Morningstar’s recent index exit and AI push

Morningstar (MORN) has just been removed from several Russell 1000 Defensive indexes while simultaneously rolling out deeper Microsoft 365 Copilot integrations that embed its investment intelligence directly into AI supported workflows.

At the same time, the company has agreed to work with Houlihan Lokey on new collateralized loan obligation valuation indexes, giving investors an additional reference point for tracking and comparing this segment of private credit.

Morningstar’s recent index removals sit alongside a mixed price picture, with the share price at $166.38 after a 7 day share price return of 6.76%, but a year to date share price return that is down 20.93% and a 1 year total shareholder return that is down 44.95%. This points to fading longer term momentum despite short term interest around its AI and private credit initiatives.

If you are weighing Morningstar’s AI moves, it can also be useful to scan other companies in this space and see how the market is pricing growth, starting with 62 profitable AI stocks that aren't just burning cash

Bulls point to Morningstar’s AI push and private credit indexes as underappreciated assets, while bears focus on weak recent returns and index removals. How does the current valuation stack up against those competing stories?

Price-to-earnings of 15.7x for Morningstar: Is it justified?

Morningstar is trading on a P/E of 15.7x, which sits below both the broader US market and its Capital Markets peers, even as the share price has struggled over 1 and 5 year periods.

The P/E ratio compares the current share price with earnings per share. It gives you a quick sense of how much investors are paying for each dollar of Morningstar’s earnings. For a data and research business with established products across indexes, credit and private markets, this ratio often reflects how confident the market is that current earnings can be sustained and built on.

On one side, Morningstar screens as good value when stacked against peers. Its P/E of 15.7x is below the peer average of 20.7x and sits well under the US Capital Markets industry average of 40.3x. On the other side, the SWS fair P/E estimate of 15.1x suggests the current multiple is slightly above a level the market could migrate toward if expectations cool, even with annual earnings growth forecasts of 9.5% and revenue growth forecasts of 5.7% that are both below broader US market forecasts.

Relative to the industry, that gap is stark and points to the market assigning a lower earnings multiple to Morningstar than to many Capital Markets stocks, despite high quality earnings and a strong return on equity that is flagged as being influenced by higher debt levels. The fair ratio work indicates that while the stock looks inexpensive compared to peers, investors should also be aware of the smaller premium to the estimated fair P/E that could narrow if sentiment shifts.

Result: Price-to-earnings of 15.7x (ABOUT RIGHT)

However, Morningstar’s weaker 1 and 5 year total returns and reliance on key platforms like PitchBook and Morningstar Direct mean any slowdown in client demand could quickly challenge today’s earnings multiple.

Another view on Morningstar’s value

The SWS DCF model takes a different angle on Morningstar, valuing its future cash flows at $133.43 per share. With the stock at $166.38, that implies it is trading above this estimate. This raises the question of whether investors are paying up for growth that may already be reflected in the price.

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 41 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Given the mix of concerns and positives around Morningstar, it makes sense to move quickly and test the data against your own expectations. A good place to start is by checking the 4 key rewards and 2 important warning signs.

Looking for more Morningstar style investment ideas?

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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.