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What’s in an Equity Research Report?

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Even though you can easily find real equity research reports via the magical tool known as “Google,” we’ve continued to get questions on this topic.

Whenever I see the same question over and over again, you know what I do: I bash my head in repeatedly and contemplate jumping off a building…

…and then I write an article to answer the question.

To understand an equity research report, you must understand what goes into a  stock pitch first.

The idea is similar, but an ER report is a “watered-down” version of a stock pitch.

But banks have some very solid reasons for publishing equity research reports:

Why Do Equity Research Reports Matter?

You might remember from previous articles that equity research teams do not spend that much time writing these reports .

Most of their time is spent speaking with management teams and institutional investors and sharing their views on sectors and companies.

However, equity research reports are still important because:

• You do still spend some time doing the required modeling work (~15%) and writing the reports (~20%).
• You might have to write a research report as part of the interview process.

For example, if you apply to an equity research role or an equity research internship , especially in an off-cycle process, you might be asked to draft a short report on a company.

And then in roles outside of ER, you need to know how to interpret reports quickly and extract the key information.

Equity Research Reports: Myth vs. Reality

If you want to understand equity research reports, you have to understand first why banks publish them: to earn higher commissions from trading activity.

A bank wants to encourage institutional investors to buy more shares of the companies it covers.

Doing so generates more trading volume and higher commissions for the bank.

This is why you rarely, if ever, see “Sell” ratings, and why “Hold” ratings are far less common than “Buy” ratings.

Different Types of Equity Research Reports

One last point before getting into the tutorial: There are many different types of research reports.

“Initiating Coverage” reports tend to be long – 50-100 pages or more – and have tons of industry research and data.

“Sector Reports” on entire industries are also very long. And there are other types, which you can read about here .

In this tutorial, we’re focusing on the “Company Update” or “Company Note”-type reports, which are the most common ones.

The Full Tutorial, Video, and Sample Equity Research Reports

For our full walk-through of equity research reports, please see the video below:

Table of Contents:

• 1:43: Part 1: Stock Pitches vs. Equity Research Reports
• 6:00: Part 2: The 4 Main Differences in Research Reports
• 12:46: Part 3: Sample Reports and the Typical Sections
• 20:53: Recap and Summary

You can get the reports and documents referenced in the video here:

• Equity Research Report – Jazz Pharmaceuticals [JAZZ] – OUTPERFORM [BUY] Recommendation [PDF]
• Equity Research Report – Shawbrook [SHAW] – NEUTRAL [HOLD] Recommendation [PDF]
• Equity Research Reports vs. Stock Pitches – Slides [PDF]

If you want the text version instead, keep reading:

Watered-Down Stock Pitches

You should think of equity research reports as “watered-down stock pitches.”

If you’ve forgotten, a hedge fund or asset management stock pitch ( sample stock pitch here ) has the following components:

• Part 1: Recommendation
• Part 2: Company Background
• Part 3: Investment Thesis
• Part 4: Catalysts
• Part 5: Valuation
• Part 6: Investment Risks and How to Mitigate Them
• Part 7: The Worst-Case Scenario and How to Avoid It

In a stock pitch, you’ll spend most of your time and energy on the Catalysts, Valuation, and Investment Risks because you want to express a VERY different view of the company .

For example, the company’s stock price is $100, but you believe it’s worth only $50 because it’s about to report earnings 80% lower than expectations.

Therefore, you recommend shorting the stock. You also recommend purchasing call options at an exercise price of $125 to limit your losses to 25% if the stock moves in the opposite direction.

In an equity research report, you’ll still express a view of the company that’s different from the consensus, but your view won’t be dramatically different.

You’ll spend more time on the Company Background and Valuation sections, and far less time and space on the Catalysts and Risk Factors. And you won’t even write a Worst-Case Scenario section.

If a company seems overvalued by 50%, a research analyst would probably write a “Hold” recommendation, say that there’s “uncertainty around several customers,” and claim that the company’s current market value is appropriate.

Oh, and by the way, one risk factor is that the company might report lower-than-expected earnings.

The Four Main Differences in Equity Research Reports

The main differences are as follows:

1) There’s More Emphasis on Recent Results and Announcements

For example, how does a recent product announcement, clinical trial result, or earnings report impact the company?

You’ll almost always see recent news and updates on the first page of a research report:

These factors may play a role in hedge fund stock pitches as well, but more so in short recommendations since timing is more important there.

2) Far-Outside-the-Mainstream Views Are Less Common

One comical example of this trend is how all 15 equity research analysts covering Enron rated it a “buy” right before it collapsed :

Sell-side analysts are far less likely to point out that the emperor has no clothes than buy-side analysts.

3) Research Reports Give “Target Prices” Rather Than Target Price Ranges

For example, the company is trading at $50.00 right now, but we expect its price to increase to exactly $75.00 in the next twelve months.

This idea is completely ridiculous because valuation is always about the range of possible outcomes, not a specific outcome.

Despite horrendously low accuracy , this practice continues.

To be fair, many analysts do give target prices in different cases, which is an improvement:

4) The Investment Thesis, Catalysts, and Risk Factors Are “Looser”

These sections tend to be “afterthoughts” in most reports.

For example, the bank might give a few reasons why it expects the company’s share price to rise: the company will capture more market share than expected, it will be able to increase its product prices more rapidly than expected, and a competitor is about to go bankrupt.

However, the sell-side analyst will not tie these factors to specific share-price impacts as a buy-side analyst would.

Similarly, the report might mention catalysts and investment risks, but there won’t be a link to a specific valuation impact from each factor.

So the typical stock pitch logic (“We think there’s a 50% chance of gaining 80% and a 50% chance of losing 20%”) won’t be spelled out explicitly:

Your Sample Equity Research Reports

To illustrate these concepts, I’m sharing two equity research reports from our financial modeling courses :

The first one is from the valuation case study in our Advanced Financial Modeling course , and the second one is from the main case study in our Bank Modeling course .

These are comprehensive examples, backed by industry data and outside research, but if you want a shorter/simpler example you can recreate in a few hours, the Core Financial Modeling course has just that.

In each case, we started by creating traditional HF/AM stock pitches and valuations and then made our views weaker in the research reports.

The Typical Sections of an Equity Research Report

So let’s briefly go through the main sections of these reports, using the two examples above:

Page 1: Update, Rating, Price Target, and Recent Results

The first page of an “Update” report states the bank’s recommendation (Buy, Hold, or Sell, sometimes with slightly different terminology), and gives recent updates on the company.

For example, in both these reports we reference recent earnings results from the companies and expectations for the next fiscal year:

We also give a “target price,” explain where it comes from, and give our estimates for the company’s key financial metrics.

We mention catalysts in both reports, but we don’t link anything to a specific valuation impact.

One problem with providing a specific “target price” is that it must be based on specific multiples and specific assumptions in a DCF or DDM.

So with Jazz, we explain that the $170.00 target is based on 20.7x and 15.3x EV/EBITDA multiples for the comps, and a discount rate of 8.07% and Terminal FCF growth rate of 0.3% in the DCF.

Next: Operations and Financial Summary

Next, you’ll see a section with lots of graphs and charts detailing the company’s financial performance, market share, and important metrics and ratios.

For a pharmaceutical company like Jazz, you might see revenue by product, pricing and # of patients per product per year, and EBITDA margins.

For a commercial bank like Shawbrook, you might see loan growth, interest rates, interest income and net income, and regulatory capital figures such as the Common Equity Tier 1 (CET 1) and Tangible Common Equity (TCE) ratios:

This section of the report explains how the analyst or equity research associate forecast the company’s performance and came up with the numbers used in the valuation.

