Morningstar Report: Stock Data Definitions
 

Snapshot

 

   Performance
 

Growth of $10,000
The Growth of $10,000 graph shows a stock's performance based on how $10,000 invested in the stock would have grown over time. The growth of $10,000 begins on the date of the stock's IPO, or the first year listed on the graph, whichever is appropriate. Located alongside the stock's graph line is a line that represents the growth of $10,000 for the S&P 500 index. The third line represents the stock's industry. These lines allow investors to compare the performance of the stock with the performance of the S&P 500 index and the stock's industry. Both lines are plotted on a logarithmic scale, so that identical percentage changes in the value of an investment have the same vertical distance on the graph.

For example, the vertical distance between $10,000 and $20,000 is the same as the distance between $20,000 and $40,000 because both represent a 100% increase in investment value. This provides a more accurate representation of performance than would a simple arithmetic graph. The graphs are scaled so that the full length of the vertical axis represents a tenfold increase in investment value. For securities with returns that have exhibited greater than a tenfold increase over the period shown in the graph, the vertical axis has been compressed accordingly.

Annual Returns
Annual total returns are calculated on a calendar-year and year-to-date basis. Total return includes both capital appreciation and dividends. The year-to-date return is updated daily.

+/- Industry and +/- S&P 500
These benchmarks give the investor a point of reference for evaluating a stock's performance. The +/- (Calendar Year) figure indicates the amount by which a stock over- or underperformed it's benchmark during a given calendar year.


   Key Stats
 

Last Close
The closing price of the previous trading day.

Market Cap ($mil)
The total equity market value of the company, expressed in millions of dollars. It equals shares outstanding times the stock price. It is updated daily.

Morningstar Style Box
The equity Style Box is a nine-square grid that classifies securities by size along the vertical axis and by value and growth characteristics along the horizontal axis. Different investment styles often have different levels of risk and lead to differences in returns. Therefore, it is crucial that investors understand style and have a tool to measure their style exposure.

Benefit
The Equity Style Box is a great diversification tool. If you are looking for stocks and want to be sure they cover a wide spectrum of the market, a quick glance at the style box will indicate whether the stocks have small or large market capitalizations, and whether they are more value-oriented or growth-oriented.

Origin
Morningstar calculates this figure in-house on a monthly basis.

For the Pros
The Morningstar Style Box captures three of the major considerations in equity investing: size, security valuation and security growth. Value and growth are measured separately because they are distinct concepts. A stock's value orientation reflects the price that investors are willing to pay for some combination of the stock's anticipated per-share earnings, book value, revenues, cash flow, and dividends. A high price relative to these measures indicates that a stock's value orientation is weak, but it does not necessarily mean that the stock is growth-oriented. Instead, a stock's growth orientation is independent of its price and reflects the growth rates of fundamental variables such as earnings, book value, revenues, and cash flow. When neither value nor growth is dominant, stocks are classified as "core."

Stock Size Score: Vertical Axis
Rather than using a fixed number of "large cap" or "small cap" stocks, Morningstar uses a flexible system that isn't adversely affected by overall movements in the market. World equity markets are first divided into seven style zones:

United States
Latin America
Canada
Europe
Japan
Asia ex-Japan
Australia/NewZealand
The stocks in each style zone are further subdivided into size groups. Giant-cap stocks are defined as those that account for the top 40% of the capitalization of each style zone; large-cap stocks represent the next 30%; mid-cap stocks represent the next 20%; small-cap stocks represent the next 7% and micro-cap stocks represent the smallest 3%. For value-growth scoring, giant-cap stocks are included with the large-cap group for that style zone, and micro-caps are scored against the small-cap group for that style zone.

Stock Style Score:Horizontal Axis
The scores for a stock's value and growth characteristics determine its horizontal placement. There are five value factors and five growth factors, which are listed below.

Value Score Components and Weights

Forward Looking
           Price/Projected Earnings 50.0%
Historical-Based Measures
           Price/Book 12.5%
           Price/Sales 12.5%
           Price/Cash Flow 12.5%
           Dividend Yield 12.5%

Growth Score Components and Weights

Forward Looking
           Long-term Projected Earnings Growth 50.0%
Historical-Based Measures
           Book Value Growth 12.5%
           Sales Growth 12.5%
           Cash Flow Growth 12.5%
           Historical Earnings Growth 12.5%

The five value and five growth characteristics for each individual stock are compared to those of other stocks within the same scoring group (groups based on style zone and size, e.g. Europe large-caps). Stocks are then assigned Overall Value and Overall Growth scores based on the ten factors. If either growth or value is dominant, the stock is classified accordingly. If the scores for value and growth are similar in strength, the stock is classified as "core."

