Morningstar Illuminates Investors, Especially In Volatile Markets

Then come the corrections. The bounces. The ups and downs.

The amateurs turn for help. Even the pros will pay for more insight.

That shines a spotlight on Morningstar (NasdaqGS: - ).

The Chicago-based independent investment research firm sells its perspective to individuals advisers and institutional investors.

Since going public two years ago, it's put up double-digit earnings and revenue growth.

Its assets under advisement almost doubled from a year ago to $81.5 billion.

Avoiding Waves

Even with the market chop and rumblings on the horizon, Morningstar is looking at smoother sailing.

"When we're in a volatile market or bear market, people are more dependant on advice," said Elliott Schlang, managing director of the Great Lakes Review, who owns some Morningstar shares. "In a bull market everybody is a genius."

Joe Mansueto, Morningstar chairman and chief executive, says his company has succeeded by sticking to what it knows: helping investors make sense of the market.

"We try not to get distracted," he said. "We're very focused on helping investors. We're not doing banking information, mortgage information."

Schlang says Morningstar is not just a fair-weather company.

"Investors oft times are concerned that this is a bull-market stock," he said. "We've made the point 20hat historically their revenue and earnings have been up in bad markets and in good."

Mansueto founded the company in 1984 in his one-bedroom Chicago apartment. He was 27.

The company's name comes from the last line in Henry David Thoreau's "Walden" ("The sun is but a morning star.")

In 1985, it came out with its proprietary Morningstar Rating system, a quick five-star scale for gauging investments.

Its other ubiquitous and propriety grading tool, the Morningstar Style Box, debuted in 1992.

Today Morningstar has more than 1,600 employees and operations in 16 countries.

It offers data on 250,000 stocks, mutual funds and other investment types. It delivers data through its Morningstar.com site, software and printed reports.

Mansueto owns 70% of the shares.

Earlier this month, the company reported a 58% surge in earnings per share to 38 cents. That was 9% more than analysts surveyed by Thomson Financial expected.

Revenue climbed 44% to $109.7million.

The March acquisition of the Standard & Poor's mutual fund data business contributed much of that increased revenue.

Even without it, the company says revenue would have climbed 26% organically.

The S&P business pinched operating margins. But the company still managed 25.9% in the second quarter, up from 22.9% a year earlier.

Institutions and asset managers outside the U.S. -- mostly in Europe and Australia -- accounted for 21% of the quarter's revenue.

That international business was up 143% from a year ago. The S&P acquisition delivered much of that additional revenue. Even without it and foreign currency gains, overseas revenue would have been up 23%.

Mansueto says that with half the world's investable assets outside the U.S., it's not farfetched that the international side could one day account for half of revenue.

Wealth is growing every day across the globe, he says. New middle classes are emerging. Governments are opting out of defined benefit retirement plans.

"More and more people are having to handle the planning for their retirement," Mansueto said. "That creates demand for our services."

Analyst Marvin Loh thinks its existing international network and recognized name let it boost earnings through international growth.

"We believe that management has a unique opportunity to establish a global brand based on its independent analysis, robust databases and intuitive and user-friendly analytical tools," he wrote in a June client note for Oppenheimer.

Last year, sales climbed 39% to $315 million. Income jumped 59% to $1.11. Analysts expect $1.53 for 2007.

Fund Of Funds

The company says it's expanding into products for managing funds of funds -- mutual funds that invest in other mutual funds.

Financial information is a competitive field.

Morningstar goes up against giants such as Thomson Corp. (NYSE: - ), Reuters (NasdaqGS: - ) and Bloomberg. Smaller firms compete in some of its markets.

Mansueto says its brand name, proprietary tools and deep databases insulate it from competition.

Schlang too says investors value Morningstar's data, even as they overlook its stock.

"It as a great brand name," Schlang said. "You mention Morningstar to anyone, and they know it. You mention the stock, and most people are surprised that there is a stock."