The valuation section is the one that’s most similar in a research report and a stock pitch.

In both fields, you explain how you arrived at the company’s implied value, which usually involves pasting in a DCF or DDM analysis and comparable companies and transactions.

The methodologies are the same, but the assumptions might differ substantially.

In research, you’re also more likely to point to specific multiples, such as the 75 th percentile EV/EBITDA multiple, and explain why they are the most meaningful ones.

For example, you might argue that since the company’s growth rates and margins exceed the medians of the set, it deserves to be valued at the 75 th percentile multiples rather than the median multiples:

Investment Thesis, Catalysts, and Risks

This section is short, and it is more of an afterthought than anything else.

We do give reasons for why these companies might be mis-priced, but the reasoning isn’t that detailed.

For example, in the Shawbrook report we state that the U.K. mortgage market might slow down and that regulatory changes might reduce the market size and the company’s market share:

Those are legitimate catalysts, but the report doesn’t explain their share-price impact in the same way that a stock pitch would.

Finally, banks present Investment Risks mostly so they can say, “Well, we warned you there were risks and that our recommendation might be wrong.”

By contrast, buy-side analysts present Investment Risks so they can say, “There is a legitimate chance we could lose 50% – let’s hedge against that risk with options or other investments so that our fund does not collapse .”

How These Reports Both Differ from the Corresponding Stock Pitches

The Jazz equity research report corresponds to a “Long” pitch that’s much stronger:

• We estimate its intrinsic value as $180 – $220 / share , up from $170 in the report.
• We estimate the per-share impact of each catalyst: price increases add 15% to the share price, more patients from marketing efforts add 10%, and later-than-expected generics competition adds 15%.
• We also estimate the per-share impact from the risk factors and conclude that in the worst case , the company’s share price might decline from $130 to $75-$80. But in all likelihood, even if we’re wrong, the company is simply valued appropriately at $130.
• And then we explain how to hedge against these risks with put options.

The same differences apply to the Shawbrook research report vs. the stock pitch, but the stock pitch there is a “Short” recommendation where we claim that the company is overvalued by 30-50%.

And that sums up the differences perfectly: A Short recommendation with 30-50% downside in a stock pitch turns into a “Hold” recommendation with roughly equal upside and downside in a sell-side research report.

I’ve been harsh on equity research here, but I don’t want to disparage it too much.

There are many positives: You do get more creativity than in IB, it might be better for hedge fund or asset management exits, and it’s more fun to follow companies than to grind through grunt work on deals.

But no matter how you slice it, most equity research reports are watered-down stock pitches.

So, make sure you understand the “strong stuff” first before you downgrade – even if your long-term goal is equity research.

You might be interested in:

• The Equity Research Analyst Career Path: The Best Escape from a Ph.D. Program, or a Pathway into the Abyss?
• Private Equity Regulation : 2023 Changes and Impact on Finance Careers
• Stock Pitch Guide: How to Pitch a Stock in Interviews and Win Offers

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street . In his spare time, he enjoys lifting weights, running, traveling, obsessively watching TV shows, and defeating Sauron.

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Read below or Add a comment

15 thoughts on “ What’s in an Equity Research Report? ”

Hi Brian, what softwares are available to publish Research Reports?

We use Word templates. Some large banks have specialized/custom programs, but not sure how common they are.

Is it possible if you can send me a template in word of an equity report? It will help the graduate stock management fund a lot at Umass Boston.

We only have PDF versions for these, but Word should be able to open any PDF reasonably well.

Do you also provide a pre constructed version of an ER in word?

We have editable examples of equity research reports in Word, but we generally only share PDF versions on this site.

Hey Brian Can you please help me with coverage initiated reports on oil companies. I could not find them on the net. I need to them to get equity research experience, after which only I will be able to get into the field. I searched but reports could not be found even for a price. Thanks

We have an example of an oil & gas stock pitch on this site… do a search…

https://mergersandinquisitions.com/oil-gas-stock-pitch/

Beyond that, sorry, we cannot look for reports and then share them with you or we’d be inundated with requests to do that every day.

No worries. Thanks!

Hi! Brian! Do u know how investment bankers design and layout an equity research? the software they use. like MS Word, Adobe Indesign or something…? And how to create and layout one? Thanks

where can I get free equity research report? I am a Chinese student and now study in Australia. Is the Morning Star a good resource for research report?

Get a TD Ameritrade to access free reports there for certain companies.

How do you view the ER industry since the trading commission has been down 50% since 2007. And there are new in coming regulation governing the ER reports have to explicitly priced and funds need to pay for the report explicity rather than as a service comes free with brokerage?

In addition the whole S&T environment is becoming highly automated.

People have been predicting the death of equity research for over a decade, but it’s still here. It may not be around in 100 years, but it will still be around in another 10 years, though it will be smaller and less relevant.

Yes, things are becoming more automated, but the actual job of an equity research analyst or associate hasn’t changed dramatically. A machine can’t speak with investors to assess their sentiment on a company – only humans can do that.

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The Value of Equity Research

Equity research is an invaluable asset for anyone looking to stay up-to-date on market and industry trends. In this guide, you will learn about the type of information contained in equity research, the value it offers to corporate professionals, and how the most advanced teams are already leveraging the expertise of Wall Street’s top analysts to inform critical business decisions.

Get the guide

Introduction.

Equity research, which forms a multi-billion dollar industry for investment banks, is produced by thousands of analysts worldwide to provide the market with valuable information on companies, industries, and market trends. Today, over 90% of equity research is consumed by fund managers, who have the Wall Street relationships to acquire it and the analyst resources to mine it for insights. For corporate strategy professionals who lack this access, however, equity research has historically been challenging to obtain and navigate.

To help corporations circumvent these challenges, AlphaSense has introduced Wall Street Insights, the first and only equity research collection purpose-built for the corporate user. Through the AlphaSense platform, any business making strategic plans or product decisions, conducting competitive analysis, evaluating M&A, or engaging in investor relations can now tap into the deep industry expertise of Wall Street’s top analysts.

What is Equity Research?

Equity research is developed by sell-side firms to help investors and hedge fund managers discover market opportunities and make informed investment decisions. Increasingly, this expert analysis has also been identified by forward-looking corporations as a highly valuable tool to inform strategic decision-making.

There are thousands of sell-side firms that employ expert analysts around the globe to write equity research for the market. The majority of firms producing equity research are hyper-focused and only have one or two analysts developing reports on a specific industry. However, larger firms, such as Morgan Stanley and Bank of America, collectively employ thousands of analysts to write reports on thousands of public companies–covering everything from TMT giants to niche products.

Equity research analysts are deep subject matter experts who are often former executives, industry veterans, or academics. These analysts conduct in-depth research and publish reports on corporations, industries, and macro trends, offering an expert lens into a subject.

Historically, over 90% of equity research was consumed by buy-side fund managers, who had the Wall Street relationships to acquire it and the analyst resources to mine it for insights. For buy-side professionals, equity research is a critical tool to inform sound investment decisions backed by expert insights.

Today, equity research is increasingly relied upon by corporate teams as a high-value source of information. These teams leverage equity research to make strategic business plans, conduct competitive analysis, evaluate mergers and acquisitions, and make product and marketing decisions. For corporations, the value of equity research lies in the detailed coverage of their company, their competitors, and how they are performing related to the marketplace they are within.

What is an Equity Research Report?

