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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 Morningstar.com. 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.

 
Aug 18, 2017
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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
Roundup 8/11/2017 -- Results for Berkshire and Compass Minerals

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 Morningstar analyst notes below for Berkshire Hathaway BRK.B and Compass Minerals CMP, and a sector note based on O'Reilly Automotive's ORLY recent analyst day.

Best wishes,

David Harrell,
Editor, Morningstar StockInvestor


Berkshire Posts Mixed 2Q Results; Book Value per Share Jumps 14.3%
by Greggory Warren, CFA | Morningstar Research Services LLC | 08-04-17

Wide-moat-rated Berkshire Hathaway released second-quarter results that were more mixed than we had expected, with the company reporting solid top-line but weaker bottom-line results. We do not expect to change our $290,000 ($193) per Class A (B) share fair value estimate. Second-quarter (first-half) revenue increased 6.0% (15.3%) to $57.5 ($122.7) billion. Excluding the impact of investment and derivative gains (losses), second-quarter (and first-half) revenue increased 7.3% (and 16.5%). With expenses increasing at a higher rate than revenue during the second quarter, operating earnings declined 10.6% during the period, leaving first-half operating earnings down 8.0%. Net earnings, which includes the impact of investment and derivative gains (losses) were down 14.8% and 21.4% during the second quarter and first half of the year, respectively.

That said, we remain impressed with Berkshire's ability to increase its book value per Class A equivalent share--which rose 14.3% year over year to $182,816 (better than our own estimate of $182,525)--aided primarily by the strong performance of its equity investment portfolio during 2017. The company closed out the second quarter with $99.7 billion in cash on its books, up from $96.5 billion at the end of March and $86.4 billion at the end of 2016. While the firm has dedicated around $13 billion to different opportunities since late June, including the company's $9 billion all-cash bid for Oncor, Berkshire still has plenty of dry powder to dedicate to investments, acquisitions, and share repurchases (or dividends). Stripping out the capital that has yet to be laid out for the deals that have been announced, as well as the $20 billion CEO Warren Buffett likes to keep around on hand as a backstop for the insurance business, and another $3 billion-$5 billion for operating cash, Berkshire looks to have an excess cash balance of more than $60 billion. The company did not repurchase any shares during the first half of 2017.

No Changes to Our $85 FVE for Compass Minerals; Guidance In Line With Our Expectations
by Seth Goldstein, CFA | Morningstar Research Services LLC | 08-08-17

Wide-moat Compass Minerals reported second-quarter results that were in line with our expectations. Following two consecutive winters with below average snow and, therefore, weak salt demand, management is guiding to lower salt prices. However, the impact will be partially offset by an increased sales volume outlook. The market disagrees with our outlook, however, as the stock traded down after the earnings release. Despite near-term weakness in the salt segment, we maintain our $85 per share fair value estimate and wide moat rating.

In the salt segment, operating earnings fell significantly to $10.7 million during the second quarter as lower volumes reduced operating margins to 10% from 20% during the second quarter of 2016. On the earnings call, management outlined a second cost-savings program (primarily by reducing headcount) that will lower annual costs by around $20 million. Additionally, Compass will save costs by implementing continuous miners at Goderich. We expect unit costs to fall during the second half of 2017 and 2018, which will improve margins despite pricing headwinds.

In the near term, we still see salt volumes and prices recovering toward historical averages as a result of a bounce-back in snow days and salt demand. Over the long term, we think climate change will reduce the “normal” number of snow days per year by roughly 4% over the next decade, which will reduce deicing salt demand. That said, the “normal” number of snow days will still be well above the number of snow days witnessed over the last two years, which was 15% below trend.


O’Reilly’s Investor Day Leaves Us More Confident in Our Favorable View of the Sector; Shares Cheap
by Zain Akbari, CFA | Morningstar Research Services LLC | 08-10-17

While we are not changing our $242 per share valuation, we came away from narrow-moat O’Reilly’s analyst day with a greater appreciation for the strength of its dual-market model and more confident in our positive view of the firm’s ability to leverage its inventory and distribution infrastructure as it scales. We believe recent agita about Amazon’s increased attention on the sector and what we consider to be a cyclical slowdown (driven by unfavorable weather and slower growth in the number of miles driven) have obscured the degree to which O’Reilly and its peers can use their brand- and cost-based advantages to fend off competition from digital and physical retailers alike.

We were encouraged to hear that certain vendors (such as Dorman) are looking to use minimum retail price structures to prevent digital-only retailers from undercutting authorized resellers and diluting their own part brands’ strength. While Amazon’s new focus on automotive parts comes via distribution arrangements with manufacturers and distributors, unauthorized retailers use Amazon, eBay, and their own portals to offer components without manufacturer support. Although we still believe motorists are largely price-insensitive, the initiative shows that manufacturers are incentivized to maintain good relationships with the scaled parts retailers that constitute a critical customer base. Private- and proprietary-label offerings extend retailers’ strength beyond procurement relationships, creating an avenue for large chains to sell higher-margin components while monetizing their brand equity in a way that subscale participants cannot match economically.

Our long-term forecast for O’Reilly, calling for 5% annual revenue growth amid 21% adjusted operating margins, on average, over the next decade (building on 4% top-line expansion and 19% forecast profitability in 2017), is intact.

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©2017 Morningstar, Inc. All rights reserved. The Morningstar name and logo are registered marks of Morningstar, Inc. The information contained in this document is the proprietary material of Morningstar, Inc. Reproduction, transcription, or other use, by any means, in whole or in part, without the prior written consent of Morningstar, Inc., is prohibited. All data presented is based on the most recent information available to Morningstar, Inc. as of the release date and may or may not be an accurate reflection of current data.  There is no assurance that the data will remain the same.

Disclosure:
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.

Opinions expressed are as of the current date and are subject to change without notice. Morningstar, Inc. and Morningstar Investment Management LLC shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, the information, data, analyses or opinions or their use. This commentary is for informational purposes only and has not been tailored to suit any individual.

The information, data, analyses, and opinions presented herein do not constitute investment advice, are provided as of the date written, are provided solely for informational purposes and therefore are not an offer to buy or sell a security. Please note that references to specific securities or other investment options within this piece should not be considered an offer (as defined by the Securities and Exchange Act) to purchase or sell that specific investment.

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.

Investments in securities are subject to investment risk, including possible loss of principal.  Prices of securities may fluctuate from time to time and may even become valueless.  Securities in this report are not FDIC-insured, may lose value, and are not guaranteed by a bank or other financial institution. Before making any investment decision, investors should read and consider all the relevant investment product information. Investors should seriously consider if the investment is suitable for them by referencing their own financial position, investment objectives, and risk profile before making any investment decision. There can be no assurance that any financial strategy will be successful.

Common stocks are typically subject to greater fluctuations in market value than other asset classes as a result of factors such as a company's business performance, investor perceptions, stock market trends and general economic conditions.

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.

 
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