Intrinsic value of Morningstar, Inc. - MORN

Previous Close

$120.89

  Intrinsic Value

$101.56

stock screener

  Rating & Target

hold

-16%

Previous close

$120.89

 
Intrinsic value

$101.56

 
Up/down potential

-16%

 
Rating

hold

We calculate the intrinsic value of MORN stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 5.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  8.10
  7.79
  7.51
  7.26
  7.03
  6.83
  6.65
  6.48
  6.33
  6.20
  6.08
  5.97
  5.88
  5.79
  5.71
  5.64
  5.57
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.27
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
Revenue, $m
  1,103
  1,189
  1,278
  1,371
  1,467
  1,567
  1,671
  1,780
  1,892
  2,010
  2,132
  2,259
  2,392
  2,531
  2,675
  2,826
  2,983
  3,148
  3,320
  3,500
  3,688
  3,885
  4,091
  4,307
  4,533
  4,770
  5,018
  5,278
  5,550
  5,836
Variable operating expenses, $m
  629
  673
  719
  766
  816
  867
  921
  976
  1,034
  1,094
  1,094
  1,159
  1,227
  1,298
  1,373
  1,450
  1,531
  1,615
  1,704
  1,796
  1,892
  1,994
  2,099
  2,210
  2,326
  2,447
  2,575
  2,708
  2,848
  2,994
Fixed operating expenses, $m
  228
  233
  238
  243
  249
  254
  260
  265
  271
  277
  283
  290
  296
  302
  309
  316
  323
  330
  337
  345
  352
  360
  368
  376
  384
  393
  401
  410
  419
  428
Total operating expenses, $m
  857
  906
  957
  1,009
  1,065
  1,121
  1,181
  1,241
  1,305
  1,371
  1,377
  1,449
  1,523
  1,600
  1,682
  1,766
  1,854
  1,945
  2,041
  2,141
  2,244
  2,354
  2,467
  2,586
  2,710
  2,840
  2,976
  3,118
  3,267
  3,422
Operating income, $m
  246
  283
  321
  361
  402
  446
  491
  538
  587
  638
  755
  810
  869
  930
  993
  1,060
  1,130
  1,203
  1,279
  1,359
  1,443
  1,532
  1,624
  1,721
  1,823
  1,929
  2,042
  2,159
  2,283
  2,413
EBITDA, $m
  371
  412
  456
  501
  548
  597
  648
  701
  756
  814
  874
  937
  1,003
  1,071
  1,143
  1,218
  1,297
  1,379
  1,465
  1,555
  1,650
  1,749
  1,853
  1,962
  2,076
  2,196
  2,322
  2,455
  2,594
  2,739
Interest expense (income), $m
  1
  4
  6
  8
  11
  13
  16
  19
  22
  25
  28
  31
  34
  38
  41
  45
  49
  53
  58
  62
  67
  72
  77
  82
  88
  94
  100
  107
  113
  121
  128
Earnings before tax, $m
  242
  277
  313
  350
  389
  430
  472
  516
  562
  610
  724
  776
  831
  888
  948
  1,011
  1,076
  1,145
  1,217
  1,292
  1,372
  1,455
  1,542
  1,633
  1,729
  1,829
  1,935
  2,046
  2,162
  2,285
Tax expense, $m
  65
  75
  84
  95
  105
  116
  127
  139
  152
  165
  195
  210
  224
  240
  256
  273
  291
  309
  329
  349
  370
  393
  416
  441
  467
  494
  522
  552
  584
  617
Net income, $m
  177
  202
  228
  256
  284
  314
  345
  377
  411
  446
  528
  567
  607
  648
  692
  738
  786
  836
  888
  943
  1,001
  1,062
  1,125
  1,192
  1,262
  1,335
  1,412
  1,493
  1,578
  1,668