An equity research report is a document prepared by an equity research analyst that often provides insight on whether investors should buy, hold, or sell shares of a public company. In an equity research report, an analyst lays out their recommendation, target price, investment thesis, valuation, and risks.

There are multiple forms of equity research, including (but not limited to):

An update report that highlights the latest news, company announcements, earnings reports, Buy Sell Hold ratings, M&A activity, anything that impacts the value of the company.

A comprehensive company report that is compiled when an analyst or firm initiates their coverage of a stock. Initiation reports cover all of the divisions and products of a company in-depth to provide a baseline of what the company is and how it is performing. Initiation reports can be tens to hundreds of pages long, depending on the complexity of a company.

General industry updates that cover a group of similar companies within a sector. Industry-specific reports typically dive into additional factors such as loan growth, interest rates, interest income, net income, and regulatory capital.

A report compiled by research firms either daily or weekly. These reports can often be a great place to get more in-depth insight on commodities and also get market opinions from commodity analysts or traders who write the reports.

A quick 1-2 page report that comments on a news release from a company or other quick information

What is Included in a Typical Equity Research Report?

Research reports don’t need to follow a specific formula. Analysts at different investment banks have some latitude in determining the look and feel of their reports. But more often than not, research reports follow a certain protocol of what investors expect them to look like.

A typical equity research report includes in-depth industry research, management analysis, financial histories, trends, forecasting, valuations, and recommendations for investors. Sometimes called broker research reports or investment research reports, equity research reports are designed to provide a comprehensive snapshot that investors or corporate leaders can leverage to make informed decisions.

Here’s a quick overview of what a standard equity research report covers:

This section covers events, such as quarterly results, guidance, and general company updates.

Upgrades/Downgrades are positive or negative changes in an analyst’s outlook of a particular stock valuation. These updates are usually triggered by qualitative and quantitative analysis that contributes to an increase or decrease in the financial valuation of that security.

Estimates are detailed projections of what a company will earn over the next several years. Valuations of those earnings estimates form price targets. The price target is based on assumptions about the asset’s future supply & demand and fundamentals.

Management Overview and Commentary helps potential investors understand the quality and makeup of a company’s management team. This section can also include a history of leadership within the company and their record with capital allocation, ESG, compensation, incentives, stock ownership. Plus, an overview of the company’s board of directors.

This section covers competitors, industry trends, and a company’s standing among its sector. Industry research includes everything from politics to economics, social trends, technological innovation, and more.

Historical Financial Results typically cover the history of a company’s stock, plus expectations based on the current market and events surrounding it. To determine if a company is at or above market expectations, Analysts must deeply understand the history of a specific industry and find patterns or trends to support their recommendations.

Based on the market analysis, historical financial results, etc., an analyst will run equity valuation models. In some cases, analysts will run more than one valuation model to determine the worth of company stock or asset.

Absolute valuation models : calculates a company’s or asset’s inherent value.

Relative equity valuation models : calculates a company’s or asset’s value relative to another company or asset. Relative valuations base their numbers on price/sales, price/earnings, price/cash flow.

An equity research analyst’s recommendation to buy, hold, or sell. The analyst also will have a target price that tells investors where they expect the stock to be in a year’s time.

What Does an Equity Research Analyst Do?

Equity research analysts exist on both the buy-side and the sell-side of the financial services market. Although these roles differ, both buy-side and sell-side analysts produce reports, projections, and recommendations for specific companies and stocks.

An equity research analyst specializes in a group of companies in a particular industry or country to develop high-level expertise and produce accurate projects and recommendations. Since ER analysts generally focus on a small set of stocks (5-20), they become specialists in those specific companies and industries that they evaluate or follow. These analysts monitor market data and news reports and speak to contacts within the companies/industries they study to update their research daily.

Analysts need to comprehend everything about their ‘coverage’ to give investment endorsements. Equity research analysts must be conversant with the business regulations and regime policies within the country to decide how it will affect the market environment and business in general. The more you understand the industries in detail, the easier it will be for you to decipher market dynamics.

One prevalent aspect of an equity research analyst’s job is building and maintaining valuable relationships with corporate leaders, clients, and peers. Equity research is largely about an analyst’s ability to service clients and provide insightful ideas that positively influence their investing strategy.

EQUITY RESEARCH ANALYSTS:

• Analyze stocks to help portfolio managers make better-informed investment decisions.
• Analyze a stock against market activity to predict a stock’s outlook.
• Develop investment models and provide trading strategies.
• Provide expertise on markets and industries based on their competitive analysis, business analysis, and market research.
• Use data to model and measure the financial risk associated with particular investment decisions.
• Understand the details of various markets to compare a company’s and sector’s stock

Buy-Side vs. Sell-Side Analysts

Although the roles of buy-side and sell-side analysts do overlap in some respects, the purpose of their research differs.

How Do Corporates Currently Access Equity Research?

If you were to Google “equity research reports,” you would not get access to equity research, earnings call transcripts or trade journals. You would, however, discover an unmanageable amount of noise to sift through.

Accessing equity research reports is highly dependent on relationships and entitlements, particularly for corporate teams. Unlike financial firms and investor relations teams, who can access equity research by procuring the right entitlements, corporate teams have a much harder time finding and purchasing high-quality equity research.

If you were to search online for equity research, for example, you would be presented with sub-par options such as:

Some websites allow you to search for research reports on companies or by firms. Some of the reports are free, but you must pay for most of them. Prices range from just $15 to thousands of dollars.

If you want just the bottom-line recommendations from analysts, many sites summarize the data. Nearly all the websites that provide stock quotes also compile analyst recommendations, however, you will only get the big picture and not any of the detailed analysis.

Some independent research providers sell their reports directly to investors. These reports typically include an overview of what a stock’s price could be, plus an analysis of the company’s earnings. These reports often cost less than $100 but can be more.

The majority of equity research is completely unsearchable, which is why AlphaSense’s Wall Street Insights is changing the game for corporations globally. Now, with WSI, corporations can leverage this high-quality research to augment their understanding of specific companies and industries; plus, AlphaSense’s corporate clients can now conduct more meaningful analysis and make more data-driven decisions.

Real-Time Research : Real-Time research is available to eligible users (based on an entitlement) immediately upon publication by the broker. Financial Services users with entitlements are the primary consumers of real-time research, while some Corporate professionals are also eligible. Payment for real-time research is made directly from clients to brokers through trading commissions or hard dollar agreements.

Aftermarket Research : Aftermarket research is a collection of many of the same documents as the real-time collection, but it is available after a zero to fifteen-day delay. Investment bankers, consultants, and corporate users are the primary consumers of Aftermarket research.

What is Wall Street Insights?

Wall Street Insights is the first and only equity research collection purpose-built for the corporate market, providing corporations unprecedented access to a deep pool of equity research reports from thousands of expert analysts.

Through partnerships with Morgan Stanley, Bank of America, Barclays, Bernstein, Bernstein Autonomous, Cowen, Deutsche Bank, Evercore ISI, HSBC, and others, corporate professionals can now access the world’s most revered equity research, indexed and searchable in the AlphaSense platform.

From macro market trends and industry analyses to company deep-dives, the Wall Street Insights content collection provides corporate professionals with a 360-degree view of every market. With the valuable expertise of thousands of analysts on your side, corporate teams can quickly compare insights, validate internal assumptions, and generate new ideas to guide critical business decisions and strategies.

In terms of search and accessibility, Wall Street Insights is the first of its kind. Not only does AlphaSense offer hard-to-find equity research reports, but we also provide a robust and seamless search experience.

What Research Do You Get Access to with WSI?