The thresholds between value, core, and growth stocks vary to some degree over time, as the distribution of stock styles changes in each style zone. However, on average, the three stock styles each account for approximately one-third of the total capitalization in each scoring group.

Industry
The company's primary area of business.
Benefit
This field provides an easy way to search for stocks within a certain area of business. When making comparisons among stocks, it can be helpful to compare companies within the same area of business. Morningstar also provides percentile rankings within the company's industry for data such as net margin, revenue growth, earnings growth, and total return.

Origin
The information is gathered from the description-of business section of the company's 10-K form. The company is then coded using the North American Industrial Classification System. More information about the NAICS is available by calling 1-800-553-6847 to purchase a technical manual, visiting the Internet site at www.census.gov/naics, or calling an industry classification expert at 1-888-75NAICS.

Stock Sector
Information Economy

Software
Companies engaged in the design and marketing of computer operating systems and applications.
Examples include Microsoft, Oracle, and Siebel Systems.

Hardware
Manufacturers of computer equipment, communication equipment, semiconductors, and components.

Examples include IBM, Cisco Systems, and Intel.

Media
Companies that own and operate broadcast networks and those that create content or provide it to other media companies.

Examples include AOL Time Warner, Walt Disney, and The Washington Post.

Telecommunications
Companies that provide communication services using fixed-line networks or those that provide wireless access and services.

Examples include SBC Communications, AT&T, and Alltel.

Service Economy

Healthcare
Includes biotechnology, pharmaceuticals, research services, HMOs, home health, hospitals, medical equipment and supplies, and assisted living companies.

Examples include Abbott Laboratories, Merck, and Cardinal Health.

Consumer Services
Includes retail stores, personal services, home builders, home supply, travel and entertainment companies, and educational providers.

Examples include Wal-Mart, Home Depot, and Expedia.

Business Services
Includes advertising, printing, publishing, business support, consultants, employment, engineering and construction, security services, waste management, distributors, and transportation companies.

Examples include Manpower, R. H. Donnelley, and Southwest Airlines.

Financial Services
Includes banks, finance companies, money management firms, savings and loans, securities brokers, and insurance companies.

Examples include Citigroup, Washington Mutual, and Fannie Mae.

Manufacturing Economy

Consumer Goods

Companies that manufacture or provide food, beverages, household and personal products, apparel, shoes, textiles, autos and auto parts, consumer electronics, luxury goods, packaging, and tobacco.

Examples include PepsiCo, Ford Motor Co., and Kraft Foods.

Industrial Materials
Includes aerospace and defense firms, and companies that provide or manufacture chemicals, machinery, building materials, and commodities.

Examples include Boeing, DuPont, and Alcoa.

Energy
Companies that produce or refine oil and gas, oilfield services and equipment companies, and pipeline operators.

Examples include Exxon Mobil, Schlumberger, and BP Amoco.

Utilities
Electric, gas, and water utilities.

Examples include Duke Energy, Exelon, and El Paso.

Stock Type
Morningstar divides most stocks into eight type designations-High Yield, Distressed, Hard Asset, Cyclical, Slow Growth, Classic Growth, Aggressive Growth, and Speculative Growth-each of which defines a broad category of investment characteristics. Stocks are assigned to a type based on objective financial criteria, so stocks of the same type have similar economic fundamentals. Every stock has individual idiosyncrasies, but in general, when evaluating investments, many of the same concerns and evaluation methods will apply across the stocks in one type.

Benefit
Stock Types offer an easy way to narrow down the stock universe to those best filling specific investment needs. Stock Types also help you quickly determine the diversification level of portfolios. For instance, you might discover that most of your holdings are categorized as Speculative Growth. If you want to lessen the portfolio's risk, you could invest in other types of stocks.

Origin
Calculated in-house using Morningstar's proprietary algorithm. See the definitions for individual Stock Types for further details.

Example
Anheuser-Busch (BUD) has a Morningstar Stock Type of Classic Growth, because it has positive earnings, and does not meet the criteria for the High-Yield, Distressed, or Slow Growth types.

For the Pros
You may notice that some stocks in our database do not have Stock Types. This is only because they do not meet the criteria needed to fit into any of the Stock Type categories. A listing of N/A (Not Applicable) under Stock Type is no reflection on the performance or underlying value of the stock itself.

