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.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Thematic (Sector/Industry)

Oman Textiles, apparel and luxury goods / Thematic (Sector/Industry)

We are transitioning coverage of three names in the luxury goods space: <a href="https://www.smartkarma.com/entities/21492" target="_blank" data-smartkarma-citation="entities:21492:1">Kering (KER FP)</a>, <a href="https://www.smartkarma.com/entities/21535" target="_blank" data-smartkarma-citation="entities:21535:1">Hermes International (RMS FP)</a>, and <a href="https://www.smartkarma.com/entities/889" target="_blank" data-smartkarma-citation="entities:889:1">Prada S.P.A. (1913 HK)</a>. We believe that Kering and Hermes are currently richly valued (our fair value estimates are EUR 229 and EUR 316, respectively), while Prada offers 14% upside at current valuation levels.We have downgraded our moat ratings for Kering and Prada from wide to narrow, given a higher share of shorter-life, higher-fashion items in the product mix for both companies. Nonetheless, we believe that with a high degree of distribution control for their flagship brands (70%-80% owned retail) and global brand recognition and visibility, both companies are well positioned for future growth and profit generation. We expect Kering’s and Prada’s returns on invested capital to improve to over 9% in the medium term from the current 7.2% and 5.4% respectively, versus the cost of capital at 8.6%-8.8%. Kering also benefits from the growth potential of its smaller brands, which are in a higher-investment phase and have better resources for growth than similar independents.We believe Hermes can generate economic profits well into the future, given its fully controlled distribution channels for core merchandise and a product mix of iconic leather goods collections with long lives and limited supply, as well as a wide range of accessories and objects that cater to aspirational consumers, high-net-worth customers, and gifting clientele, providing a recurring revenue component. We expect Hermes’ ROIC to improve from 37% to 42% on average over the next five years, boosted by pricing and limited expansionary investments.All three companies are positioned to benefit from the increasing number of high-net-worth and middle-class customers globally (at a low- to mid-single-digit rate), as well as growth in their wealth and incomes. We still expect China to be a major demand source, despite slowing GDP growth, as a tightening labour force could lead to rising incomes and improved spending power.As the global store footprint has been built out for most major brands over the recent 10 years, we expect growth to come from same-store sales and improving store densities, as well as e-commerce, which accounts for just around 8% of industry sales. We expect this growth to be less capital-intensive than in the past and anticipate better operating leverage for most stocks under our luxury coverage.Analyst: Jelena Sokolova, CFA

We are transitioning coverage of three names in the luxury goods space: Kering (KER FP), Hermes International (RMS FP), and Prada S.P.A. (1913 HK). We believe that Kering and Hermes are currently richly valued (our fair value estimates are EUR 229 and EUR 316, respectively), while Prada offers 14% upside at current valuation levels.We have downgraded our moat ratings for Kering and Prada from wide to narrow, given a higher share of shorter-life, higher-fashion items in the product mix for both companies. Nonetheless, we believe that with a high degree of distribution control for their flagship brands (70%-80% owned retail) and global brand recognition and visibility, both companies are well positioned for future growth and profit generation. We expect Kering’s and Prada’s returns on invested capital to improve to over 9% in the medium term from the current 7.2% and 5.4% respectively, versus the cost of capital at 8.6%-8.8%. Kering also benefits from the growth potential of its smaller brands, which are in a higher-investment phase and have better resources for growth than similar independents.We believe Hermes can generate economic profits well into the future, given its fully controlled distribution channels for core merchandise and a product mix of iconic leather goods collections with long lives and limited supply, as well as a wide range of accessories and objects that cater to aspirational consumers, high-net-worth customers, and gifting clientele, providing a recurring revenue component. We expect Hermes’ ROIC to improve from 37% to 42% on average over the next five years, boosted by pricing and limited expansionary investments.All three companies are positioned to benefit from the increasing number of high-net-worth and middle-class customers globally (at a low- to mid-single-digit rate), as well as growth in their wealth and incomes. We still expect China to be a major demand source, despite slowing GDP growth, as a tightening labour force could lead to rising incomes and improved spending power.As the global store footprint has been built out for most major brands over the recent 10 years, we expect growth to come from same-store sales and improving store densities, as well as e-commerce, which accounts for just around 8% of industry sales. We expect this growth to be less capital-intensive than in the past and anticipate better operating leverage for most stocks under our luxury coverage.Analyst: Jelena Sokolova, CFA

Downgrading Moat Ratings for Prada and Kering From Wide to Narrow; Hermes Wide Moat Confirmed