Get access to the world’s leading equity research with Wall Street Insights. Download the e-book to learn more about equity research from Morgan Stanley, Barclays, Bernstein, Deutsche Bank, and more.

“We are delighted to partner with AlphaSense to expand access to Morgan Stanley’s global research platform,” says Simon Bound, Global Head of Research at Morgan Stanley. We have over 600 publishing analysts covering companies, industries, commodities, and macroeconomic developments across more than 50 countries. Morgan Stanley will bring corporates a unique perspective from our best in class analysts, a global platform, and a collaborative culture that enables us to unravel the most complex market and industry trends.”

How Can Companies Leverage Equity Research?

Discover how the world’s most innovative companies leverage Wall Street Insights to make critical business decisions every day. Download the e-book to read real case studies from a Corporate Development team and a Corporate Strategy team.

“AlphaSense’s corporate users are typically Corporate Strategy, Corporate Development, and Investor Relations professionals. Today, thousands of enterprises rely on equity research to power data-driven decision making. These teams leverage equity research reports to:”

• Create investment ideas
• Monitor peers in real-time (and discover what equity research is being produced about them)
• Model and evaluate companies (for M&A or general benchmarking)
• Dive deep into customers, partners, and prospects
• Get up-to-speed quickly on specific industry trends
• Prepare for earnings season

Ready to explore the world’s leading equity research

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How to Write an Equity Research Report

By Brian Dzingai |

 Reviewed By Rebecca Baldridge |

November 15, 2022

What is an Equity Research Report?

An equity research report may focus on a specific stock or industry sector, currency, commodity, or fixed-income instrument, or even on a geographic region or country, and generally make buy or sell recommendations. These reports are produced by a variety of sources, ranging from market research firms to in-house research departments at large financial institutions or boutique investment banks.

Key Learning Points

• An equity research report is a document prepared by an analyst that provides a recommendation to buy, hold, or sell shares of a public company. 
• An equity research report is a document prepared by an analyst who is part of an investment research team in a brokerage firm or investment bank
• It provides an overview of the business, the industry it operates in, the management team, the company’s financial performance, and risks, and includes a target price and investment recommendation.
• It is intended to help an investor decide whether to invest in a stock.

Equity Research Report Structure

An equity research report can include varying levels of detail, and although there is no industry standard when it comes to formatting, there are common elements to all equity research reports. This guide includes some fundamental features and information that should be considered essential to any research report, as well as some tips for making your analysis and report as effective as possible. 

Access the download to see a real-world example of an Equity Research Report, annotated to show each element discussed below. 

Basic Information

The research report should begin with basic information about the firm, including the company’s ticker symbol, the primary exchange where its shares are traded, the primary sector and industry in which it operates, the current stock price and market capitalization, the target stock price, and the investment recommendation. 

In addition, a security’s liquidity and float are important considerations for the equity analyst. The liquidity of a stock refers to the degree to which it can be purchased and sold without affecting the price. The analyst should understand that periods of financial stress can affect liquidity. A stock’s float refers to the number of shares that are publicly owned and available for trading and generally excludes restricted shares and insider holdings. The float of a stock can be significantly smaller than its market capitalization and thus is an important consideration for large institutional investors, especially when it comes to investing in companies with smaller market capitalizations. Consequently, a relatively small float deserves mention. Finally, it is good practice to identify the major shareholders of a firm. 

Business Description 

This section should include a detailed description of the company and its products and services. It should convey a clear understanding of the company’s economics, including a discussion of the key drivers of revenues and expenses. Much of this information can be sourced from the company itself and from its regulatory filings as well as from industry publications. 

Industry Overview and Competitive Positioning

This section should include an overview of the industry dynamics, including a competitive analysis of the industry. Most firms’ annual reports include some discussion of the competitive environment. A group of peer companies should be developed for competitive analysis. The “Porter’s Five Forces” framework for industry analysis is an effective tool for examining the health and competitive intensity of an industry. Production capacity levels, pricing, distribution, and stability of market share are also important considerations. 

It is important to note that there are different paths to success. Strength of brand, cost leadership, and access to protected technology or resources are just some of the ways in which companies set themselves apart from the competition. Famed investor Warren Buffett describes a firm’s competitive advantage as an economic “moat.” He says, “In business, I look for economic castles protected by unbreachable moats.” 

Investment Summary

This section should include a brief description of the company, significant recent developments, an earnings forecast, a valuation summary, and the recommended investment action. If the purchase or sale of a security is being advised, there should be a clear and concise explanation as to why the security is deemed to be mispriced. That is, what is the market currently not properly discounting in the stock’s price, and what will prompt the market to re-price the security? 

This section should include a thorough valuation of the company using conventional valuation metrics and formulas. Equity valuation models can derive either absolute or relative values. Absolute valuation models derive an asset’s intrinsic value and generally take the form of discounted cash flow models. Relative equity valuation models estimate a stock’s value relative to another stock and can be based on a number of different metrics, including price/sales, price/earnings, price/cash flow, and price/book value. Because model outputs can vary, more than one valuation model should be used. 

Financial Analysis

This section should include a detailed analysis of the company’s historical financial performance and a forecast of future performance. Financial results are commonly manipulated to portray firms in the most favorable light. It is the responsibility of the analyst to understand the underlying financial reality. Accordingly, a careful reading of the footnotes of a company’s financial disclosures is an essential part of any examination of earnings quality. Non-recurring events, the use of off-balance-sheet financing, income and reserve recognition, and depreciation policies are all examples of items that can distort a firm’s financial results. 

Financial modeling of future results helps to measure the effects of changes in certain inputs on the various financial statements. Analysts should be especially careful, however, about extrapolating past trends into the future. This is especially important in the case of cyclical firms. Projecting forward from the top or bottom of a business cycle is a common mistake. 

Finally, it can be informative to use industry-specific financial ratios as part of the financial analysis. Examples include proven reserves/shares for oil companies, revenue/subscribers for cable or wireless companies, and revenue/available rooms for the hotel industry. 

Investment Risks

This section should address potential negative industry and company developments that could pose a risk to the investment thesis. Risks can be operational or financial or related to regulatory issues or legal proceedings. 

Although companies are generally obligated to discuss risks in their regulatory disclosures, risks are often subjective and hard to quantify (e.g., the threat of a competing technology). It is the job of the analyst to make these determinations. Of course, disclosures of “qualified opinions” from auditors and “material weakness in internal control over financial reporting” should be automatic red flags for analysts. 

Environmental, Social & Governance (ESG)

This section should include information on how the company manages the relationships related to Environmental, Social, and Governance. Below are some examples within these three areas that can have a lasting impact on the company’s short- and long-term prospects:

• E nvironmental – how is the company working towards the conservation of the natural world? This can include climate change and carbon emissions, air and water pollution, energy efficiency, waste management, and more. 
• S ocial – how does the company consider people and relationships? This can include community relations, human rights, gender and diversity, labor standards, customer satisfaction, and employee engagement. 
• G overnance – what are the standards for running the company? This can include board composition, audit committee structure, executive compensation, succession planning, leadership experience, and bribery and corruption policies. 

Enroll in our online ESG course and learn to identify the principles of ESG and how they are applied to investment strategies.

If you are interested in a career as an equity research analysts or in fixed income research, our online course covers all the key skills needed as either a sell side analyst in an investment bank or a buy side analyst working in an investment management firm.  

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A Guide on How to Write an Equity Research Report

If you're interested in the financial industry or you're studying finance, you've probably heard of equity research reports. These documents are crucial for investment banking and trading firms that need to analyze and evaluate different strategics in the market. But what exactly are equity research reports, and how can you write one yourself? In this article, we'll guide you through the process of creating an equity research report, step-by-step.

