Aurizon: Cutting Moat Rating to No-Moat

We downgrade Aurizon Holdings’ moat rating to no-moat from narrow following a periodic review by Morningstar’s moat committee. While we maintain Aurizon’s underlying asset quality is good, forecast excess returns are slim, and investments in new businesses to diversify away from coal weigh on future returns. We think there is significant uncertainty about whether the company can generate returns on invested capital above our estimate of the company’s cost of capital a decade from now, hence the no-moat rating. We estimate the firm’s return on invested capital was 6.1% in fiscal 2024 and think it will remain below the firm’s 7.3% weighted average cost of capital for at least the medium term.