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Morningstar® Equity Research Services
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Overview
For Portfolio Managers and Institutional Investors
For Financial Advisors
Morningstar Methodology
Morningstar Methodology
Morningstar’s analysts apply a consistent, forward-looking, and proven global methodology that focuses on long-term fundamental valuation, competitive advantages (economic moats), risk, financial health, and stewardship. Our bottom-up approach includes site visits and frequent interactions with company management and other industry participants to foster deeper analytical insights.

Morningstar Equity Research Methodology for Analyzing Companies
Fundamental Analysis
Background research, management interviews, financial statements and filings, industry and competitor analysis, and customer reviews are just some of the information points that go into our analysts’ initial assessments.

Moat Rating
The economic moat—or sustainable competitive advantage—is the cornerstone of Morningstar’s investment philosophy. The longer a firm generates economic profits, the higher its intrinsic value. We believe low-quality, no-moat companies will see performance inhibited more quickly than companies with moats. We have identified five sources of economic moats: intangible assets, switching costs, network effect, cost advantage, and efficient scale.

Learn more about the importance of economic moats 

Fair Value Estimate
Morningstar’s valuation models are driven by revenue growth, profit margins, and capital investment. They arrive at a fair value estimate for each stock, which considers how much capital a company invests, what return it earns on that capital, free cash flow (rather than reported earnings), and the sustainability of any competitive advantages.

Uncertainty Assessment
The Morningstar Uncertainty Rating demonstrates our assessment of a firm’s cash flow predictability. From this rating, we determine appropriate margins of safety: The higher the uncertainty, the wider the margin of safety around our fair value estimate before our recommendations are triggered.

Our uncertainty ratings are low, medium, high, very high, and extreme. The greater the level of uncertainty, the greater the discount to fair value is required before a stock can earn 5 stars, and the greater the premium to fair value will be before a stock earns a 1-star rating.

Rating
Our ratings run from one to five stars and represent our belief in the stock after we’ve applied all the steps in our model. Ratings are calculated daily and subject to change based on the current share price relative to Morningstar’s more stable Fair Value Estimate, after adjusting for an appropriate margin of safety.
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