Morningstar (MORN): Exploring Valuation After AI Strategy Shift and $1 Billion Buyback Announcement

Morningstar (MORN) just announced a $1 billion share repurchase program over the next three years, along with new plans to ramp up operational efficiency and data delivery using AI. Both moves signal management’s intent to strengthen long-term value for investors.

See our latest analysis for Morningstar.

Morningstar’s latest moves come after a stretch of declining momentum, with the share price down 18.1% in the last quarter and the one-year total shareholder return sitting at -38.9%. Despite the new buyback and AI-driven efficiency push, recent insider selling and a dip in short interest have kept investors cautious about a quick turnaround. Long-term earnings growth shows some foundation for optimism.

If you’re weighing opportunities beyond the headlines, now’s a smart time to broaden your search and discover fast growing stocks with high insider ownership

With the stock trading nearly 30% below analyst price targets despite steady earnings growth and new initiatives, investors must decide whether Morningstar presents a hidden bargain or if the market is accurately considering its future prospects.

Price-to-Earnings of 23.5x: Is it justified?

Morningstar's price-to-earnings ratio currently stands at 23.5x, slightly below the Capital Markets industry average of 23.6x but significantly above its estimated fair ratio of 14x. At its last close price of $214.86, the stock looks expensive on this metric when compared with what might be justified by fundamentals.

The price-to-earnings ratio tells investors how much they are paying for each dollar of the company's earnings. For Morningstar, this ratio helps frame whether expectations for future profits are already factored into the share price, particularly in a sector known for steady but not explosive growth.

Despite steady earnings growth and seasoned management, the premium multiple suggests the market could be pricing in improved earnings quality or long-term strategic value. However, compared to the fair ratio of 14x, there is a considerable gap, indicating the market may need more convincing on future growth potential. If investor sentiment shifts or earnings growth fails to accelerate, the multiple could revert closer to that fair level.

Explore the SWS fair ratio for Morningstar

Result: Price-to-Earnings of 23.5x (OVERVALUED)

However, slowing revenue and net income growth, along with persistent market skepticism, could challenge the case for a sustained recovery in Morningstar shares.

Find out about the key risks to this Morningstar narrative.

Another View: Our DCF Model Tells a Different Story

Taking a look at the SWS DCF model, Morningstar appears significantly overvalued, with shares trading well above our calculated fair value of $94.02. This sharp contrast with the price-to-earnings view challenges whether the market is factoring in too much future growth or simply not enough risk. Which view will turn out to be right?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Morningstar for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 920 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Morningstar Narrative

If you see Morningstar’s story differently or want to dig into the numbers yourself, you can quickly build your own view in just a few minutes. Do it your way

A good starting point is our analysis highlighting 3 key rewards investors are optimistic about regarding Morningstar.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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