Morningstar sees strong stock gain

Morningstar Inc.'s fourth-quarter revenue rose by 14% year-over-year to $380.4 million, and operating income was particularly strong, growing by 64% to $65.1 million. For the year, revenue and operating income growth were 18% and 14%, respectively.

The results are due to a mix of acquisitions and organic growth. Acquisitions, such as purchasing the remaining 60% of ESG rating and research company Sustainalytics it didn't already own, contributed more than half of 2020's annual revenue growth. When stripping out the effects of acquisitions and foreign-currency translations, organic revenue growth was more than 8%.

Broken out by key product areas, PitchBook — Morningstar purchased the 80% it didn't own for nearly $190 million in December 2016 — led the way. In 2017, the unit's revenue was about $64 million, and it reached more than $200 million last year. Its 2020 growth was 35.5%. While DBRS Morningstar, an independent credit rating service, had a 62.5% increase, this was largely driven by one-time transaction fees, which represented about 60% of the product's 2020 revenue.

The stock has done well. Plummeting below $110 in March 2020, the shares were trading around the pre-COVID-19 level by September. Since then, the shares have gained about 55%. The stock's price-to-earnings ratio sits at 55, higher than Moody's Corp. and FactSet Research Systems Inc, which trade at 34 and 30 times earnings, respectively.