Morningstar (NASDAQ:MORN), the rater of mutual funds (and now stocks, too!), reports Q4 and full-year 2006 earnings results Thursday. What time? Morning, of course. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Only two analysts follow Morningstar, splitting their votes buy/hold.
  • Revenues. On average, they're looking for 39% quarterly sales growth to $84.3 million.
  • Earnings. Profits are predicted to rise a bit slower, up 32% to $0.29 per share.

What management says:
Ever the innovator, Morningstar has broken new ground in the field of investor relations, inviting investors to ask questions, then answering them publicly in the form of 8-K filings with the SEC. In recent filings, the company has confided, for instance, that Morningstar sees "little to no correlation between periods of market weakness and Morningstar's financial results." In support of this assertion, management noted that even during the post-bubble bear market, "Morningstar.com continued to experience growth in unique visitors, Premium memberships, and page views each year ... through 2002." That said, to mitigate the risk of Morningstar falling to the ground in the event of a "long-term market downturn," the company continues to diversify its business to spread out the risk of any one line taking an outsize hit.

What management does:
It's hard to argue with success (even if that argument is qualified by the fact that we're currently in more of a bull market). It's equally hard to argue that Morningstar has been anything but successful. Over the last several quarters, the firm's rolling gross, operating, and net margins have clearly trended upward. Bottom line, the firm currently rakes in twice as many pennies of pure profit for each dollar of revenue as it did 18 months ago.

Margins

6/05

9/05

12/05

3/06

6/06

9/06

Gross

71.6%

72.0%

71.6%

72.3%

72.0%

72.3%

Operating

17.6%

20.3%

21.2%

23.6%

23.6%

24.8%

Net

8.0%

9.2%

13.7%

16.6%

16.0%

16.7%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
At the risk of infringing on Stephen Colbert's "tip of the hat, wag of the finger" concept, I'd like to highlight one other question fielded by Morningstar in its latest 8-K "conversation" filing. One investor asked whether it wasn't a bit hypocritical for the firm to chastise the firms it rates when their CEOs also serve as their boards' chairmen, even though Morningstar's own Joe Mansueto wears both these hats at Morningstar. Huffing ever so slightly, Morningstar responded that: (1) splitting the CEO and chairman duties was just one of 19 factors the firm's analysts use in grading firms' corporate governance, (2) Morningstar bifurcates management and analyst opinions (which facilitates independent analysis), (3) "having Joe Mansueto serve as both chairman of the board and CEO is in the best interest of Morningstar and its shareholders," and (4) Mansueto owns 70% of the company.

Wag o' the finger time: Arguments one and two look pretty sound to this Fool, but the third resembles a bold assertion more than a reasoned explanation. And as for number four -- well, to paraphrase the old saw, Morningstar seems to be saying little more than: "Where does a 70% gorilla sit? Anywhere it wants to."

That said, a tip o' the hat to Morningstar for choosing this as one of its "selected questions received through January 30, 2007," and answering it publicly. It needn't have answered any questions at all, nor this one in particular -- but it did.

Competitors:

  • Yours Fool-y
  • Bowne & Co. (NYSE:BNE)
  • CheckFree (NASDAQ:CKFR)
  • FactSet (NYSE:FDS)
  • Intuit (NASDAQ:INTU)
  • Yahoo! (NYSE:YHOO)

Four more on Morningstar:

Yahoo! is a Stock Advisor recommendation. Intuit is a former Inside Value pick. Try any one of our investing services free for 30 days.

Fool contributor Rich Smith does not own shares of any company named above. The Fool's disclosure policy knows the importance of a healthy breakfast.