Morningstar announced Monday that it has expanded its equity coverage with quantitative ratings and reports for approximately 28,000 companies globally.

The new ratings—called Quantitative Fair Value Estimate, Quantitative Valuation, Quantitative Uncertainty, Quantitative Economic Moat and Quantitative Financial Health—are based on quantitative statistics and generated by a statistical model based on Morningstar’s analyst-driven equity ratings.

The ratings also consider financial datapoints such as earnings yield, average daily volume and total return volatility. The quantitative ratings are calculated daily and derived from the analyst ratings of a company’s peers as determined by statistical algorithms.

“We’re offering a new level of equity coverage that leverages our existing analyst ratings and harnesses Morningstar’s robust global equity data on thousands of companies, allowing us to consistently apply our approach to equity analysis to a wider universe of stocks,” said Haywood Kelly, Morningstar’s senior vice president of equity and credit research, in a statement. “The ratings can serve as a second opinion for investors to consider when evaluating a company.”

Morningstar will calculate quantitative equity ratings for companies whether or not it already provides analyst ratings and qualitative coverage. In some cases, according to the Morningstar release, the quantitative ratings may differ from the analyst ratings because a company’s analyst-driven ratings can significantly differ from other companies in its peer group.

The new quantitative equity ratings comprise:

  • Quantitative Fair Value Estimate: Comparable to Morningstar’s Fair Value Estimate for stocks, which measures a company’s intrinsic value based on a discounted cash flow model, and represents the per share value of a company’s equity. The measure is expressed in the local currency.
  • Quantitative Valuation: Defined as the ratio of a company’s Quantitative Fair Value Estimate to its last market close price, and similar to the analyst-driven Fair Value Estimate to last market close price ratio. The rating is expressed as Overvalued, Fairly Valued or Undervalued.
  • Quantitative Uncertainty: Describes the level of uncertainty around the Quantitative Fair Value Estimate, comparable to the Uncertainty Rating for the analyst Fair Value Estimate. The rating is expressed as Low, Medium, High, Very High or Extreme.
  • Quantitative Economic Moat: Corresponds to Morningstar’s Economic Moat rating, which measures a company’s sustainable competitive advantages. The quantitative rating is expressed as None, Narrow or Wide.
  • Quantitative Financial Health: Based on Morningstar’s proprietary measure of the likelihood of financial distress. The quantitative rating is expressed as Weak, Moderate or Strong.

The quantitative equity ratings and reports are available through Morningstar data feeds. Morningstar plans to add the quantitative equity ratings and reports to Morningstar Office, its investment planning and research platform for financial advisors, and Morningstar Analyst Research Center for stocks within Morningstar Advisor Workstation later this year.


Read Stocks Have Room to Rise, but So Do Interest Rates: J.P. Morgan’s Kelly on AdvisorOne.