Morningstar (MORN)

Investment research firm Morningstar (NASDAQ:MORN) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 8.4% year on year to $617.4 million. Its GAAP profit of $2.17 per share was 0.8% below analysts’ consensus estimates.

Company Overview

Founded in 1984 by Joe Mansueto with just $80,000 in personal savings, Morningstar (NASDAQ:MORN) provides independent investment data, research, and analysis tools that help investors, advisors, and institutions make informed financial decisions.

Financial exchanges and data providers operate trading platforms and sell market information. They enjoy relatively stable revenue from trading fees and subscriptions, increasing demand for data analytics, and expansion opportunities in emerging markets. Challenges include regulatory oversight of market structure, competition from alternative trading venues, and substantial technology investments needed to maintain low-latency trading infrastructure and data security.

Morningstar's competitors include Bloomberg, FactSet, and LSEG (Refinitiv) in data and analytics; MSCI, S&P Global, and Moody's in research and ratings; Envestnet and SEI Investments in wealth management platforms; and CB Insights and Preqin in private market data.

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, Morningstar’s 12.3% annualized revenue growth over the last five years was solid. Its growth surpassed the average financials company and shows its offerings resonate with customers, a great starting point for our analysis.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Morningstar’s annualized revenue growth of 10.1% over the last two years is below its five-year trend, but we still think the results were respectable. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Morningstar reported year-on-year revenue growth of 8.4%, and its $617.4 million of revenue exceeded Wall Street’s estimates by 2.4%.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For Financial Exchanges & Data companies, we look at pre-tax profit rather than the operating margin that defines sectors such as consumer, tech, and industrials.

Financials companies manage interest-bearing assets and liabilities, making the interest income and expenses included in pre-tax profit essential to their profit calculation. Taxes, being external factors beyond management control, are appropriately excluded from this alternative margin measure.

Over the last four years, Morningstar’s pre-tax profit margin has fallen by 3.6 percentage points, going from 17% to 20.7%. It has also expanded by 14.8 percentage points on a two-year basis, showing its expenses have consistently grown at a slower rate than revenue. This typically signals prudent management.

In Q3, Morningstar’s pre-tax profit margin was 19.9%. This result was 6.3 percentage points worse than the same quarter last year.

Return on equity, or ROE, quantifies bank profitability relative to shareholder equity - an essential capital source for these institutions. Over extended periods, superior ROE performance drives faster shareholder wealth compounding through reinvestment, share repurchases, and dividend growth.

Over the last five years, Morningstar has averaged an ROE of 15.2%, healthy for a company operating in a sector where the average shakes out around 10% and those putting up 25%+ are greatly admired. This shows Morningstar has a decent competitive moat.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

Morningstar currently has $888.8 million of debt and $1.51 billion of shareholder's equity on its balance sheet, and over the past four quarters, has averaged a debt-to-equity ratio of 0.6×. We think this is safe and raises no red flags. In general, we’re comfortable with any ratio below 3.5× for a financials business.

It was encouraging to see Morningstar beat analysts’ revenue expectations this quarter. On the other hand, EPS missed slightly. The stock traded up 1.1% to $212 immediately following the results.

Updated: December 4, 2025 at 11:03 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Morningstar, you should also grasp the company’s longer-term business quality and valuation.

Morningstar is a rock-solid business worth owning. First of all, the company’s revenue growth was solid over the last five years. On top of that, its astounding EPS growth over the last two years shows its profits are trickling down to shareholders, and its expanding pre-tax profit margin shows the business has become more efficient.

Morningstar’s P/E ratio based on the next 12 months is 21.4x. This multiple isn’t necessarily cheap, but we’ll happily own Morningstar as its fundamentals shine bright. It’s often wise to hold investments like this for at least three to five years, as the power of long-term compounding negates short-term price swings that can accompany relatively high valuations.

Wall Street analysts have a consensus one-year price target of $278.33 on the company (compared to the current share price of $216.93).