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  1,536
  1,655
  1,780
  1,909
  2,043
  2,183
  2,328
  2,479
  2,636
  2,799
  2,969
  3,147
  3,332
  3,524
  3,726
  3,936
  4,155
  4,384
  4,624
  4,874
  5,137
  5,411
  5,698
  5,998
  6,313
  6,643
  6,988
  7,350
  7,730
  8,128
Adjusted assets (=assets-cash), $m
  1,536
  1,655
  1,780
  1,909
  2,043
  2,183
  2,328
  2,479
  2,636
  2,799
  2,969
  3,147
  3,332
  3,524
  3,726
  3,936
  4,155
  4,384
  4,624
  4,874
  5,137
  5,411
  5,698
  5,998
  6,313
  6,643
  6,988
  7,350
  7,730
  8,128
Revenue / Adjusted assets
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
  0.718
Average production assets, $m
  506
  546
  587
  629
  673
  719
  767
  817
  869
  922
  979
  1,037
  1,098
  1,162
  1,228
  1,297
  1,369
  1,445
  1,524
  1,606
  1,693
  1,783
  1,878
  1,977
  2,081
  2,189
  2,303
  2,422
  2,547
  2,679
Working capital, $m
  -170
  -183
  -197
  -211
  -226
  -241
  -257
  -274
  -291
  -310
  -328
  -348
  -368
  -390
  -412
  -435
  -459
  -485
  -511
  -539
  -568
  -598
  -630
  -663
  -698
  -735
  -773
  -813
  -855
  -899
Total debt, $m
  111
  155
  200
  248
  297
  348
  401
  456
  513
  573
  635
  699
  767
  837
  911
  987
  1,067
  1,151
  1,239
  1,330
  1,426
  1,526
  1,631
  1,740
  1,855
  1,976
  2,102
  2,234
  2,372
  2,517
Total liabilities, $m
  561
  604
  650
  697
  746
  797
  850
  905
  962
  1,022
  1,084
  1,149
  1,216
  1,286
  1,360
  1,437
  1,517
  1,600
  1,688
  1,779
  1,875
  1,975
  2,080
  2,189
  2,304
  2,425
  2,551
  2,683
  2,821
  2,967
Total equity, $m
  975
  1,051
  1,130
  1,212
  1,297
  1,386
  1,478
  1,574
  1,674
  1,777
  1,886
  1,998
  2,116
  2,238
  2,366
  2,499
  2,638
  2,784
  2,936
  3,095
  3,262
  3,436
  3,618
  3,809
  4,009
  4,218
  4,438
  4,667
  4,908
  5,161
Total liabilities and equity, $m
  1,536
  1,655
  1,780
  1,909
  2,043
  2,183
  2,328
  2,479
  2,636
  2,799
  2,970
  3,147
  3,332
  3,524
  3,726
  3,936
  4,155
  4,384
  4,624
  4,874
  5,137
  5,411
  5,698
  5,998
  6,313
  6,643
  6,989
  7,350
  7,729
  8,128
Debt-to-equity ratio
  0.110
  0.150
  0.180
  0.200
  0.230
  0.250
  0.270
  0.290
  0.310
  0.320
  0.340
  0.350
  0.360
  0.370
  0.380
  0.400
  0.400
  0.410
  0.420
  0.430
  0.440
  0.440
  0.450
  0.460
  0.460
  0.470
  0.470
  0.480
  0.480
  0.490
Adjusted equity ratio
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635
  0.635