Distressed
Companies that are having serious operating problems. This could mean declining cash flow, negative earnings, high debt, or some combination of these. Such " turnaround" stocks tend to be highly risky, but also harbor some intriguing investments.

Hard Asset
Companies whose main business revolves around the ownership or exploitation of hard assets like real estate, metals, timber, etc. Such companies typically sport a low correlation with the overall stock market, and have traditionally been where investors look for inflation hedges.

Cyclicals
Companies whose core business can be expected to fluctuate in line with the overall economy. In a booming economy such companies will look excellent; in a recession, their growth stalls and they might even lose money.

What to Expect As a Company Matures
In the May issue of the Morningstar StockInvestor, senior staff writer Haywood Kelly had a few things to say about the aging process of a company, based on Morningstar Stock Types. Here's the basic outline of the article:

Baby Steps: Speculative Growth
Don't expect consistency from speculative growth companies. At best their profits are spotty. At worst they lose money. In fact, many companies never make it beyond speculative growth, going instead to bankruptcy court. That's why they're speculative. But current profitability isn't what interests us about speculative-growth companies. It's future profits. Hopefully, a speculative-growth company will eventually blossom into a world-class company.

The Awkward Age: Aggressive Growth
Aggressive Growth companies show a bit more maturity than their speculative-growth counterparts: They post rapid growth in profits, not just in sales-a sign of more staying power. At this point, it's time to make some money.

Prime of Life: Classic Growth
Now we come to firms in their prime-firms with little left to prove. The best classic growers have blossomed into money machines, churning out steady growth, high returns on capital, positive free cash flows, and rising dividends. The catch is, their growth is nowhere near that of the aggressive-growth group.

Senior Citizens: Slow Growth and High Yield
These are the companies whose growth is a fading memory. Having run out of attractive investment opportunities, most of them pay out the bulk of their earnings in dividends-expect high payout ratios-rather than plow the profits back into their business.

Aging Process Conclusion
While there may be an aging process for companies, there's not one for stocks. An investor like Warren Buffet has focused on finding great stocks in and around the classic-growth category-companies like Coca-Cola ((KO)) and American Express ((AXP)). Peter Lynch was more eclectic, investing in everything from speculative growth (Dunkin' Donuts, Pep Boys ((PBY))) to slow growth (Chrysler ((C))). Most of us would want a smattering of companies from across the spectrum. By putting each company in context, paying special attention to how it measures up against others in its age bracket, we can do just that. It's one kind of age discrimination that makes eminent sense.

Morningstar Stock Grades
The Morningstar stock-grading system is a quantitative scoring system that consists of three grades: Growth, Profitability, and Financial Health. They're meant to be a quick way to get a handle on a company's fundamentals.

All grades are based on relative rankings. For example, a company that receives an "A" in growth is a company that ranks near the top of our universe in terms of growth. We award 10% of the universe As, 20% Bs, 40% Cs, 20% Ds, and 10% Fs.

The grades are based solely on the numbers reported by the company in its SEC filings. Due to accounting conventions, however, these grades may or may not reflect the underlying economic reality, and investors should view the grades as a starting point for analysis rather than a definitive judgment on the company. No Morningstar analyst makes a subjective call as to what grade a company should get.

All information used to calculate the grades comes from Morningstar's internal equities database.

Growth Grade
The growth grade is based on the trend in revenue per share using data from the past five years. For the purpose of calculating revenue per share we use the past five years' revenue figures and corresponding year-end fully diluted shares outstanding; if year-end fully diluted shares outstanding is not available, we calculate this figure by dividing the company's reported net income applicable to common shareholders by the reported fully diluted earnings per share. A company must have a minimum of four consecutive years of positive and non-zero revenue, including the latest fiscal year, to qualify for a grade.

In calculating the revenue per share growth rate, we calculate the slope of the regression line of historical revenue per share. We then divide the slope of the regression line by the arithmetic average of historical revenue per share figures. The result of the regression is a normalized historical increase or decrease in the rate of growth for sales per share. We then calculate a z-score by subtracting the universe mean revenue growth from the company's revenue growth, and dividing by the standard deviation of the universe's growth rates.

Stocks are sorted based on the z-score of their revenue per share growth rate calculated above, from the most negative z-score to the most positive z-score. Stocks are then ranked based on their z-score from 1 to the total number of qualified stocks. We assign grades based on this ranking.

