Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

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Thematic (Sector/Industry)

On the surface, there would appear to be challenging times ahead for the restaurant industry, with year over-over traffic declines across much of the industry and rising labor costs on the horizon. However, we believe it would be shortsighted for investors to overlook this category, as there are a number of compelling operators that are redefining the way consumer discretionary companies adapt to constantly evolving consumer expectations regarding value, convenience, health, and technology. Our analysis starts with the fast-casual restaurant category, which is not only changing consumers' expectations regarding restaurant experiences, but also influencing how the market values restaurant concepts and forcing traditional quick-service and casual-dining chains to reinvent themselves. However, one of the more underexplored developments in the restaurant space thus far in 2016 is a bifurcation within the fast-casual category, with a class of chains thriving but several other players aspiring to be the "next Chipotle" finding success more difficult (not to mention Chipotle's own struggles). We've spent 2015 and 2016 getting to know many of the up-and-coming privately held fast-casual players to gain a better understanding of what attributes restaurant concepts must have to develop an economic moat and drive traffic in today's environment. We then examined our restaurant coverage to see where we can locate similar traits and, more importantly, where the market may not be giving restaurant chains enough credit. We believe the market may be underestimating the changes that several players in our restaurant coverage have made to adapt to these trends, including <a href="https://www.smartkarma.com/entities/7641" target="_blank" data-smartkarma-citation="entities:7641:1">Starbucks Corp (SBUX US)</a> and <a href="https://www.smartkarma.com/entities/8104" target="_blank" data-smartkarma-citation="entities:8104:1">Panera Bread Co (PNRA US)</a>, both of which trade at a significant discount to our respective longer-term DCF-driven fair value estimates of $63 and $250.Analyst: R. J. Hottovy, CFA

On the surface, there would appear to be challenging times ahead for the restaurant industry, with year over-over traffic declines across much of the industry and rising labor costs on the horizon. However, we believe it would be shortsighted for investors to overlook this category, as there are a number of compelling operators that are redefining the way consumer discretionary companies adapt to constantly evolving consumer expectations regarding value, convenience, health, and technology. Our analysis starts with the fast-casual restaurant category, which is not only changing consumers' expectations regarding restaurant experiences, but also influencing how the market values restaurant concepts and forcing traditional quick-service and casual-dining chains to reinvent themselves. However, one of the more underexplored developments in the restaurant space thus far in 2016 is a bifurcation within the fast-casual category, with a class of chains thriving but several other players aspiring to be the "next Chipotle" finding success more difficult (not to mention Chipotle's own struggles). We've spent 2015 and 2016 getting to know many of the up-and-coming privately held fast-casual players to gain a better understanding of what attributes restaurant concepts must have to develop an economic moat and drive traffic in today's environment. We then examined our restaurant coverage to see where we can locate similar traits and, more importantly, where the market may not be giving restaurant chains enough credit. We believe the market may be underestimating the changes that several players in our restaurant coverage have made to adapt to these trends, including Starbucks Corp (SBUX US) and Panera Bread Co (PNRA US), both of which trade at a significant discount to our respective longer-term DCF-driven fair value estimates of $63 and $250.Analyst: R. J. Hottovy, CFA

Lessons From the Next Generation of Moats in the Fast-Casual Restaurant Industry

Despite China's risks and macroeconomic issues, we believe even small rates of growth will yield significant opportunities for luxury firms.China's size, economic growth potential, and ultimate expansion of the high-end consumer market can substantially alter the outlook for many brands.With Chinese consumers already responsible for 30% of global luxury goods purchases, the continued growth of wealthy and upper-middle-class consumers appears to offer great potential, but also a high basis of comparison.We believe the market will experience solid growth, driven by the vast number of consumers entering the middle class. With this trend, we believe Chinese consumers will behave more like their Western counterparts, with more frequent lifestyle purchases of aspirational luxuries on a per household basis and fewer purchases of status symbol goods that were often a store of wealth.We see brands such as Ralph Lauren, Tiffany, Burberry, and Swatch as the most likely beneficiaries.Analyst: Paul Swinland

Despite China's risks and macroeconomic issues, we believe even small rates of growth will yield significant opportunities for luxury firms.China's size, economic growth potential, and ultimate expansion of the high-end consumer market can substantially alter the outlook for many brands.With Chinese consumers already responsible for 30% of global luxury goods purchases, the continued growth of wealthy and upper-middle-class consumers appears to offer great potential, but also a high basis of comparison.We believe the market will experience solid growth, driven by the vast number of consumers entering the middle class. With this trend, we believe Chinese consumers will behave more like their Western counterparts, with more frequent lifestyle purchases of aspirational luxuries on a per household basis and fewer purchases of status symbol goods that were often a store of wealth.We see brands such as Ralph Lauren, Tiffany, Burberry, and Swatch as the most likely beneficiaries.Analyst: Paul Swinland

China's Luxury Market Shifting From Status to Consumption As China's Middle Class Expands

United States

Ralph Lauren Corporation designs, markets, and distributes men's, women's and children's apparel, accessories, fragrances, and home furnishings. The Company's products are sold under a wide range of brands. Ralph Lauren's operations include wholesale, retail, and licensing.

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Ralph Lauren (RL US)

Lessons From the Next Generation of Moats in the Fast-Casual Restaurant Industry

On the surface, there would appear to be challenging times ahead for the restaurant industry, with year over-over traffic declines across much of...

Morningstar, Inc.

China's Luxury Market Shifting From Status to Consumption As China's Middle Class Expands

Despite China's risks and macroeconomic issues, we believe even small rates of growth will yield significant opportunities for luxury firms.China's...

Morningstar, Inc.

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