Amid another solid quarter of earnings results, Morningstar analysts have been bumping up their fair value estimates of various stocks.
The names with the largest fair value increases were e-commerce company Sea SE, with a 65% jump, and music streaming service Spotify SPOT, with a 56% raise. Across the 871 US-listed stocks covered by Morningstar, there was a 1.28% average increase in fair value estimates for the 2024 third-quarter earnings season, up slightly from last quarter’s 1.08%.
Among the stocks we scanned for changes, 7% saw increases of 10% or more. Over the past 10 years, 8% of the group had average quarterly fair value estimate increases of 10% or more. The technology and industrial sectors saw the highest rate of increases. Roughly 14.1% of tech companies had a fair value increase of at least 10.0%, and the average increase across the sector was 1.6%. Among industrial companies, 12.6% had fair value increases of at least 10.0%, and the average increase was 2.6%.
Here are the stocks with the largest-percentage increases in their fair value estimates:
Here’s more of what Morningstar analysts had to say about each stock.
Sea
Sea had the largest fair value increase, going to $109 from $66. “We are raising our fair value estimate for Sea after it posted impressive third-quarter 2024 revenue of $4.3 billion, representing a 31% increase year over year,” says Morningstar senior equity analyst Kai Wang. “Adjusted operating margin also increased 760 basis points to 4.9% during the same period as Sea finally showed the ability to achieve gross merchandise volume growth concurrently with increasing profitability. We believe this reflects an inflection point and structural change for Sea as it appears to have addressed the underlying issue that tempered our outlook, where the company was unable to achieve robust growth without compromising profitability on its platform and vice versa. We think Sea has partially resolved the issue by increasing monetization rates from the sellers on the platform, as well as increasing the ad load and charging higher fees for advertising on the platform.”
“Our fair value increase is driven by new assumptions in our outlook on Sea, and we materially increased our total incremental GMV amount by 20% in 2025-28 while holding long-term operating margins in the mid-teens,” Wang adds. “The change reflects our new view that Sea will be able to achieve robust growth while expanding operating margins given its robust performance for the past three quarters, unlike in 2022-23, where the company consistently saw GMV upticks that were accompanied by heavy losses, while its growth appeared to be untenable as it was mainly driven by incentives.”
Sea is trading near its new fair value estimate and has a Morningstar Rating of 3 stars.
Spotify
Spotify had two fair value changes in the quarter. The most recent—to $390 from $350—came after strong third-quarter earnings results that showed rapidly expanding operating profit and free cash flow, according to Morningstar senior equity analyst Matthew Dolgin. “Spotify’s third-quarter results were fantastic, as the firm seems to have turned the corner to pair impressive profitability with a top line that continues to grow rapidly,” says Dolgin. “We believe the firm’s industry-leading scale has led to a cost advantage that should allow the firm to now continue ramping profits and supports our narrow moat rating. We think there’s currently a bit too much exuberance for the stock, but we see Spotify as a best-in-breed company that would be attractive on pullbacks.”
Earlier in the quarter, Dolgin raised Spotify’s fair value to $350 per share from $250 and assigned the company its first narrow economic moat. “The change reflects the stature Spotify has attained in the streaming music industry and the cost advantage global leadership has conferred,” explains Dolgin. “Along with modest switching costs and network effects, we think this will make it difficult for competitors to eat into its leading market share in an industry that we think is poised to continue growing rapidly.
Spotify is trading at a 21% premium to its new fair value estimate and has a Morningstar Rating of 2 stars.
Bloom Energy
Energy server manufacturer Bloom saw its fair value bumped to $15 from $10, following the announcement that the US utility agreed to purchase up to 1 gigawatt of Bloom’s solid oxide fuel cells for data centers and other large energy users, according to Morningstar equity analyst Brett Castelli. “We have viewed the outlook for Bloom as bifurcated and largely dependent on orders from large, power-hungry data centers for its natural-gas-powered fuel cells,” he says.
“Put simply, the up to 1 GW order is a potential game-changer for Bloom. The company delivered less than 300 megawatts of fuel cells in 2023 and has delivered 1.3 GW cumulatively in its history. We had questions about whether Bloom’s fuel cells had sufficient power density to meet the needs of large energy users, such as hyper-scale data centers, which can be 1 GW or more. We see the AEP agreement as an important step forward in answering this question.”
