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About the Editor
David Harrell is the editor of the Morningstar StockInvestor, a monthly newsletter that focuses on a wide-moat stock investing strategy. For illustration purposes, issues highlight activities pertaining to Morningstar, Inc. portfolios invested in accordance with a strategy that seeks to focus on companies with stable or growing competitive advantages. David served in several senior research and product development roles and was part of the editorial team that created and launched He was the co-inventor of Morningstar's first investment advice software.

David joined Morningstar in 1994. He holds a bachelor's degree in biology from Skidmore College and a master's degree in biology from the University of Illinois at Springfield.

Our Portfolio Managers

Matthew Coffina, CFA, is the portfolio manager for Morningstar Investment Management LLC’s Hare strategy. Matt was previously a senior healthcare analyst, covering managed care and pharmaceutical services companies. Matt also developed the discounted cash flow model used by Morningstar analysts to assign fair value estimates to most of the companies in its global coverage universe.

Matt joined Morningstar in 2007. He holds a bachelor's degree in economics from Oberlin College and also holds the Chartered Financial Analyst (CFA) designation.

Michael Corty, CFA, is the portfolio manager for Morningstar Investment Management LLC’s Tortoise strategy. Before focusing his attention on the Tortoise, Michael co-managed five equity strategies offered by Morningstar Investment Management LLC and Morningstar Investment Services LLC since December 2013. Michael was previously a senior equity analyst on Morningstar Inc.’s equity research team covering companies in the media, business services, and consumer industries. Michael also spent several years on Morningstar’s moat committee, which assigns economic moat and moat trend ratings to their global coverage.

Prior to joining Morningstar in 2004, Michael worked at a public accounting firm and in the business lending arm of a major commercial bank. He has an undergraduate accounting degree from Loyola Marymount University, an MBA from Cornell University and is a CFA charterholder.

About the Editor David Photo
David Harrell
Editor, Morningstar StockInvestor
David Harrell is the editor of the Morningstar StockInvestor, a monthly newsletter that focuses on a wide-moat stock investing strategy. For illustration purposes, issues highlight activities pertaining to Morningstar, Inc. portfolios
Featured Posts
Results for Amex and Comcast

StockInvestorSM focuses on the activities of portfolios of Morningstar, Inc. that are invested in accordance with the Tortoise and Hare strategies. These portfolios are managed by Morningstar Investment Management LLC, a registered investment adviser, which manages other client portfolios using these strategies.

Please see new analyst notes below from Morningstar Research Services for American Express AXP, Comcast CMCSA, and Magellan Midstream Partners MMP.

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David Harrell,
Editor, Morningstar StockInvestor

American Express' Continued Top-Line Strength Driving Gains in Earnings
by Colin Plunkett, CFA | Morningstar Research Services LLC | 01-24-20

Wide-moat American Express finished out 2019 with momentum the company will hope to carry into 2020. In the fourth quarter, American Express generated net revenue of $11.4 billion, representing year-over-year growth of 8.5%, as net interest income growth of 12.4% continues to help the company achieve high-single-digit top-line growth. Overall, this quarter's steady growth led American Express to earnings of $2.03 per diluted share. While this does represent a more-than 12% decline in earnings from the previous year, we'll remind investors that last year's fourth quarter benefited from several tax items. This quarter, American Express' pretax income was 8.5% greater than the previous year while shares outstanding decreased by more than 4% from the previous year. We increased our fair value estimate to $127 per share from $115, which is mostly the result of an increase in the time value of money. Our fair value estimate is approximately 14 times management's 2020 guidance for the company.

During the call, the management guided to revenue growth of 8%-10% and earnings of $8.85-$9.25 per share, representing growth of 13%. Management's guidance seems reasonable to us, especially considering American Express' modestly higher capital levels. American Express finished the year with a common equity tier 1 ratio of 10.7% and has historically guided to a 10%-11% range. In 2019, the company reduced its share count by more than 4%. In 2020, the company has room to increase its share repurchases, making its 2020 earnings forecast even easier to achieve.

We were interested in management's comments stating the company achieved "virtual parity" acceptance with 99% of credit card accepting merchants in North America able to process American Express payments. This effort to gain broader acceptance to match rivals Visa and Mastercard was the subject of a critical "Wall Street Journal" article during the quarter, reporting the company was offering uneconomic sign-up bonuses to retailers to drive acceptance and achieve this goal. Having achieved reached virtual parity, we would anticipate modestly lower expense growth in 2020. Nevertheless, we think the common perception among consumers is that American Express isn't as widely accepted as Visa and Mastercard. Changing this view will take continued investment.

With this quarter's net interest income growth of 12% from the previous year and about a 60-basis-point year-over-year improvement in net interest yield, it does appear that the company has been able to achieve higher pricing on its cards. Basically, it appears to us that competitive intensity within consumer cards is moderating. We don't anticipate a lower rate of rewards, but it does suggest card margins will continue to improve. To us, this is a big positive for American Express and the credit card industry, which could have a material impact on our fair value estimates for credit card issuers.

