Morningstar, Inc. (MORN) stock intrinsic value fair value estimate & owner earnings analysis

Morningstar sells investment data, research and ratings on subscription. Its five reporting segments in 2025 were the Morningstar Direct Platform (Morningstar Direct, Advisor Workstation, data feeds; $831M of revenue), PitchBook (private-market data; $672M), Morningstar Credit (the former DBRS credit-ratings business plus LCD leveraged-loan data; $354M), Morningstar Wealth ($251M) and Morningstar Retirement (managed accounts for 401(k) plans; $138M), plus Sustainalytics ESG ratings and Morningstar Indexes (about $200M together). About 70% of the $2.45 billion in 2025 revenue is license-based subscriptions. Asset-based fees (14%) move with market levels. Transaction-based fees (16%), almost all credit-rating fees, move with bond and loan issuance. About 72% of revenue comes from the United States. The rest comes mainly from Continental Europe, the United Kingdom, Canada, Australia and Asia. How we measured earnings. We start from the cash the business actually generates from operations. We take out year-to-year swings in working capital (mostly bonus accruals and deferred subscription revenue). We subtract stock-based compensation as a real cost. We also subtract the capital spending needed to maintain the business, which is mainly capitalized software and computer equipment and has run at 6-8% of revenue. Amortization of acquired intangibles (about $60M a year, from the PitchBook, DBRS and LCD purchases) is added back. The customer relationships and databases behind that amortization are kept up by ongoing content and technology spending that we already deduct. Renewal rates above 100% show those assets are not wasting away: about 104% for Morningstar Direct and 103% for PitchBook in 2025. On this basis, owner earnings per share were $3.04 in 2016, $4.14 in 2019, $6.06 in 2021, $2.53 in 2022, $2.97 in 2023, $7.36 in 2024 and $8.73 in 2025. Why 2022-2023 dipped, and what we treat as normal. The 2022-2023 slump had several causes. Credit-rating fees fell when issuance collapsed. The LCD purchase in mid-2022 was financed with debt just as rates rose. The US wealth-management platform (since sold to AssetMark) ran at a loss. There were also one-off costs: an ¥8 billion ($59.9M) payment in 2023 to end the Morningstar Japan brand license, $26.4M of severance to wind down the company's large data-operations center in Shenzhen, China, and a final LCD earn-out. The median of 2021-2025 is $6.06 per share. That five-year span covers one full credit cycle: the 2021 issuance peak, the 2022-2023 trough and the 2024-2025 recovery. Leaving out 2022 and 2023 entirely gives the same median. Since then, ten straight quarters have come in well above that median. In the first half of 2026, revenue rose 10% and operating cash flow rose 30%. So in the base case we treat about $7.50 per share as normal earning power: above the cycle median, but below the 2025 figure of $8.73, to allow for a normal credit downturn. The share count has fallen from about 43 million to 37.5 million. Morningstar spent $1.19 billion on buybacks between January 2025 and June 2026 under a $1 billion program authorized in October 2025. It paid for them partly with debt, which rose from $1.07 billion to $1.71 billion in the first half of 2026. The higher interest cost roughly offsets the per-share gain from fewer shares, so the buybacks do not change the normal level we use. Base case ($269). Per-share owner earnings grow 8% a year for five years from the $7.50 normal level, then 6% a year through year 10, reaching about $14.75. Growth comes from subscription renewals running above 100% at Direct and PitchBook, the price increases Morningstar has put through consistently, profit margins that were widening in 2025 and early 2026, and a smaller share count. Year one grows 8%, well under the 18.6% owner-earnings growth per share actually achieved in 2025. After year 10, growth slows to 4% through year 20 and then holds flat. What keeps it going is a franchise with more than four decades of history. Morningstar's fund ratings and data are built into advisers' and asset managers' daily work, and PitchBook's private-company database would be costly for anyone to rebuild. Bear case ($134). This case repeats a credit and deal-market downturn like 2022-2023 on today's business, without the one-off costs of that period. Owner earnings fall to $6.50 and then $5.50 per share over two years and recover to $6.50 by year four. Each driver is already visible in the filings. Rating fees are tied to issuance volumes. PitchBook's renewal rate fell from 108% in 2024 to 103% in 2025, with higher churn among corporate clients. Sustainalytics revenue is shrinking (down 7% organically in 2025). Debt of $1.71 billion is much larger than before and makes a downturn hurt more. After the downturn, earnings grow only 3% a year to year 10 and 2% to year 20, then hold flat. Bull case ($385). The 2025 earnings level holds and early-2026 momentum carries into 2026, giving about $9.50 per share. Earnings then compound at 10% a year through year 5 and 8% through year 10, then 5% to year 20 and flat after that. This requires PitchBook renewals to recover toward their earlier 108%, Credit to keep gaining share, and the wealth and retirement businesses to keep their margin gains after the TAMP sale. We discount every case at 6% and do not subtract net debt, because owner earnings are already measured after interest. Debt is reflected in how deep the bear case goes. More than 40% of the base-case value comes from years beyond 20, so the result relies heavily on the franchise lasting. The main risks are a faster loss of pricing power at PitchBook or Direct, including from AI-based research tools, which the company names as a competitive risk, and more buybacks funded with debt at high prices. Either would push value toward the bear case. The one figure we could not rebuild exactly was the first-half 2026 working-capital change. It did not affect the annual series.