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Morningstar Quicktake
Report: Stock Data Definitions |
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Analyst Report
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Thesis |
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For the 1,500 largest companies in our coverage universe, we give you our unbiased opinion on the stock's prospects. The Take is updated whenever conditions warrant, providing valuable commentary on a company's success or failure, as well as long-term insights into the company's strategic goals. Our analysts cull information from every available source-SEC filings, company press releases, news services, and our own proprietary financial database-to provide insights on stocks that can't be found anywhere else. Our fund analysts closely monitor 2,000 mutual funds, updating Morningstar's Take whenever conditions warrant. They do all of their own research: calling mutual-fund companies, talking to fund managers, and digging through annual reports. Because we are not involved in money management or underwriting, we have no conflicts of interests when it comes to providing you with analysis. When do fund analyses get updated? Whenever the Morningstar analyst thinks there's been important news or events that you should know about.
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Profile |
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This section provides a brief description of the company's operations--major product lines, how and where it earns revenues, and any recent acquisition or spin-off activity.
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Strategy |
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This section gives a quick summary of the company's future strategy, including plans for growing the business, improving financial performance, or dealing with major opportunities and challenges.
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Management |
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Look for facts about management's past experience, who's in and who's out, as well as the successes--and foibles--of significant executives. We'll also use this section to address the company's compensation practices, as well as strengths and weaknesses in corporate governance.
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Close Competitors |
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Our analysts list the company's most direct competitors, to put the company's size and relative importance in perspective.
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Most Recent Updates |
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Morningstar's stock analysts produce a great deal of research beyond the Analyst Reports. More research can be found in Analyst Updates, Stock Analyst Picks, industry commentaries, and other articles. Links to recent Morningstar articles that mention the company are listed here.
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Bulls Say |
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These are the most important arguments about the company in favor of owning its stock.
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Bears Say |
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These are the most important arguments about the company against owning its stock.
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Recommended Readings |
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Here, the stock analyst provides links to recent articles about the company from writers outside Morningstar. These provide valuable additional insights about the company's history, strategy, and prospects.
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Tools |
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On the left side of the analysis page are several buttons that lead to valuable links, including: |
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Morningstar Rating |
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The Morningstar Rating for Stocks is calculated by comparing a stock's current market price with Morningstar's estimate of the stock's fair value. Our rating system also includes an uncertainty adjustment, so that it's more difficult for a company to earn a 5-star rating the more uncertain we are of our fair value estimate.
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Under our system, 3-star stocks are those that should offer a "fair return," one that adequately compensates for the riskiness of the stock. Three-star stocks should offer investors a return that's roughly comparable to the stock's cost of equity. (The cost of equity is often called a "required return" because it represents the return an investor requires for taking on the risk of owning the stock.)
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Five-star stocks, of course, should offer an investor a return that's well above the company's cost of equity. Conversely, low-rated stocks have significantly lower expected returns. |
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The Morningstar Rating for Stocks also includes a small buffer around the cutoff between each rating, to reduce the number of rating changes produced by random market "noise." If a $50 stock moves up and down by $0.25 each day over a few days, the buffer will prevent the star rating from changing each day based on this insignificant change. |
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Consider Buying
Consider Buying is the price below which we think investors should consider purchasing a stock, and is equivalent to the price at which it would earn a 5-star rating. Be sure to take your individual circumstances-including diversification, risk tolerance, and tax considerations-into account before making a final purchase decision. |
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Consider Selling
Consider Selling is the price above which we think investors should consider selling a stock, and is equivalent to the price at which it would earn a 1-star rating. Again, be sure to take your individual circumstances into account before making a final decision to sell a stock.
Morningstar only rates stocks that our analysts have under full coverage. Ratings are updated daily, and therefore change daily. They can change because of a move in the stock's price or a change in the analyst's estimate of the stock's fair value or business risk rating--or any combination thereof. |
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Under Review: We may place a stock's rating temporarily under review if a company releases significant news after the market's close and we need time to review our estimate of fair value. You can expect stocks that are under review to have new analyses and fair value estimate within a few days. |
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Pending: When we publish a new analysis during the trading day, the star rating and market price will display "pending" until after that day's market close. We do this because we need a stable reference price on which to base the star rating, which means waiting for a closing price to become available. |
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Learn more about the methodology behind the rating here. |
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Fair Value Uncertainty |
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Fair Value Uncertainty is meant to give investors an idea of how tightly we feel we can bound our fair value estimate for any given company. To generate Morningstar Fair Value Uncertainty, analysts consider the following factors:
• Sales predictability
• Operating leverage
• Financial leverage
• A firm’s exposure to contingent events
Based on these factors, analysts classify the stock into one of several uncertainty levels: Low, Medium, High, Very High, or Extreme. The greater the level of uncertainty, the greater the discount to fair value required before a stock can earn 5 stars, and the greater the premium to fair value before a stock earns a 1-star rating.
