Flyover Stock: Morningstar (MORN)
From mutual fund ratings to data powerhouse: How Morningstar became an essential tool for investment professionals
As familiar as Morningstar is to retail and institutional investors, it remains not well known among the general public. In fact, when I worked for Morningstar a decade ago, it was not uncommon for people I’d meet to ask if I worked for Morningstar the plant-based meat company.
Even among investors, many do not know that Morningstar is a publicly-traded company. Only three sell-side analysts cover the stock today. The stock’s relatively low liquidity, due to the large insider ownership, has something to do with it being overlooked versus peers like FactSet and S&P.
Morningstar indeed has Flyover Stock characteristics. Since it went public in 2005, it has since outpaced both the Nasdaq 100 and the S&P 500 trackers on a total return basis.
Joe Mansueto, who currently owns 35% of Morningstar stock and serves as executive chairman, founded Morningstar in 1984 from his North Side Chicago apartment. He chose the name Morningstar from the final line of Thoreau’s Walden: “The sun is but a morning star.”
The now-iconic Morningstar logo was a massive early investment for Mansueto who wanted renowned minimalist designer Paul Rand to create something special. Rand, who had designed the IBM, UPS, and Westinghouse logos, styled the “O” in Morningstar to be a rising sun, illuminating the opaque financial industry.
The mid-80s marked the dawn of the mutual fund era and gathering and centralizing data from the various fund companies was a cumbersome process. Back then, you had to write to each fund or call them to request information and wait for it to arrive. Comparing fund options for a client could take weeks.
Mansueto, a former Harris Associates analyst, recognized the opportunity and gained traction with early mutual fund investors who were eager for better data. As Morningstar's printed reports and newsletters on mutual funds grew in popularity, mutual fund companies began voluntarily sending their data to be included.
It turned out that collecting and centralizing financial data was a pretty good business. Morningstar only snowballed from there, expanding service offerings to just about every corner of the global financial markets over the subsequent 41 years.
While Morningstar has been a successful business by any measure over four decades, it faces new challenges and opportunities today. Let’s take a closer look at its moat, management, valuation, and other important factors.
Key Data
Headquarters: Chicago, Illinois
Market cap: $12.7 billion
2024 Revenue: $2.3 billion
P/E (ntm): 33x
Analyst coverage: 3
Business overview
Morningstar has five reporting segments:
Data & Analytics: Is primarily license-based subscription revenue and includes Morningstar Direct, Morningstar Data, Morningstar Research. Direct is Morningstar’s largest product by revenue, generating an estimated $224 million in 2024. It enables asset managers, RIAs, and institutional investors to do deep fund analysis, performance attribution, and customizable reporting. Direct’s primary competitors are Bloomberg, FactSet, Refinitiv, and S&P Global. Morningstar Data includes the famous Morningstar Style Box, Ratings, and other proprietary metrics. Morningstar has a deep database of managed investment data, industry statistics, and ownership data. This segment is the core of Morningstar’s economic moat, discussed in greater detail below.