparently impacted several product categories. The Company completed its acquisition of various Hemscott businesses during the quarter and ended the quarter with over $200 million in cash and investments. Contact Us for Full Report - PDF

02.22.08 

morn: FQ4:07 RESULTS DRIVEN BY STRONG INSTITUTIONAL REVENUE PERFORMANCE; FOCUS SHIFTS TO HEMSCOTT ACQUISITION
Morningstar reported FQ4:07 earnings last night that provided a mixed bag of results, with revenues exceeding our estimates while EPS missed our and consensus expectations. Revenues were $118.1 million for FQ4:07, 3.2% above our estimates and 36% higher y/y. EPS was $0.41, $0.02 below our expectations and consensus. This miss was due in large part to higher than modeled G&A expenses, along with a higher than expected tax rate. Each of the Company's operating divisions reported strong income gains, although the institutional sector continued to lead all businesses, with a 50% y/y increase. Margins were steady on a sequential basis, and we do not see any reason why they should not continue to improve during FY:08. We have adjusted our model to include the recently acquired businesses from Hemscott, which closed in early January. For FY:08, we expect revenue of $533.7 million while we are forecasting $2.03 in EPS, representing a 32% y/y increase. Contact Us for Full Report - PDF

11.01.07 

morn: REPORTS SOLID Q3:07, OPERATING LEVERAGE ACCELERATES
Morningstar reported Q3:07 earnings this morning which generally exceeded our and consensus expectations. The company reported EPS of $0.41, a positive $0.02 surprise. Driving gains was a strong 37% increase in revenues along with continued improvements in operating leverage. Each of the company's three divisions contributed to the gains, led by a 58% increase in institutional revenues. The S&P mutual fund data acquisition contributed to total results and drove international revenues to 22% of total revenues, from just 15% in Q3:06. We are adjusting our model to reflect the improved operating leverage witnessed in the current quarter, which results in our EPS expectations rising to $0.43, $1.55 and $2.02 in Q4:07, FY:07 and FY:08, respectively. Contact Us for Full Report - PDF

10.30.07 

morn: Q3:07 PREVIEW; RESULTS EXPECTED NOVEMBER 1
Morningstar is expected to report Q3:07 earnings on Thursday, November 1st, before the market open. As is customary for Morningstar, the company will not hold a conference call, but has generally provided a fairly detailed earnings release in the past. Given the lack of guidance from the company, and fairly limited research coverage, earnings have proven to be a volatile time for MORN shares in the past, typically trading an average 10% higher or lower following its prior earnings reports. We expect $0.39 in EPS for Q3:07, in line with consensus expectations. Our revenue estimate is $112.5 million, which we expect to be driven by continued 30+% growth in each of the company's operating divisions. Contact Us for Full Report - PDF

10.12.07 

morn: INITIATING COVERAGE - WIND IN THE SALES
We are initiating coverage of Morningstar, a leading provider of independent investment research. Over the past several years, we believe that the company has strengthened its position as the de-facto provider of mutual fund ratings and analysis. During this period, several new products have driven strong revenue growth, including analysis of stocks, hedge fund, ETF's and variable annuities, along with a rapidly growing investment management and consulting franchise. As such, the Company has posted annual revenue growth in excess of 20% in each of the past five years, while EPS growth has been even stronger, spurred on by improving operating leverage. We believe that these positive trends can continue as the Company further expands its products and services, and continues to establish itself as a prominent brand name within the financial services sector. Contact Us for Full Report - PDF