Despite near-term pressures, Morningstar analyst John Owens is confident about Applebee's (APPB) prospects over the long run. Owens believes that the company is well positioned to capitalize on long-term trends such as the increasing affluence of baby boomers, the rise of dual income families, and a yearning for convenience in a time-pressed society. Owens also thinks Applebee's should reap economies of scale from its roughly 1,800 domestic units. A promising exclusive alliance with Weight Watchers (WTW) and a brisk carryout business also lend support to Owens' belief that the chain has plenty of room for growth.

Unlike most auto manufacturers, which battle high fixed costs that keep them from earning their cost of capital, auto retailers have proved that they can be good businesses. Franchise laws help to keep powerful manufacturers and would-be competitors at bay. Dealers also enjoy considerable support from manufacturers through so-called "floor-plan" financing, a form of low-cost secured borrowing, and other subsidies that reduce working capital needs and marketing costs. Finally, though new car sales account for over 60% of dealership revenues, they make up less than 30% of operating profits. The bulk of operating profits come from higher-margin sales of used cars, parts, and services, helping stabilize dealer finances despite the cyclical nature of new car sales. For these reasons, among others, Morningstar analyst John Novak thinks Group One Automotive (GPI) enjoys a narrow economic moat. And while Group One's profitability and same-store growth has lagged peers', Novak believes that the company's new CEO will improve its execution.

Last Monday, American Express (AXP) released its fourth-quarter results. Highlights included 27% operating profit growth and a roughly 35% return on equity. Higher card spending spurred growth, with 16% growth in the amount of billed business during the quarter. And while the average spending from the firm's U.S. cardholders increased by only about 4%, Morningstar analyst Ryan Batchelor was expecting such a slowdown, with strong foreign growth more than making up the difference. In addition, the firm's finance charge revenues--revenue received from customers who don't pay their bills in full each month--jumped 41% versus the year-ago quarter, thanks to high growth in credit card receivables. Credit quality in this portfolio has remained high as well, although Batchelor expects it to worsen somewhat from current levels, which are unsustainably high, in his view. All told, Batchelor thinks Amex is rolling along as it heads into 2007, and he expects good things over the long haul.

White Mountains Insurance Group (WTM) has announced that chairman Jack Byrne and CEO Steve Fass have retired; they have been replaced in both roles by Ray Barrette, who was CEO of the company until he retired in 2005. In conjunction with his return to White Mountains, Barrette will receive a sizable equity stake--potentially more than 2% of the company--that will vest over the next five years. In Morningstar analyst Justin Fuller's view, this compensation package is consistent with White Mountains' desire to align executives' incentives with those of shareholders. What's more, Fuller believes that the transition to Barrette will be smooth, and that the company will continue to prosper under his stewardship.

Fastenal (FAST) posted solid fourth-quarter results, with sales and earnings up 16.8% and 16.4%, respectively, from last year. While growth slowed slightly in the second half of the year, this didn't come as much of a surprise to Morningstar analyst Matthew Warren, considering the somewhat wobbly manufacturing environment. Management opened 245 new stores in 2006, which Warren believes will bolster the firm's store footprint advantage and fuel growth. Operating margins were steady with last year, which Warren thinks is impressive considering recent investments made to facilitate market share gains. Fastenal improved accounts-receivable collection, but inventory growth outpaced sales gains. While part of this inventory build reflects strategic investments in a broader product selection and management's decision to take advantage of better-than-usual deals from suppliers at year-end, there were also some growing pains resulting from the firm's efforts to increase direct-sourcing from China. Warren expects smoother results as the company gains experience with this process. Also, obsolescence is of little concern in this industry, meaning that unusual inventory write-offs are highly unlikely and that the firm should easily work down this investment in the first half of 2007. Warren is maintaining his fair value estimate.