Skip to Content
Stock Strategist

CoStar Pairs a Wide Moat With Great Management

The real estate information provider is one of our favorites, but its stock looks pricey.

Mentioned:

Morningstar covers roughly 1,700 companies; of these, just over 200 have wide Morningstar Economic Moat Ratings, fewer than 140 have competitive advantages we deem to be improving, and fewer than 140 have Exemplary Stewardship Ratings.  CoStar Group (CSGP) is among an elite group of seven covered companies with all three--a wide moat, improving competitive advantages, and exemplary stewardship--making it one of Morningstar's favorite companies. Although we see a lot to like in CoStar's business, the shares trade at nearly twice our fair value estimate. We see more downside risk than upside potential in the stock.

Participants in the commercial real estate industry rely on accurate and timely data to perform their jobs. Lenders and appraisers require comparable sales data for underwriting and valuations. Brokers, property managers, and building owners require tenant information to track available space and tenant leasing needs. Roughly 1,000 researchers maintain CoStar's legacy database of information to support these functions, making upward of 120,000 updates to the database each day. All but its largest clients would be unable to replicate CoStar's research capabilities, and even commercial real estate service giants CBRE Group and Jones Lang LaSalle outsource large research functions to CoStar under multiyear contracts. By spreading the cost of its research staff and technology platform across a diverse client base, CoStar can price its service below the cost of collecting the data in-house. Its high customer retention rate (averaging 90% historically, with even higher levels recently) coupled with annual rate increases (usually in line with inflation) has led to a solid recurring revenue base that should increase modestly over time.

Todd Lukasik does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.