MORN

We rate Morningstar, Inc. (MORN) as a Reduce with a composite score of 45.7/100 at a current price of $161.95. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in quality (77th percentile) and value (61th percentile), which together account for the majority of the composite score. Offsetting weakness in momentum (8th percentile) and investment (38th percentile) tempers our overall conviction. We assign a Narrow Moat rating (62/100), High uncertainty, and Standard capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs; balance sheet deleveraging progress. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Morningstar, Inc. holds a top-quartile position (#0 of 50) within the Finance, Insurance, And Real Estate sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 45.7/100 places it at rank #2684 in our full 7,333-stock universe. At $9.8B in market capitalization, Morningstar, Inc. is a mid-cap player in the Finance, Insurance, And Real Estate space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 8%, though momentum at the 8th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 61% (-15.5pp vs sector) narrow to operating margins of 20% (+3.3pp vs sector) and net margins of 16.0%, yielding a gross-to-net conversion rate of 26%. This conversion rate is typical for the sector, suggesting a standard cost structure without notable efficiency advantages or disadvantages.

At a current price of $161.95, Morningstar, Inc. is trading near fair value based on current fundamentals. Our value factor score of 61/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 16.7x (a 40% premium to the sector median of 11.9x), EV/EBITDA of 13.1x (at a premium), P/B of 5.2x, P/S of 2.7x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis partially supports given strong quality metrics.

We assign a High uncertainty rating to Morningstar, Inc.. Key risk factors include significant leverage (194% debt-to-equity). The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: significant leverage (194% debt-to-equity). Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 41th percentile and quality factor at the 77th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 61% provide a buffer against cost pressures. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile warrants caution and disciplined position management.

We rate Morningstar, Inc.'s capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 31.0%, and the balance sheet is managed within acceptable parameters (D/E: 194%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; Morningstar, Inc. falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. The 0.76% dividend yield provides some income return, but the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, Morningstar, Inc. receives a Reduce rating with a composite score of 45.7/100 (rank #2684 of 7,333). Our quantitative framework assigns a Narrow Moat (62/100, trend: stable), High uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 45/100.

Our analysis does not support a constructive view on Morningstar, Inc. at this time. The combination of the current quantitative profile, high uncertainty, and standard capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.