Understanding the purpose of an equity research report.

The first step to writing a great equity research report is understanding its purpose. At its core, an equity research report is a document that provides in-depth analysis and valuation of a company's stock. The report is written for investors who want to understand whether the company is a good investment opportunity.

Equity research analysts spend countless hours researching and analyzing a company's financial statements, industry trends, and economic conditions before they write their report. They use a variety of analytical tools and techniques to evaluate a company's performance, including financial ratios, discounted cash flow analysis, and market multiples.

One of the key goals of an equity research report is to provide investors with an objective and unbiased assessment of a company's future prospects. Analysts are expected to be independent and free of conflicts of interest, so that investors can trust the information they provide.

What is an Equity Research Report?

An equity research report is a comprehensive document that contains detailed information on a particular company, industry, or asset. The report is prepared by an equity analyst, who works for an investment banking or trading firm.

Equity research reports typically include a variety of sections, including an executive summary, company overview, industry analysis, financial analysis, valuation , and investment recommendation. The executive summary provides a brief overview of the report's findings, while the company overview provides a detailed description of the company's business model, products, and services.

The industry analysis section provides an overview of the company's industry, including market size, growth prospects, and competitive landscape. The financial analysis section provides an in-depth analysis of the company's financial statements, including income statements, balance sheets, and cash flow statements.

The valuation section provides an estimate of the company's intrinsic value, based on a variety of factors, including earnings, cash flow, and assets. The investment recommendation section provides the analyst's opinion on whether the stock is a buy, hold, or sell, based on their analysis of the company's financial health and future prospects.

Importance of Equity Research Reports in the Financial Industry

Equity research reports are important in the financial industry because they help investors make informed decisions about which stocks to buy, hold or sell. These documents provide valuable information on a company's financial health, strategy, and overall performance.

Equity research reports are also important for companies, as they can help them attract new investors and improve their stock price. A positive equity research report can increase investor confidence in a company, leading to increased demand for its stock and a higher stock price.

However, equity research reports can also be controversial, as analysts may have conflicts of interest that can bias their recommendations. For example, an analyst may work for an investment bank that has a financial interest in the company being analyzed, which could lead to a biased report.

Overall, equity research reports play an important role in the financial industry, providing investors with valuable information that can help them make informed investment decisions.

Preparing to Write an Equity Research Report

Equity research reports are crucial in the world of finance as they help investors make informed decisions. These reports are written by equity research analysts, who analyze a company's financial performance and provide recommendations to investors. Before you start writing your equity research report, you need to gather relevant information and perform extensive research on the company you're analyzing. The following steps will help you prepare for your report:

Gathering Relevant Company Information

Before you start analyzing a company, you need to know everything about it. You must start by gathering information on the company you're analyzing. This includes the company's official name, primary business, history, management team, and more. You can find this information on the company's official website, annual reports, regulatory filings, and other relevant sources. It is important to ensure that the information you gather is accurate and up-to-date.

For instance, if you're analyzing a tech company, you need to know what products or services they offer. You also need to know how long they've been in business, who their key executives are, and what their mission statement is. This information will help you gain a better understanding of the company and its operations.

Analyzing Financial Statements

Once you have gathered information about the company, you need to analyze its financial statements. Financial statements are the company's official records that show its financial performance. These documents include the balance sheet, income statement, and cash flow statement. You can use financial ratios and financial modeling techniques to analyze the company's financial health.

For instance, you can use the price-to-earnings ratio (P/E ratio) to determine whether a company's stock is undervalued or overvalued. You can also use the debt-to-equity ratio to determine whether a company is financially stable or not. By analyzing a company's financial statements, you can gain insights into its profitability, liquidity, and solvency.

Conducting Industry and Competitor Analysis

Finally, you need to conduct industry and competitor analysis. This involves researching the industry in which the company operates, as well as analyzing its competitors. Understanding the competitive landscape can help you evaluate the company's strengths and weaknesses and identify future growth opportunities.

For instance, if you're analyzing a company in the retail industry, you need to know who its competitors are and what they're doing. This will help you identify the company's competitive advantage and determine whether it can sustain its growth in the long run. Industry analysis can also help you identify trends and changes in the market that may affect the company's performance.

Writing the Executive Summary

The executive summary is a crucial part of the equity research report. It provides a concise overview of the report's key findings and investment recommendations. In essence, it serves as a snapshot of the entire report, allowing investors to quickly grasp the main points and decide whether to read the full report.

However, writing a great executive summary can be a challenge. It requires the writer to condense a large amount of information into a few paragraphs while still conveying the most important details. Here are some tips for writing a great executive summary:

Key Components of an Executive Summary

A great executive summary should include the following components:

• Company Overview: This section should include a brief summary of the company you're analyzing. It should cover the company's history, its products or services, and its mission statement. This section should also include any recent news or developments that are relevant to the company's performance.
• Industry Analysis: This section provides an overview of the industry in which the company operates. It should cover the size of the industry, its growth prospects, and any major trends or challenges facing the industry. This section should also include an analysis of the company's position within the industry.
• Financial Analysis : This section provides an overview of the company's financial performance. It should cover the company's revenue, profitability, and cash flow. This section should also include an analysis of the company's financial ratios, such as its price-to-earnings ratio and its debt-to-equity ratio.
• Investment Recommendations: This section should include your buy, hold, or sell recommendations, along with the target price and time horizon. It should be based on your analysis of the company's financial performance, its position within the industry, and any other relevant factors.

Tips for Writing a Concise and Informative Executive Summary

When writing your executive summary, you should keep the following tips in mind:

• Keep it short and concise: Aim for a summary that is one or two paragraphs long. Remember that the purpose of the executive summary is to provide a quick overview of the report, so it should be brief and to the point.
• Focus on the most important information: Highlight the key findings and recommendations that are most relevant to investors. Avoid getting bogged down in details that are not essential to the investment decision.
• Use clear and concise language: Avoid using jargon or technical terms that investors may not understand. Use simple, straightforward language that is easy to understand.
• Include a call to action: End your executive summary with a clear call to action, such as "Buy," "Hold," or "Sell." This will help investors quickly understand your investment recommendation.

By following these tips, you can write an executive summary that effectively communicates your investment analysis and recommendations to investors. Remember that the executive summary is often the first thing investors will read, so it's important to make a strong first impression.

Assessing the Company's Business Model and Strategy

After writing your executive summary, the next step is to assess the company's business model and strategy. This is an important step in determining the company's strengths and weaknesses, and identifying areas for improvement.

When assessing the company's business model and strategy, it's important to consider a variety of factors. These may include the company's competitive advantage, growth strategy, and financial performance.

Evaluating the Company's Competitive Advantage

One key factor to consider when evaluating the company's competitive advantage is product differentiation. Does the company offer unique products or services that distinguish it from its competitors? This can be a major advantage, as it can help the company attract and retain customers.

Another important factor to consider is cost advantage. Does the company have lower production costs than its competitors? This can help the company maintain a competitive edge by offering lower prices or higher profit margins.

Brand recognition is also an important factor to consider. Is the company's brand well-known and respected? A strong brand can help the company build customer loyalty and increase its market share.

Analyzing the Company's Growth Strategy

Another key factor to consider when assessing the company's business model and strategy is its growth strategy. This includes the company's plans for expansion, research and development, and mergers and acquisitions.

