Investment Research Report – An equity research report is a document prepared by an analyst that provides a recommendation on whether investors should buy, hold or sell shares of a public company. It also provides an overview of the business, the industry it operates in, the management team, its financial performance, risks and target price.
Let’s take a closer look at what goes into an equity research report. Below is a list of the main sections you will find in one of these reports.
Investment Research Report
Buy-side firms (asset management firms) have their own in-house research teams that prepare reports and recommendations for the firm and its portfolio managers on which stocks to buy and sell. The reports are used only for internal investment decisions and are not distributed publicly.
Research — Banyantree Investment Group
Sales firms such as investment banks prepare equity research reports for dissemination to their sales and trading clients and wealth management clients. These reports are distributed free of charge for several reasons (discussed below) and contain a specific buy, sell or hold recommendation as well as an expected price target.
When an investment bank publishes valuable equity research for an institutional client, that client is likely to use the bank to execute their trades for that stock. Although there is no actual agreement to do so, it is an unspoken rule. The bank can also use the report to persuade the client to buy more shares of its holdings, thereby increasing the fee.
All banks have a Chinese wall between their investment banking teams and research departments, but there is still an indirect incentive for research to support stocks for which the bank can provide investment banking services. The fees that investment bankers earn in underwriting and mergers and acquisitions (M&A) are huge, and a bank never wants to miss an opportunity to work with a CEO of a public company because the bank had a “Sell” rating on his company. share.
For this reason, sell-side research typically includes a disclaimer such as: “Bank X researches and does business with companies covered in its research reports. Therefore, investors should be aware that the company may have a conflict of interest (this (due to investment banking relationships) that may affect the objectivity of this report. Investors should consider this report only as one factor in your investment decision.”
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Each bank has its own set of recommendations (conditions) that they use to rate stocks. Below is a list of the most common recommendations or issues from rating analysts.
This guide has focused on the “typical” equity research report, but there are other types that can take slightly different forms. Below is a list of other types.
Below is an example of an equity research report on Kraft Foods. As you can see in the images below, the analyst clearly displays the recommendation, price target, recent updates, investment thesis, valuation and risks.
Thank you for reading CFI’s Guide to Equity Research Reports. For more information, these additional resources will be helpful:
Nexeon Medsystems Inc
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Although you can easily find genuine equity research reports using the magical tool known as ‘Google’, we continue to receive queries on the subject.
Whenever I see the same question over and over again, you know what I do: I keep banging my head and thinking about jumping off a building…
You may recall from previous articles that equity research teams do not spend that much time writing these reports.
Much of his time is spent talking to management teams and institutional investors and sharing his views on sectors and companies.
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For example, if you are applying for an equity research role or equity research practice, particularly in an off-cycle process, you may be asked to write a short report on the company.
And then, in roles outside of ER, you need to know how to quickly interpret reports and extract key information.
If you want to understand equity research reports, you must first understand why banks publish them: to earn higher commissions for trading activity.
This is why you rarely, if ever, see ‘sell’ ratings and why ‘hold’ ratings are much less common than ‘buy’ ratings.
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“Initial coverage” reports are usually long (50-100 pages or more) and contain a lot of research and industry data.
“Sector reports” on entire industries are also quite lengthy. And there are other types, which you can read here.
In this tutorial, we are focusing on the most common “Company Update” or “Company Note” type of reports.
In case you forgot, a hedge fund or asset management stock filing (an example of a stock filing here) consists of the following elements:
Pdf] Equity Research Report Driven Investment Strategy In Korea Using Binary Classification On Stock Price Direction
In a stock pitch, you’ll spend most of your time and energy on catalysts, valuations, and investment risks because you want to convey a very different view of the company.
For example, a company’s stock is worth $100, but you think it’s only worth $50 because it’s going to report earnings that are 80% below expectations.
Therefore, you recommend shorting the stock. You are also recommended to buy call options at the strike price of $125 to limit your losses to 25% if the stock moves in the opposite direction.
In an equity research report, you will still express an opinion about the company that differs from the consensus, but not your opinion
Equity Research Report Template
You will spend more time on company background and valuation sections and much less time and space on catalysts and risk factors. And you don’t even write the worst-case scenario section.
If a company looks 50% overvalued, a research analyst will likely write a “hold” recommendation, say there is “uncertainty around many customers” and claim that the company’s current market value is adequate.
These factors can also play a role in hedge fund stock proposals, but in more short-term recommendations, since time is more important there.
A comical example of this trend is how all 15 equity research analysts covering Enron rated it a “buy” before it collapsed:
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Sell-side analysts are much less likely than buy-side analysts to point out that the emperor has no clothes.
For example, the company is currently trading at $50.00, but we expect its price to rise
This idea is completely ridiculous because evaluation is always about a range of possible outcomes, not a specific outcome.
For example, a bank may give several reasons why it expects the company’s stock price to rise: the company will gain more market share than expected, it will be able to raise the prices of its products faster than expected, and a competitor will almost go bankrupt. .
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However, a sell-side analyst will not link these factors to specific stock price effects as a buy-side analyst will.
Similarly, the report may mention investment catalysts and risks, but will not link to the specific valuation effect of each factor.
Therefore, common stock logic (“we think there is a 50% chance of winning 80% and a 50% chance of losing 20%) will not be clearly explained:
The first is from an assessment case study from our Masters course in Financial Modeling and the second is from a core case study from our Banking Modeling course.
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We started by creating traditional HF/AM stock propositions and valuations and then distilled our views into research reports.
The first page of the “Update” report indicates the bank’s recommendation (buy, hold or sell, sometimes with slightly different terminology) and provides recent updates on the company.
For example, in these two reports we mention companies’ recent earnings results and expectations for the next fiscal year:
We also provide a “target price,” explain where it came from, and provide our estimates for the company’s key financial metrics.
Solution: Jpm Equity Research Report Hulu
One problem with providing a specific “target price” is that it must be based on multiple and specific assumptions in the DCF or DDM.
So with Jazz, we explain that the $170.00 target is based on an EV/EBITDA multiple of 20.7x and 15.3x for the comps and a discount rate of 8.07% and a terminal FCF to DCF growth rate of 0.3%.
Next, you’ll see a section with lots of charts and graphs detailing the company’s financial performance, market share, and important metrics and ratios.
For a pharmaceutical company like Jazz, you can look at revenue per product, prices per product per year and number of patients, and EBITDA margin.
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For a commercial bank like Shawbrook, you
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