Profitability Grade
The profitability grade is based on return on shareholders' equity (ROE) using data from the past five years. Companies with less than four years of consecutive ROE figures, including the ROE figure for the latest fiscal year, are excluded from the calculations. For the remaining universe of stocks the profitability grade is based on the following three components:
(1) The historical growth rate of ROE

(2) The average level of historical ROE

(3) The level of ROE in the latest fiscal year
Financial Health Grade
Instead of using accounting-based ratios to formulate a measure to reflect the financial health of a firm, we use structural or contingent claim models. Structural models take advantage of both market information and accounting financial information. The firm's equity in such models is viewed as a call option on the value of the firm's assets. If the value of the assets is not sufficient to cover the firm's liabilities (the strike price), default is expected to occur, and the call option expires worthless and the firm is turned over to its creditors. To estimate a distance to default, the value of the firm's liabilities is obtained from the firm's latest balance sheet and incorporated into the model. We then rank the calculated distance to default and award 10% of the universe A's, 20% B's, 40% C's, 20% D's, and 10% F's.

   Premium Features
 

Morningstar Rating
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.

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.)

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.

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.

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.

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.

Fair Value Uncertainty
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.

Fair Value Estimate
The Morningstar analyst's estimate of what the stock is worth. Our fair value estimate should be used in conjunction with our Economic Moat rating and our Morningstar Risk rating.

Economic Moat
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.

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 are usually have a moat, especially if their returns on capital have been rising or are fairly stable.

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.

Here are some of the attributes that can give companies economic moats:
. 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.

. 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.

. Patents, Copyrights, or Governmental Approvals and Licenses : Some companies generate enormous profits when their products or markets are artificially protected by the government.

. 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.

. 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.

. 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. Since a network's value increases as more people use it, the company that creates the network can create a massive economic moat.

   Valuations
 

Price/Earnings
A stock's current price divided by the company's trailing 12-month earnings per share.

Forward P/E
A stock's current price divided by the mean EPS estimate for the current fiscal year. EPS Estimates are provided by Reuters Estimates.

Benefit
This ratio gives some indication of how cheap or expensive a stock is compared with consensus earnings estimates. The lower the Forward P/E, the cheaper the stock.

Price/Book
A stock's current price divided by the company's most recently reported book value/share.

Price/Cash Flow
A stock's current price divided by the trailing 12-month cash flow per share.

Price/Sales
A stock's current price divided by the company's trailing 12-month sales per share.

Dividend Yield %
The dividends per share of the company over the trailing one-year period as a percentage of the current stock price.

   Growth
  Sales
The trailing one- and three-year annualized growth rates in a company's revenues, or sales.

Benefit
Revenue growth is the best gauge of how rapidly a company's core business is growing.

Net Income
The trailing one- and three-year annualized growth rates in a company's net income.

Benefit
Net income growth shows how rapidly a company has been able to boost its "bottom line." Growth investors might look for companies with net income growth of, say, 20% or more. If net income growth is NMF, it means the company lost money in one of the years used in the growth-rate calculation, making any growth rate Not Meaningful.

EPS
The trailing one- and three-year annualized growth rates in a company's earnings per share.

Benefit
EPS growth shows how rapidly a company has been able to boost its "bottom line" on a per-share basis. Growth investors might look for companies with EPS growth of, say, 20% or more. If EPS growth is NMF, it means the company lost money in one of the years used in the growth-rate calculation, making any growth rate Not Meaningful.

Equity/Share
The trailing one- and three-year annualized growth rate per share in a company's shareholders' equity, or book value. Equity per share represents the net-asset value backing up each share of the company's stock. Growth in equity per share is therefore one of the key variables in determining if a company is increasing shareholder wealth over time. Note, too, that because it's expressed on a per-share basis, equity growth per share takes into account dilution from new-share issuances.

Benefit
Equity is a company's total assets minus its total liabilities-in other words, what's left over for shareholders. Equity growth per share shows how quickly shareholders' stake in the company is growing.

Dividends
The trailing one- and three-year annualized growth rates in dividends per share.

Benefit
Increasing dividends are usually a signal that management has confidence in the company's continued earnings power. Dividend growth-especially growth that has been steady from year to year-is a good sign for those investing for income.

   Profitability
 

ROA %
The percentage a company earns on its total assets. The calculation is the trailing 12 months' net income divided by the most recently reported total assets. The resulting figure is multiplied by 100. In comparison, the industry average and S&P 500 are shown for the most recent fiscal year.