Expansion can be a key driver of growth for a company, but it can also be risky. It's important to evaluate the company's expansion plans carefully to ensure that they are well thought out and have a high likelihood of success.

Research and development is another important factor to consider. Is the company investing in new products or technologies that could give it a competitive advantage in the future? If so, this could be a good sign for the company's long-term growth potential.

Mergers and acquisitions can also be a key part of a company's growth strategy. However, it's important to evaluate these deals carefully to ensure that they make strategic sense and will create value for the company's shareholders.

Performing Financial Analysis

Once you have gathered all the necessary financial data, the next step is to perform financial analysis to evaluate the company's financial health. This is a crucial step in the investment process, as it helps investors make informed decisions about whether or not to invest in a particular company.

Financial analysis involves using a variety of tools and techniques to analyze the company's financial statements, including financial ratios, cash flow analysis, and valuation methods.

Ratio Analysis

Ratio analysis is a popular method of financial analysis that involves comparing different financial ratios to evaluate the company's financial health. Financial ratios are useful because they allow investors to compare a company's performance over time, or against its competitors or industry benchmarks.

Some of the most common financial ratios used in ratio analysis include the debt-to-equity ratio, return on equity, and profit margin. These ratios can provide valuable insights into a company's financial health, including its ability to generate profits, manage debt, and create shareholder value.

Cash Flow Analysis

Cash flow analysis is another important tool for evaluating a company's financial health. This involves analyzing the company's cash flow statement to understand its ability to generate cash and fund operations.

When performing cash flow analysis, it's important to look at the company's operating cash flow, investing cash flow, and financing cash flow. By understanding how the company generates and uses cash, investors can gain a better understanding of its financial health and future prospects.

Valuation Methods

Valuation methods are used to determine a company's fair value. There are several different valuation methods that investors can use, including discounted cash flow analysis, multiples analysis, and precedent transactions analysis.

Discounted cash flow analysis involves estimating the future cash flows of a company and discounting them back to their present value. Multiples analysis involves comparing a company's financial ratios to those of its peers or industry benchmarks. Precedent transactions analysis involves looking at the prices paid for similar companies in the past to estimate the fair value of the company being analyzed.

By using a combination of financial analysis tools and techniques, investors can gain a comprehensive understanding of a company's financial health and make informed investment decisions.

Providing Investment Recommendations

After performing financial analysis and evaluating the company's business model and strategy, the next step is to provide investment recommendations. This is a critical step in the investment process, as it can have a significant impact on the performance of your investment portfolio.

When providing investment recommendations, it's important to consider a variety of factors and to provide a clear and concise recommendation that reflects your analysis and evaluation of the company's financial health, competitive advantages, growth potential, and valuation.

Buy, Hold, or Sell Recommendations

Your investment recommendations should be based on a thorough analysis of the company's financial health, competitive advantages, growth potential, and valuation. Based on this analysis, you should provide a clear and concise recommendation to buy, hold, or sell the company's stock.

If you recommend buying the stock, you should provide a detailed explanation of why you believe the stock is undervalued and has strong growth potential. If you recommend holding the stock, you should explain why you believe the stock is fairly valued and has limited upside potential. If you recommend selling the stock, you should explain why you believe the stock is overvalued and has limited growth potential.

Risk Factors and Considerations

When providing investment recommendations, it's important to consider and highlight the risks associated with investing in the company. These risks can include regulatory risks, competitive risks, and operational risks.

For example, if the company operates in a highly regulated industry, you should consider the potential impact of changes in regulations on the company's financial performance. Similarly, if the company operates in a highly competitive industry, you should consider the potential impact of increased competition on the company's market share and profitability.

Target Price and Time Horizon

Finally, when providing investment recommendations, you should provide a target price and time horizon. The target price represents the price at which you believe the stock is undervalued, while the time horizon represents the period over which the target price is expected to be achieved.

When determining the target price and time horizon, it's important to consider a variety of factors, including the company's financial performance, industry trends, and macroeconomic conditions. Additionally, it's important to periodically review and update your target price and time horizon as new information becomes available.

Overall, providing investment recommendations requires a thorough analysis of the company's financial health, competitive advantages, growth potential, and valuation. By considering a variety of factors and providing a clear and concise recommendation, you can help investors make informed investment decisions and achieve their investment goals.

Formatting and Presenting the Equity Research Report

The final step is to format and present your equity research report. Here are some tips for formatting your report:

Structuring the Report for Clarity and Flow

Your report should be structured in a logical and easy-to-follow way. You should use headings and subheadings to break up the content into different sections. Each section should be clearly labeled, with a brief summary of its contents.

It's important to keep in mind that your report will likely be read by busy investors who are looking for information quickly. By structuring your report in a clear and organized way, you can make it easier for them to find the information they need.

One effective way to structure your report is to begin with an executive summary that provides a high-level overview of the company's financial performance and prospects. This can be followed by sections that provide more detail on the company's financial statements, industry trends, and competitive landscape.

Visual Aids and Supporting Data

You can use charts, graphs, and tables to present data in a visual and clear way. These visual aids can help investors understand complex financial information more easily.

When using visual aids, it's important to keep them simple and easy to read. Use clear labels and avoid cluttering the chart or graph with too much information. You should also ensure that the visual aids support the points you are making in your report.

In addition to visual aids, you should also include supporting data in your report. This can include financial ratios, industry benchmarks, and other relevant data points. By including this data, you can provide additional context for your analysis and help investors make informed decisions.

Proofreading and Editing the Report

Finally, you should proofread and edit your report for clarity, grammar, and style. It's a good idea to have a colleague or mentor review your report before submitting it to ensure that it is error-free and presents a cohesive picture of the company's financial health.

When proofreading your report, pay close attention to the language you are using. Avoid technical jargon and use clear, concise language that is accessible to a wide range of readers. You should also ensure that your report is well-organized and easy to read, with a consistent style throughout.

By taking the time to format and present your equity research report effectively, you can increase its impact and make it more likely to be read and acted upon by investors.

Conclusion and Key Takeaways

In summary, writing an equity research report involves gathering relevant information, performing financial analysis, evaluating a company's business model and strategy, and providing investment recommendations. By following these steps and formatting your report in a clear and concise way, you can create a valuable resource for investors in the financial industry.

Finally, it's important to note that equity research is a constantly evolving field. To be successful, you must have a strong foundation and continuously improve your skills and knowledge through ongoing education and professional development.

Recap of the Equity Research Report Process

The equity research report process involves:

• Gathering relevant information about the company.
• Analyzing the company's financial health.
• Evaluating the company's business model and strategy.
• Providing investment recommendations.
• Formatting and presenting the equity research report.

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Equity Research Report

These reports serve as comprehensive summaries that investors or company leaders may utilize to make informed decisions.

Finance and Business Analytics & Information Technology with a minors in Spanish and Earth & Planetary Sciences

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Honors & awards: Student of The Year - Academics (PG) Vishwakarad Merit Scholarship (Attained twice in PG)

• What Is An Equity Research Report?
• Understanding The Equity Research Report
• Contents Of An Equity Research Report
• Uses Of Equity Research Report

Drawbacks Of Equity Research Report

What is an equity research report.

An equity research report is a thorough analysis of a company's stock or securities written by research teams or financial analysts. It offers insights and detailed information about the stock.

Investors, fund managers, and other financial professionals use these reports, which are usually generated by brokerage firms, investment banks, or independent research organizations, to help them make well-informed investment decisions.

The main goal of equities research reports is to provide investors and hedge fund managers with market information and investment suggestions. However, forward-thinking companies also understand how important this information is when making strategic choices for their own operations.