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  177
  202
  228
  256
  284
  314
  345
  377
  411
  446
  528
  567
  607
  648
  692
  738
  786
  836
  888
  943
  1,001
  1,062
  1,125
  1,192
  1,262
  1,335
  1,412
  1,493
  1,578
  1,668
Depreciation, amort., depletion, $m
  125
  130
  135
  140
  145
  151
  157
  163
  169
  176
  119
  126
  134
  142
  150
  158
  167
  176
  186
  196
  206
  217
  229
  241
  254
  267
  281
  295
  311
  327
Funds from operations, $m
  302
  332
  363
  395
  429
  465
  501
  540
  580
  621
  648
  693
  740
  790
  842
  896
  953
  1,012
  1,074
  1,139
  1,208
  1,279
  1,354
  1,433
  1,516
  1,602
  1,693
  1,789
  1,889
  1,994
Change in working capital, $m
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -44
Cash from operations, $m
  314
  345
  377
  410
  444
  480
  517
  556
  597
  639
  666
  713
  761
  811
  864
  919
  977
  1,037
  1,101
  1,167
  1,237
  1,310
  1,386
  1,466
  1,550
  1,639
  1,732
  1,829
  1,931
  2,038
Maintenance CAPEX, $m
  -57
  -62
  -67
  -72
  -77
  -82
  -88
  -94
  -100
  -106
  -112
  -119
  -126
  -134
  -142
  -150
  -158
  -167
  -176
  -186
  -196
  -206
  -217
  -229
  -241
  -254
  -267
  -281
  -295
  -311
New CAPEX, $m
  -38
  -39
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -61
  -64
  -66
  -69
  -72
  -76
  -79
  -83
  -86
  -90
  -95
  -99
  -104
  -109
  -114
  -119
  -125
  -131
Cash from investing activities, $m
  -95
  -101
  -108
  -115
  -121
  -128
  -136
  -144
  -152
  -160
  -168
  -177
  -187
  -198
  -208
  -219
  -230
  -243
  -255
  -269
  -282
  -296
  -312
  -328
  -345
  -363
  -381
  -400
  -420
  -442
Free cash flow, $m
  219
  244
  269
  296
  323
  352
  382
  413
  446
  480
  498
  535
  574
  614
  656
  700
  746
  795
  846
  899
  954
  1,013
  1,074
  1,138
  1,206
  1,276
  1,351
  1,429
  1,511
  1,597
Issuance/(repayment) of debt, $m
  41
  44
  45
  47
  49
  51
  53
  55
  57
  60
  62
  65
  67
  70
  73
  77
  80
  84
  87
  91
  96
  100
  105
  110
  115
  120
  126
  132
  138
  145
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  41
  44
  45
  47
  49
  51
  53
  55
  57
  60
  62
  65
  67
  70
  73
  77
  80
  84
  87
  91
  96
  100
  105
  110
  115
  120
  126
  132
  138
  145
Total cash flow (excl. dividends), $m
  261
  287
  314
  343
  372
  403
  435
  468
  503
  539
  560
  600
  641
  684
  730
  777
  827
  879
  933
  990
  1,050
  1,113
  1,179
  1,248
  1,321
  1,397
  1,477
  1,561
  1,649
  1,742
Retained Cash Flow (-), $m
  -74
  -76
  -79
  -82
  -85
  -89
  -92
  -96
  -100
  -104
  -108
  -113
  -117
  -122
  -128
  -133
  -139
  -146
  -152
  -159
  -166
  -174
  -182
  -191
  -200
  -209
  -219
  -230
  -241
  -253
Prev. year cash balance distribution, $m
  33
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  220
  211
  235
  261
  287
  314
  343
  372
  403
  435
  452
  487
  524
  562
  602
  644
  687
  733
  781
  831
  884
  939
  996
  1,057
  1,121
  1,187
  1,257
  1,331
  1,408
  1,489
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  211
  193
  205
  215
  222
  228
  231
  233
  232
  228
  215
  208
  199
  189
  177
  164
  150
  135
  120
  106
  91
  78
  65
  54
  44
  35
  27
  21
  15
  11
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Morningstar, Inc. is a provider of independent investment research in North America, Europe, Australia, and Asia. The Company focuses to create products that help investors reach their financial goals. It offers a range of data, software, research, and investment management offerings for financial advisors, asset managers, sponsors, and individual investors. It provides data and research insights on a range of investment offerings, including managed investment products, listed companies, capital markets, and real-time global market data. It conducts its business operations outside of the United States through subsidiaries in countries, including Australia, Brazil, Canada, Chile, Denmark, France, Germany, India, Italy, Japan, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, People's Republic of China (both Hong Kong and the mainland), Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, the United Arab Emirates, and the United Kingdom.

FINANCIAL RATIOS  of  Morningstar, Inc. (MORN)

Valuation Ratios
P/E Ratio 32.2
Price to Sales 6.5
Price to Book 7.4
Price to Tangible Book
Price to Cash Flow 24.3
Price to Free Cash Flow 34.4
Growth Rates
Sales Growth Rate 1.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 10.5%
Cap. Spend. - 3 Yr. Gr. Rate 13.1%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 35.9%
Total Debt to Equity 35.9%
Interest Coverage 226
Management Effectiveness
Return On Assets 13.6%
Ret/ On Assets - 3 Yr. Avg. 11.4%
Return On Total Capital 19.9%
Ret/ On T. Cap. - 3 Yr. Avg. 16.9%
Return On Equity 24.1%
Return On Equity - 3 Yr. Avg. 18.7%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 56.8%
Gross Margin - 3 Yr. Avg. 57.7%
EBITDA Margin 37.2%
EBITDA Margin - 3 Yr. Avg. 30.7%
Operating Margin 22.7%
Oper. Margin - 3 Yr. Avg. 20.3%
Pre-Tax Margin 28.2%
Pre-Tax Margin - 3 Yr. Avg. 22.6%
Net Profit Margin 20.2%
Net Profit Margin - 3 Yr. Avg. 15.8%
Effective Tax Rate 28.4%
Eff/ Tax Rate - 3 Yr. Avg. 30.8%
Payout Ratio 23.6%

MORN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MORN stock intrinsic value calculation we used $1020 million for the last fiscal year's total revenue generated by Morningstar, Inc.. The default revenue input number comes from 0001 income statement of Morningstar, Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our MORN stock valuation model: a) initial revenue growth rate of 8.1% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for MORN is calculated based on our internal credit rating of Morningstar, Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Morningstar, Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of MORN stock the variable cost ratio is equal to 57.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $223 million in the base year in the intrinsic value calculation for MORN stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Morningstar, Inc..

Corporate tax rate of 27% is the nominal tax rate for Morningstar, Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the MORN stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for MORN are equal to 45.9%.

Life of production assets of 8.2 years is the average useful life of capital assets used in Morningstar, Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for MORN is equal to -15.4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $934.7 million for Morningstar, Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 42.573 million for Morningstar, Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Morningstar, Inc. at the current share price and the inputted number of shares is $5.1 billion.

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