Benefit
Return on equity shows how much profit a company generates on the money shareholders and creditors (such as banks and bondholders) have invested in the company.

Origin
The company's net income is found in the income statement. The company's total assets come from its balance sheet.

ROE %
The percentage a company earns on its total equity. The calculation is the trailing 12 months' net income divided by the most recently reported book value. The resulting figure is multiplied by 100. In comparison, the industry average and S&P 500 are shown for the most recent fiscal year.

Benefit
Return on equity shows how much profit a company generates on the money shareholders have invested in the company. The mission of any company is to earn a high return on equity.

Origin
The company's net income is found in the income statement. The company's net worth is taken from the company's balance sheet.

Net Margin %
This figure is a measure of profitability. It is equal to annual net income divided by revenues over the trailing 12 months. The resulting figure is then multiplied by 100. In comparison, the industry average and S&P 500 are shown for the most recent fiscal year.

Benefit
This figure gives a more accurate picture of a company's recent performance than the most-recent annual net margin figure, which may be more than a year old.

Origin
The company's net income and revenues are found in the income statement of its annual report and recent 10-Qs.

Asset Turnover
This figure represents how many dollars in revenue a company has generated per each dollar of assets. It is calculated by dividing total revenues for the period by total assets for the same period. In comparison, the industry average and S&P 500 are shown for the most recent fiscal year.

Benefit
Asset turnover can give an indication of how efficient a company is. A high asset turnover, which expresses how many times a company sells-or turns over-its assets in a year is a sign of high efficiency.

Financial Leverage
Financial leverage is defined as total assets divided by total shareholders' equity. The higher the ratio, the more debt a company uses in its capital structure. In comparison, the industry average and S&P 500 are shown for the most recent fiscal year.

Sales/Empl $Th
This ratio is the Sales TTM divided by the number of employees. The number is in thousands.

   Earnings Trends
  This graph shows whether a company has been able to increase its earnings per share over the past four years, and if so, how fast. We show the latest four years' worth of historical earnings per share, and one year of estimated earnings (based on consensus analyst estimates collected by Reuters Estimates). Each year represents the company's fiscal year, which may differ from the calendar year.

   Fund Ownership
 

Lists the top 5 mutual fund owners of the stock, ranked by % Shares Held.

% Shares Held
This figure represents the percentage of the total number of shares of a stock held by each mutual fund.

% of Fund Assets
This figure represents the percentage of a mutual fund's assets that are invested in a stock.

Star Rating
Our mutual fund rating that combines return and risk measures to form a comprehensive evaluation, shown for three-, five-, and 10-year time periods, when available. The overall star rating is a weighted average of these three time periods. Morningstar's star rating is designed to express the relative attractiveness of a fund's risk/reward profile. To determine a fund's star rating for a given time period, the top 10% of its asset class (international equity, domestic equity, taxable bond, or municipal bond) receive 5 stars (highest); those falling in the next 22.5% receive 4 stars (above average); a place in the middle 35% earns 3 stars (neutral); those in the next 22.5%, receive 2 stars (below average); and the bottom 10% get 1 star (lowest).

    Operations
 

What Does this Company Do?

A description of the company's operations. It is written using information primarily from the company's annual report and form 10-K.

Address, Phone, and Website
Correspondance information to contact the company.

Direct Investment
This information notes whether investors can purchase shares directly from the company. Yes indicates the company allows investors to purchase shares directly, and No indicates that it does not.

Benefit
Buying stock directly from the company eliminates brokerage fees.

Origin
Morningstar receives this information from Horizon Publishing Company.

For the Pros
All companies with Direct Investment plans (also known as No-Load Stocks) have Dividend Reinvestment Plans (DRIPs), but not vice versa.

Dividend Reinvestment
Dividend Reinvestment Plans (DRIPs) allows investors to automatically reinvest dividends paid in the company's shares. Yes indicates the company does operate a DRIP, No indicates it does not.

Benefit
Companies with DRIPs may be good choices for beginning investors who are first starting to buy stocks, since these are generally well-established companies. DRIPs are generally meant for long-term investors who will hold a stock for a number of years.

Origin
Morningstar receives this information from Horizon Publishing Company.

Employees
This is the number of people employed by the company, usually on the last day of the previous fiscal year.

Origin
We get this number directly from each company's 10-K form and/or annual report.

© Copyright 2020 Morningstar, Inc. All rights reserved.