Equity research analysts are usually highly skilled individuals with knowledge of many industries. Their credentials as seasoned industry executives, professors, or previous CEOs typically enable them to offer authoritative viewpoints and in-depth analyses of firms, industries, and macroeconomic trends.

Sell-side firms produce equity research reports covering thousands of publicly traded businesses. Bigger firms, such as Morgan Stanley and Bank of America , have hundreds of analysts who cover different industries and offer in-depth analyses of various businesses.

Because they provide in-depth information about the company, its rivals, and its performance in relation to the market, equity research reports are beneficial for businesses.

By using this information, businesses may maintain their competitiveness and make well-informed decisions that support their strategic goals.

Key Takeaways

• Equity research reports provide detailed analysis and insights into stocks or securities, aiding investors, fund managers, and businesses in making informed decisions.
• Reports vary in format, covering company-specific, sector, thematic, geographic, event-driven, quantitative, technical analysis, and economic/market outlook perspectives.
• Typical sections of the report include recent results, upgrades/downgrades, management commentary, industry overview, financial history, valuation, recommendations, and more.
• Reports serve various purposes, including investment decisions, portfolio management, valuation, strategic decision-making, regulatory compliance, investor relations, and education.

Understanding the Equity Research report

A document made by an equity research analyst gives suggestions on how an investor should act upon a company that is being traded. This could include holding the share, selling it, or purchasing it.

An analyst outlines their recommendation, target price, investment thesis , value, and risks in an equities research report.

The format of equity research reports might vary based on the objective, target audience, and level of analysis. These are a few typical formats:

1. Company-specific Reports

These reports analyze stocks of specific firms. They usually include detailed financial analyses, valuation indicators , investment suggestions, and perceptions of company-specific elements, including management caliber, competitive positioning, and growth potential.

2. Sector Reports

Sector reports offer insights and analysis on certain economic sectors or entire industries. They look at possibilities, problems, and trends in a particular industry as well as the state of play and future prospects of major players in that field.

Sector reports may address more general market trends impacting the sector and frequently compare various companies within the industry.

3. Thematic Reports

These types of reports center on particular investment topics or trends that are anticipated to influence the market's performance. They examine how various industries and businesses are impacted by themes like developing technologies, demographic shifts, and regulatory changes.

Based on the themes found, thematic reports frequently offer investment advice.

4. Geographic Reports

These reports examine businesses or sectors operating in a particular market or geographic area. These papers offer insights into local economic situations, legal frameworks, and cultural aspects that can influence investment prospects, with an emphasis on global, regional, or national markets.

5. Event-driven Reports

These types of reports concentrate on particular occurrences or triggers, including earnings releases, mergers and acquisitions , court rulings, or new product introductions, that may affect a company's stock price.

After analyzing the event's possible effects on the company's financial performance , these reports offer investment recommendations based on the anticipated outcome.

6. Quantitative Reports

Quantitative reports employ quantitative research techniques, including statistical modeling and data analysis, to find investment possibilities or market trends. To bolster their analysis, these reports could contain quantitative measures, graphs, and charts.

Quantitative Reports are frequently appealing to investors who want to make decisions based on data.

7. Technical Analysis Reports

The primary goal of technical analysis reports is to find patterns and trends in stock prices by examining historical price and volume data. These reports forecast future market movements and trading opportunities using charting techniques and technical indicators.

Traders and investors who incorporate technical analysis into their investment plans could find technical analysis reports interesting.

8. Economic and Market Outlook Reports

These papers analyze and project macroeconomic variables, market patterns, and geopolitical developments that may affect the stock market as a whole. They might provide information on GDP growth, interest rates, inflation, and other economic variables that influence investment choices.

Contents of an Equity Research Report

An equity research report typically includes in-depth industry research, management analysis, financial history, trends, projections, valuations, and investor recommendations.

This kind of report, also known as broker research or investment research report, is intended to offer a thorough overview that investors or business executives may use to make informed judgments.

Here is a summary of what a typical report includes:

1. News & announcements of recent results

This section offers information on recent outcomes, including quarterly earnings, predictions, and general business updates, to help investors stay current on the company's performance.

2. Upgrades/Downgrades

Upgrades and downgrades are modifications to an analyst's forecast for the price of a specific stock. These revisions are often prompted by qualitative and quantitative studies that affect the security's financial valuation, either positively or negatively.

3. Revisions to the Estimate/Price Target

Estimates are detailed forecasts of how much a firm will make over the next few years. Price targets are derived from valuations of those earnings predictions.

The price target is based on fundamentals and future supply and demand forecasts for the asset.

4. A summary of Management & Commentary

Potential investors might read the Management Overview and Commentary to learn more about the caliber and makeup of a company's management team.

This section can also include a history of the company's leadership, including its track record with capital allocation, ESG , remuneration, incentives, and stock ownership, as well as a description of the firm's directors.

5. Industry Overview

This section discusses the firm's sector, rivals, and industry developments. In addition, industry research covers politics, economics , social trends, technical innovation, and more.

6. Financial Result History

Historical Financial Results often include a company's stock history and projections based on the present market and external factors.

Analysts must thoroughly comprehend the history of a certain sector and look for patterns or trends to support their recommendations. They must also judge whether a firm is performing at or above market expectations.

7. Valuation

A market analyst will perform stock valuation models using information such as previous financial data and market analysis. Analysts may use more than one valuation model to calculate the value of a company's shares or assets.

Absolute valuation models determine a business or asset's intrinsic worth. Relative equity valuation methods determine how much one firm or asset is worth in relation to another. Price/sales, Price/earnings, and Price/ cash flow are the foundations for relative values.

8. Recommendations

 A buy, hold, or sell recommendation made by a stock research analyst. The analyst will also provide investors with a target price that indicates where they anticipate the stock to be in a year.

Uses of Equity Research Report

Equity research reports have several significant uses for different financial market participants:

1. Making Investment Decisions

Investors rely on equities research reports to make well-informed choices regarding purchasing, disposing of, or retaining stocks. These reports offer insightful analysis and useful information about the risks, growth potential, valuation, and financial performance of certain businesses, sectors, or market trends.

2. Portfolio Management

To create and oversee investment portfolios, portfolio managers consult equities research reports.

These reports help them diversify their portfolios across various sectors and industries, find appealing investment possibilities, and adjust their holdings in response to shifting market conditions and investing goals.

Equity research reports help investors assess the risks associated with potential investments. Analysts analyze various factors, including financial metrics, industry dynamics, competitive positioning, and macroeconomic trends, to identify potential risks and uncertainties that may impact a company's future performance and stock price.

3. Valuation

Equity research reports provide insights into the valuation of individual stocks or entire sectors.

Analysts use various valuation methodologies, such as discounted cash flow ( DCF ), comparable company analysis (CCA), and precedent transactions analysis (PTA), to estimate a company's intrinsic value and assess its potential upside or downside.

4. Strategic Decision Making

Corporate executives and management teams consult equity research reports to learn about their own businesses, industry competitors, and market trends.

They may make strategic decisions about business operations, capital allocation, and growth plans with the aid of these reports, which also help them comprehend investor perceptions and pinpoint areas for improvement.

5. Regulatory Compliance

Regulations, including those set down by stock exchanges and securities regulators, apply to equity research reports.

Analysts must follow disclosure standards, transparency rules, and conflict-of-interest policies when writing and disseminating research findings to ensure compliance with regulatory requirements and preserve market integrity.

6. Investor Relations

These reports are a common tool used by businesses in their investor relations campaigns to reach out to analysts, shareholders, and prospective investors.

