2nd UPDATE: Morningstar To Cover All Nasdaq OMX-Listed Cos
June 09 2009 - 3:09AM
Dow Jones News
All the companies listed on the Nasdaq exchange will now get at
least some form of research coverage, courtesy of the Nasdaq OMX
Group Inc. (NDAQ), including nearly 900 that currently don't get
any analyst coverage at all.
Nasdaq OMX announced Monday it entered an agreement with the
Chicago-based independent research firm Morningstar Inc. (MORN) to
provide research profiles targeted at retail investors.
"Investors need to be able to access insightful and trusted data
and research to make investing decisions," Nasdaq Executive Vice
President Bruce Aust said. "Together, Nasdaq OMX and Morningstar
are filling a void that has existed for some time, particularly
among small- to mid-cap companies."
Morningstar will produce research profiles for all of the more
than 3,600 companies listed on Nasdaq OMX exchanges, beginning in
the third quarter. The profiles will, however, fall short of full
analyst coverage for each company. The four-to-five page reports
will include an analyst's report on the industry the company is in,
a profile of the company and a data tearsheet. The Morningstar
analysts won't, however, forecast earnings or issue buy/sell/hold
recommendations in the profile reports.
The "uncovered company" problem has been around for a long time,
and has worsened as analyst ranks have been thinned as Wall Street
banks increasingly view their research departments as a major cost
center.
Aust acknowledged that the profile reports provided by
Morningstar stop short of solving the problem.
"We in the financial industry owe it to investors to continue to
try to find a way to create a solution for better research
coverage," he said. "But until we can make it economical for
everyone that's providing it, it's going to be a problem."
However, the deal between Morningstar and Nasdaq, the terms of
which were not disclosed, means investors in companies that trade
on the Nasdaq will continue to have access to at least a basic form
of analyst research.
The profile reports are a new product for Morningstar that
leverages its company information database, but is a step below
Morningstar's regular analyst reports. Morningstar employs 95
analysts who cover about 2,000 companies in total, including about
500 to 600 Nasdaq-listed companies.
Morningstar President of Equity Research Catherine Odelbo said
her company created the profile report product as it prepares to
explore new markets for its research in the wake of the expiration
of the 2003 Global Analyst Research Settlement in July.
The settlement provided $460 million to fund independent
research from Morningstar and other firms over five years, funded
by a dozen Wall Street research firms who settled with regulators
over allegations their research analysts were pressured to promote
certain stocks by their investment banking departments.
Morningstar has warned investors it expects its post-settlement
revenue to be "significantly lower" beginning in the second half of
the year. Morningstar received $21 million in settlement monies in
2008 - about 4% of its consolidated revenue last year.
Shares of Nasdaq fell 58 cents, or 2.6%, to $21.42 in recent
trading, while Morningstar shares rose 23 cents, or 0.5%, to
$42.88.
-By Ed Welsch, Dow Jones Newswires; 201-938-5244;
edward.welsch@dowjones.com