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Economic Moat |
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The idea of an economic moat refers to how likely companies are to keep competitors at bay for an extended period. One of the keys to finding superior long-term investments is buying companies that will be able to stay one step ahead of their competitors, and it's this characteristic--think of it as the strength and sustainability of a firm's competitive advantage--that we're trying to capture with the economic moat rating. |
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One of the first things we do when we're thinking about the size of a firm's economic moat is look at the company's historical financial performance. Companies that have generated returns on capital higher than their cost of capital for many years running usually have a moat, especially if their returns on capital have been rising or are fairly stable. |
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Of course, the past is a highly imperfect predictor of the future, so we look carefully at the source of a company's excess economic profits before assigning a moat rating. For example, a competitive advantage created by a hot new technology usually isn't very sustainable, because it won't be too long until someone comes along and invents a better widget. |
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Here are some of the attributes that can give companies economic moats: |
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Huge Market Share: When a firm enjoys economies of scale in areas like manufacturing, sales, and marketing, it can be pretty tough for a competitor to catch up.
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Low-Cost Producer: The ability to produce products or services at a lower cost than competitors is an advantage that's especially potent in commodity industries.
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Patents, Copyrights, or Governmental Approvals and Licenses: Some companies generate enormous profits when the government artificially protects their products or markets.
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Unique Corporate Culture: Although you should be careful of placing too much emphasis on this attribute, since it's such a "soft" method of determining competitive advantage, there's no question it can make a difference.
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High Customer-Switching Costs: If you can make it tough for your customers to use a competitor, it's usually easy to keep ratcheting prices up just a bit year after year--which can lead to big profits.
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The Network Effect: This is a relatively rare, but potentially quite potent, source of competitive advantage, and often accrues by the first mover in an emerging technology. Because a network's value increases as more people use it, the company that creates the network can create a massive economic moat.
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Transparency. Morningstar analysts evaluate a company's accounting practices and financial disclosure, aiming to identify firms that provide investors with insufficient or potentially misleading information. Analysts review whether a company has instituted major changes in accounting procedures, overused "one-time" charges, or applied aggressive accounting methods, among other practices.
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Shareholder Friendliness. This category assesses the power of shareholders relative to management, evaluates the firm's share-class structure and assignment of CEO and board chair roles, and notes the existence of any takeover defenses or related-party transactions.
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Incentives, Ownership, and Overall Stewardship. This area focuses on whether management's incentives are aligned with shareholders' interests. Morningstar analysts penalize those firms that change management goals midstream, issue too many options, overcompensate executives, or have low levels of equity ownership.
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Morningstar stock analysts base the Stewardship Grades on public filings, previous management actions, conversations with company officials, and their own expertise. |
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We assign the grades on an absolute scale--not on a curve or on an industry-peer basis. Therefore, if a company engages in practices that the Morningstar analysts think do not reflect good stewardship of investors' capital, it will receive a poor grade regardless of how other firms may have scored. |
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Our Stewardship Grades can be interpreted as follows:
A means "Excellent"
B means "Good"
C means "Fair"
D means "Poor"
F means "Very Poor"
For a small number of companies we cover, sufficient data to assign a complete grade was unavailable. These firms will receive a designation of "NA," indicating that the rating is not applicable.
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Morningstar's Editorial Policies |
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It's core to Morningstar's culture to put the investor first, which means we follow a set of rules designed to maintain the independence and objectivity of our analysts. |
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Business Relationships |
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At any given time, Morningstar has licensing, advertising, and sponsorship relationships with a number of companies covered by our equity or mutual fund analysts. To ensure the independence of our analysts, Morningstar maintains a strict separation between the analyst staff and other areas of the company. We do not permit any explicit or implied pressure by anyone outside the analyst group to alter an analyst's opinion of a stock or mutual fund. Analysts and salespersons do not meet jointly with outside firms, and no salesperson can communicate directly with an analyst about that analyst's work.
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Restricted Securities |
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To avoid conflicts of interest, Morningstar maintains the following policies on employee stock ownership. These policies apply to employees and their immediate family members: |