He continues: “The inflection in power demand, in part due to data centers, is leaving utilities and technology companies scrambling for energy sources. With possible new nuclear power plants not online until the 2030s, natural gas turbines taking three years from the time of order to delivery, and connection to the grid multiple years in some cases, Bloom’s 24×7 solid oxide fuel cells are well-suited to solve near-term power needs.”
Bloom is trading at a 65% premium to its new fair value estimate and has a Morningstar Rating of 2 stars.
EVgo
Electric vehicle charging provider EVgo saw its fair value estimate rise to $3.50 per share from $2.50, following news that the company received a conditional commitment from the US Department of Energy for as much as $1.05 billion in debt financing. “EVgo is in the capital-intensive business of building out fast-charging stations for electric vehicles, but the company has historically been constrained by its balance sheet,” says Castelli. “The $1.05 billion DOE loan will materially improve the company’s liquidity. As of June 30, EVgo had $163 million in cash on hand, limiting its financial flexibility. Assuming the deal closes in the coming months—which we expect—the new capital improves EVgo’s ability to continue to expand its charging network until the company reaches greater scale and profitability.”
EVgo is trading at a 71% premium to its new fair value estimate and has a Morningstar Rating of 2 stars.
Fair Isaac
Applied analytics firm Fair Isaac saw two fair value estimate increases in the quarter. The latest increase—to $1,500 per share from $1,300—came after the firm reported solid third-quarter earnings. “Mortgage scores revenue grew 95%, driven by pricing, which compares with a 1% increase in inquiries reported by Equifax EFX and an 8% decline in inquiries reported by TransUnion TRU,” says Morningstar equity analyst Rajiv Bhatia.
Bhatia continues: “Fair Isaac is raising its pricing for mortgage scores in calendar 2025 to $4.95 per score, which by our calculations is a 41% increase and was above our modeled 20% increase. In response to criticism of outsize price increases, Fair Isaac points out that credit costs are a small component of mortgage closing costs and thus it believes it has room to grow pricing. We view FICO scores as a benchmark built around a network effect, and as a result, they are hard to displace, which gives the company strong pricing power. Auto origination and card revenue declined 2% and 5%, respectively, but we believe card non-origination revenue drove business-to-business nonmortgage score growth. The software business grew 5%, which was steady sequentially. Annual contract value bookings, which can be lumpy, were $22 million and a touch soft, in our view.”
Earlier in the quarter, Bhatia raised Fair Isaac’s fair value estimate to $1,300 per share from $1,100 after increasing score revenue forecasts. “First, we’ve increased our mortgage pricing assumptions,” Bhatia says. “Second, we are increasing our mortgage volume assumptions for 2025 as mortgage rate expectations have declined since our last update. Fair Isaac has carved out a wide moat from its benchmark scoring business and, as a result, has strong pricing power. We’ve also slightly increased our long-term pricing assumptions—given the firm’s high incremental margins and low variable costs, price increases tend to flow to the bottom line.”
Fair Isaac is trading at a 54% premium to its new fair value estimate and has a Morningstar Rating of 2 stars.
Lyft
Ride-hailing service provider Lyft saw its fair value increase to $20 per share from $15. “While the macroeconomic environment remains tight and continues to pressure consumers, we were impressed by Lyft’s sales growth to $1.5 billion, up 32% year over year,” says Morningstar equity analyst Malik Ahmed Khan. “Driving some of this top-line growth was a healthy uptick in both rides and riders, which grew 16% and 9% year over year, respectively. We model both these metrics remaining strong as Lyft heads into its seasonally strong fourth quarter. While we like Lyft’s announcements of partnerships with a slew of autonomous vehicle providers, the firm’s limited scale, both in terms of riders and drivers, when compared with Uber UBER, will likely inhibit the AV-related growth opportunities it can benefit from.”
Lyft is trading near its new fair value estimate and has a Morningstar Rating of 3 stars.
Exelixis
Biotechnology company Exelixis saw its fair value climb to $25.10 per share from $18.90, due to stronger near-term expectations from cabozantinib and upside from Exelixis’ developing pipeline, according to Morningstar equity analyst Rachel Elfman. “Exelixis and Merck MRK recently announced a collaboration to evaluate Exelixis’ pipeline candidate, zanzalintinib, in combination with Merck’s Keytruda in head and neck squamous cell carcinoma in a phase 3 trial,” says Elfman.
