So far, so good. Through the first two quarters of fiscal 2008, Morningstar (NASDAQ:MORN) has gone 2-and-0 for beating Wall Street's earnings estimates. Will its third time (reporting earnings tomorrow) be similarly charmed?

What analysts say:

  • Buy, sell, or waffle? Three analysts give Morningstar two buy ratings and a hold.
  • Revenue. On average, they're looking for 19% sales growth to $133.6 million.
  • Earnings. Profits are predicted to climb 24% to $0.51 per share.

What management says:
Best known as the individual investor's oracle on mutual fund quality, Morningstar has evolved from its days as the white dwarf of the financial world. Indeed, at the risk of working a metaphor to death, I'd say its asset management business has gone supernova.

Last quarter, CEO Joe Mansueto described this business as doing "well" -- but that adverb doesn't do Morningstar justice. In fact, with assets under management up 22% year over year, the company ran circles around better-known names in the biz. BlackRock (NYSE:BLK) grew just 5%, T. Rowe Price (NASDAQ:TROW) 8%, and Legg Mason's (NYSE:LM) assets actually shrank.

What management does:
The success of this highly profitable business has helped power Morningstar's margins far past those of more plebeian financial advisors like TheStreet.com (NASDAQ:TSCM). But don't take my word for it:

Margins

3/07

6/07

9/07

12/07

3/08

6/08

Gross

72.4%

73.0%

73.4%

73.9%

74.0%

74.4%

Operating

24.2%

25.0%

26.0%

27.2%

27.7%

29.1%

Net

15.9%

16.4%

16.7%

17.0%

17.5%

18.6%

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:
Now let's turn to Morningtar's monthly roundup of investor-submitted questions for a look at where things might go wrong. In the October Q&A, one Morningstar investor posed the following puzzler: "How have the problems at Lehman Brothers, Merrill Lynch (NYSE:MER), AIG (NYSE:AIG) and others impacted your Institutional segment? What percent of your business is at risk and how does this change your growth plans in this area?"

Morningstar responded that revenues from these three firms make up 3% of its overall revenue base -- a base already at risk as we draw closer to the end of the period in which these firms were required by the government to provide independent investment advice, and chose Morningstar as their subcontractor.

Morningstar hedged on whether the financial firms' troubles will hurt this revenue stream directly, but admitted that in general, the financial crisis has been "lengthening the sales cycle and increasing pressure on renewal pricing" with its customers. Morningstar isn't seeing a lot of cancellations -- to the contrary, "renewal rates have remained strong" -- but expansion in this market will be tough, and pricing pressure suggests that margin growth may face headwinds as well.

That's all for now, but I'll revisit this issue next week, after earnings are out.

Put on your shades and gaze on Morningstar's recent performance in:

Fool contributor Rich Smith does not own shares of any company named above, but Morningstar is a recommendation of Motley Fool Stock Advisor. Legg Mason is an Inside Value pick and the Fool owns shares of it. The Motley Fool has a disclosure policy.