Comcast Continues to Dominate Internet Access as Television Struggles; Shares Fairly Valued
by Michael Hodel, CFA | Morningstar Research Services LLC | 01-23-20

Comcast again delivered strong core customer growth during the fourth quarter, while the struggling television business and a relatively weak movie slate weighed on results. The firm added 371,000 net cable customer relationships during the period, taking the gain for the year to 1.1 million, or nearly 2% of the homes its networks pass and likely the best performance in more than a decade. Total revenue, however, increased only 0.4%, adjusted for the Sky acquisition, with revenue down 2.6% at NBC Universal and flat at Sky. We remain impressed with Comcast's cable communications segment and believe NBCU and Sky are reasonably well positioned in the media business; our wide moat rating remains unchanged. We don't expect to materially alter our $45 fair value estimate and consider Comcast shares fairly valued. With attractive U.S. telecom valuations scarce, though, the firm is our top pick in the sector.

The Internet access business remains the primary draw within the cable communications business, which accounts for about half of consolidated revenue and 70% of EBITDA. Comcast added 442,000 net internet access customers during the quarter, the best result in four years, indicating that market share gains are accelerating. Revenue per Internet access customer was disappointingly flat sequentially, though management attributed this weakness to the timing of price increases. We expect Comcast will enjoy strong pricing power in this business thanks to the strength of its network, offsetting lost revenue as more customers drop television service. On that front, television customer losses continue to accelerate, with the base shrinking 3.3% during 2019, up from 1.7% the year before. Cable segment revenue increased 2.6% year over year, the slowest pace of 2019 due to strong political advertising a year ago. Efficiency gains and the shrinking television business boosted profitability, with the EBITDA margin up 1 percentage point year over year.

The weak movie slate was the primary driver of the revenue decline at NBCU, but the television business also remains soft. Cable affiliate fee growth again decelerated (to 0.4% year over year) as the benefit of price increases on contract renegotiations hasn't been strong enough to significantly outweigh accelerating cord cutting across the industry. In total, we estimate television advertising and affiliate revenue across the cable and broadcast networks, which account for a bit more than half of NBCU revenue, increased only 1% year over year. We expect this business will decline in the coming years, offset only partially by Peacock.

Revenue at Sky increased 1% year over year, excluding the impact of currency movements. The segment added 77,000 net customers during the quarter, down from 164,000 a year ago and bringing the total for the year to a disappointing 394,000. Advertising revenue also remains soft, which the firm has attributed to economic weakness and restrictions on gambling ad spending. The firm plans to accelerate the deployment of the Sky Q television platform and enter the Internet access market in Italy during 2020 to improve growth. We expect it will take time to bring Sky and NBCU together in a way that really benefits both firms' ability to bring new content to their customer bases.

Looking forward, Comcast expects cable communications segment margins to expand 50 basis points during 2020 versus nearly 140 basis points of expansion in 2019. The 2020 projection seems modest given several positive that should emerge during the year: strong high-margin political ad revenue, improving wireless losses, additional efficiency gains, and the continued shift away from lower-margin television services. Management expects television programming costs to increase sharply during the second half of the year as it renegotiates several content deals. We suspect management is being conservative with its estimates.

Magellan Is Listening to Investors; Announces Marine Terminal Sale and Unit Buyback Program
by Stephen Ellis | Morningstar Research Services LLC | 01-21-20

Magellan's announcement of a $250 million sale of three marine terminals and a $750 million buyback is exactly what we were hoping to see out of the firm, as these actions directly address investors' issues around capital allocation for the space. We do not plan on changing our $72 fair value estimate or wide-moat rating. On the asset sale, we estimate the three marine terminals (about 40% of Magellan's marine terminal segment's capacity) will contribute about $38 million in 2019 EBITDA, a bit better than their average performance of around $34 million in EBITDA over the past five years, making the sale well-timed, in our view. An estimated EBITDA multiple of about 6.5 times is low, but we think growth prospects are fairly limited in the space outside of locations on the Gulf Coast, and the flagship terminal at Galena Park remains with Magellan.

The $750 million unit buyback is very much needed, in our view, given the space and Magellan's persistent undervaluation. We had previously understood that Magellan was somewhat constrained on the capital return front, with substantial investor expectations attached to its long-standing distribution, an attractive slate of growth capital projects, and an unwillingness to increase debt much further. This set of circumstances pushed back a more aggressive unit buyback until 2021, yet the asset sale provides Magellan with some near-term flexibility to execute on a buyback this year. We hope Magellan's management team follows through with actual substantial repurchases. Further, announcing this buyback ahead of earning season will again squarely focus the conversations between investors and management teams at other midstream firms on buybacks, and will hopefully prompt more announcements from peers. Broadly, we think more signals from the industry around effective capital allocation can only help reverse the poor investor sentiment plaguing the space.


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The commentary, analysis, references to, and performance information contained within Morningstar® StockInvestorSM, except where explicitly noted, reflects that of portfolios owned by Morningstar, Inc. that are invested in accordance with the Tortoise and Hare strategies managed by Morningstar Investment Management LLC, a registered investment adviser and subsidiary of Morningstar, Inc. References to "Morningstar" refer to Morningstar, Inc.

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This commentary contains certain forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially and/or substantially from any future results, performance or achievements expressed or implied by those projected in the forward-looking statements for any reason.

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All Morningstar Stock Analyst Notes were published by Morningstar, Inc. The Weekly Roundup contains all Analyst Notes that relate to holdings in Morningstar, Inc.'s Tortoise and Hare Portfolios. Morningstar's analysts are employed by Morningstar, Inc. or its subsidiaries. In the United States, that subsidiary is Morningstar Research Services LLC, which is registered with and governed by the U.S. Securities and Exchange Commission.

David Harrell may own stocks from the Tortoise and Hare Portfolios in his personal accounts.

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