“Additionally, zanzalintinib will be evaluated with Merck’s Welireg in a phase 1/2 trial and two phase 3 trials for the treatment of patients with renal cell carcinoma. We like that Merck will fund one of these phase 3 studies, and Exelixis will co-fund the phase 1/2 trial and the other phase 3 study, which will help offset the costs for these trials. We also appreciate that Exelixis maintains all global commercial and marketing rights to zanzalintinib under this agreement. We assign a 50% probability of approval in our base case and think it could reach the market as early as 2026. Keytruda and Welireg are approved therapies, and the potential to create a combination therapy with zanzalintinib could expand their patient reach. We forecast that zanzalintinib could become a blockbuster drug, generating over $1 billion in annual sales toward the end of our forecast period.”
Exelixis is trading at a 38% premium to its new fair value estimate and has a Morningstar Rating of 2 stars.
Motorola Solutions
Communications and analytics provider Motorola saw its fair value increase to $460 per share from $351, driven by a change in Morningstar’s discount rate from 9.0% to 7.5%, according to Morningstar director of equity research Eric Compton. “We believe the company’s exceptionally stable land mobile radio business combined with its other public-safety-focused businesses merit the lowest discount rate we use when modeling companies,” he says.
“With regards to earnings, Motorola reported another excellent quarter, although the earnings per share beat of $3.94 compared with our forecast of $3.39 was largely driven by inconsequential items (lower tax rate and ‘other, irregular expenses’). Management raised their full-year guidance to revenue growth of 8.25% (up from 8%) and adjusted EPS of $13.66 at the midpoint (up from $13.26 previously), essentially all driven by the nearly $0.60 beat in the current quarter. As we updated our forecasts, while our EPS estimate shifted higher, our operating income estimate barely moved. In other words, things came in largely as we expected.”
Motorola is trading near its new fair value estimate and has a Morningstar Rating of 3 stars.
TransDigm
Aircraft parts manufacturer TransDigm saw its fair value estimate raised to $1,360 per share from $1,100. “TransDigm wrapped up its fiscal 2024 with 21% revenue growth and 52.6% adjusted EBITDA margin, a 1-percentage-point increase from 2023,” says Morningstar equity analyst Nicolas Owens.
“TransDigm has established a strong track record of topping industry performance—for example in calendar 2020 when global commercial and business jet deliveries fell 33% and air traffic shrank 57%, TransDigm revenue only contracted 1.1%. Partially fueled by its prodigious pricing power, and ongoing acquisition of smaller niche partsmakers, we see TransDigm outperforming the industries it serves even more in up years: its commercial aftermarket business grew 4 points faster than air traffic over the last three years. Even though the company signaled caution in its 11.5% organic 2025 growth forecast (before potential acquisitions add to that growth) due to uncertainty about Boeing’s BA production following its machinists’ strike, we forecast several years of double-digit growth in TransDigm’s original equipment manufacturer unit.”
TransDigm is trading near its new fair value estimate and has a Morningstar Rating of 3 stars.
Teva Pharmaceutical Industries
Generic drug manufacturer Teva saw its fair value increase to $21 per share from $17. “Teva’s robust third-quarter sales exceeded our expectations,” says Morningstar equity analyst Keonhee Kim. “Total sales of $4.3 billion were up 12.5% year over year, meaningfully higher than our high-single-digit expectation, with broad-based growth across regions. Management raised its full-year revenue and earnings per share guidance by low single digits at the midpoints. Given continued solid execution by the firm, we have slightly lowered our cost of debt assumption. This reflects our increased conviction in Teva’s ability to deleverage the balance sheet and improve cash flows from new products. Our outlook is substantiated by a recent rating upgrade by Fitch—the first time the agency has upgraded Teva’s rating in over a decade—as well as outlook upgrades from the other two major agencies. After inching up our near-term outlook, accounting for cash flows, and baking in a new cost of debt, we are raising our fair value estimate to $21 per share from $17.”
Teva is trading at a 19% discount to its new fair value estimate and has a Morningstar Rating of 4 stars.