They cover the company's business strategy, financial performance, growth prospects, and strategic goals in great detail, which contributes to investor confidence and capital attraction.

7. Educational Purposes

They are used for educational purposes by professionals, investors, and students who want to learn about investment analysis, financial markets , and market trends.

They assist people in improving their knowledge and abilities in the subject of finance by offering practical examples of market research procedures, valuation approaches, and financial analysis tools.

Even though equities research reports offer investors insightful information and analysis, it's crucial to take into account their limitations and potential downsides before utilizing them to guide your investing decisions.

To ensure a comprehensive grasp of potential investments, investors should complement stock research with their own due diligence and analysis .

Some disadvantages of the report are:

• Conflicts of Interest and Biases: Analysts may have conflicts of interest or biases, which could influence their recommendations.
• Restricted Coverage: Reports may only cover a few companies or industries, which leaves room for analysis gaps.
• Complexity: Some investors may find it difficult to comprehend complex financial concepts and technical language.
• Possible Inaccuracies: Reports can contain mistakes or erroneous assumptions that result in suggestions that are not correct.
• Problems with timeliness: Reports might not always accurately depict the state of the market or recent advancements.
• Focus on the Short Term: Prioritising performance measures over long-term principles could have unintended consequences.
• Regulatory Risks: The creation and distribution of research reports may be impacted by compliance standards and regulatory modifications.

Equity research reports are a mainstay in financial analysis, providing a plethora of data and analysis to inform investment and strategic decisions. With their thorough insights into organizations, industries, and market trends, these reports are a reliable resource for fund managers, investors, and enterprises alike.

Despite their indisputable importance, equity research reports must recognize their inherent limitations. Conflicts of interest, a lack of coverage, and the intrinsic complexity of financial analysis may introduce biases and errors.

Furthermore, due to the constantly changing regulatory environment and market conditions, reports might not always include the most recent data.

Equity research reports are still a valuable resource if used carefully and in concert with independent analysis. They promote a greater comprehension of financial markets, help strategic planning , and enable well-informed decision-making.

However, equity research reports—despite their flaws—remain indispensable for navigating the complexities of the investing landscape and enabling stakeholders to make wise and informed decisions.

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What is an Equity Research Report?

One of the most powerful tools at investors’ disposal is equity research reports. Wall Street firms employ some of the sharpest minds in the industry who study companies with publicly traded stocks. These analysts delve into every aspect of the company, from its financial statements to its management team and competitors. Equity research reports provide solid analysis and the opinions of the analysts who follow the companies and their stocks extremely closely.

What Is an Equity Research Report?

An equity research report is a detailed report written by an analyst at a sell-side firm or independent investment research firm that analyzes the company’s business and finances and gives the analyst’s opinion of the company’s prospects and future stock price.

Analysts are experts in the companies’ businesses, finance, and industries they follow. They research a company’s financials, performance, and competitive landscapes. They also create models to predict metrics like future earnings per share, sales, and a target price for the stock.

Analysts keep a close eye on every move of the companies they follow and update their equity research reports at least once a quarter after the company issues its quarterly earnings report. If significant material changes occur mid-quarter, the analyst will write an update to their research report in a flash report.

An example of an equity research report is a report on Apple written by a sell-side analyst from Argus. This report includes the analyst’s analysis and opinions about the company’s financials and future revenue and earnings predictions. The report also provides the analyst’s target price estimate and rating.

Important Components of a Typical Equity Research Report

The typical equity research report includes components that dig into the company’s financials, industry landscape, risks, and other vital aspects that can materially affect the company’s future business performance and stock price.

Recent Results & Company Announcements

Shortly after a company announces its quarterly results, an analyst will issue a new equity research report. This report will include an analysis of the recent quarterly results, including EPS, sales, and various financial metrics like EBITDA and profit margins.

When releasing quarterly results, a company often makes announcements in a press release or through a conference call between management and the analyst community. The equity research report will include an analysis of these company announcements.

Organizational Overview and Commentary

An equity research report typically summarizes the company’s organizational structure. This summary outlines the management structure and the company’s major divisions.

If the company makes any significant structural changes, such as appointing a new CEO or shutting down a division, the analyst will discuss the implications of these changes in the equity research report.

Valuation Information

Perhaps the most impactful part of an equity research report is the valuation analysis provided by the research analyst. The analyst provides an overview of the company’s performance through this analysis.

The valuation information included within an equity research report includes margin analysis, EPS and sales estimates, the stock’s target price estimate, and other valuation and financial metrics calculated through a deep dive into the company’s financial statements.

An analyst uses a company’s reported results and their own research into the company’s operations and the industry to calculate various estimates. The most prominent estimate is the EPS estimate, the analyst’s estimate for earnings per share for future quarters and fiscal years. Analysts also calculate forecasts for sales, margins, and other financial metrics.

Many equity brokerage reports include a target price estimate, which is a short-term estimate for the stock’s price. An analyst may also issue a rating for the company’s stock, such as buy, sell, or hold.

Financial Histories

An equity research report typically contains financial data going back several years on both a quarterly and fiscal year basis. The analyst uses this financial data to perform an analysis of the company’s financial health and create projections.

While research reports typically do not include complete financial statements, the reports often include important line items, valuation ratios, and financial metrics in tables which the analyst will reference in the commentary.

Evaluating trends is a big part of an analyst’s job; equity research reports discuss these trends. The report includes trends like year-over-year and quarter-over-quarter growth rates for metrics such as EPS, sales, and margins.

The trend analysis gives an excellent overview of the growth of the company. For example, suppose sales significantly grew year-over-year, but EPS was stagnant. In this case, the company may be facing higher expenses, and the analyst will dive into the financial results and attempt to uncover the cause of the problem.

Many equity research reports include a section that describes the risks the company and investors may encounter. These risks may include economic headwinds, an increasingly competitive landscape, and company-specific risks like failed product launches or management changes.

In-Depth Industry Research

While analysts are experts on the companies they follow, they are also experts on the companies’ industries. Equity research reports include the analyst’s evaluation of the industry trends, the competitive landscape, and how the company’s prospects align with changes within the industry.

Buy Side vs. Sell Side: What Role Do Both Sides Play?

Buy-side and sell-side firms play different roles in financial markets, and it is vital to understand the role of each.

Buy-side firms, such as hedge funds, pension funds and asset managers, have money to invest. They buy stocks and other investments and are fiduciaries of their client’s money. Sell-side firms, such as brokerage houses, sell investments to their clients, including buy-side firms.

Sell-side firms employ analysts that write equity research reports. The sell-side firms provide these equity research reports to their buy-side clients. Buy-side firms use these equity research reports to help make investment decisions.

Other Types of Research Reports

Analysts produce several types of equity research reports. These include initiation of coverage reports, quarterly results reports, flash reports, and sector and industry reports.

Initiating Coverage Reports

When a sell-side firm begins covering a stock, the first analyst report is called an initiation of coverage report. This report gives the analyst’s first take on a company and its stock. Many investors pay attention to initiation of coverage reports because they provide a fresh perspective on a stock.

Quarterly Results Reports

After a company reports its earnings, an analyst will issue a new research report incorporating recent results. The analyst discusses the results and what went wrong and right in the last quarter. The analyst will also calculate new financial projections based on the results, company guidance, and management commentary.

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Flash Reports

Analysts issue flash reports when significant material changes involving the company, or the company’s industry, occur. An analyst may issue a flash report if the company’s CEO resigns, the company initiates a significant stock buyback program, or other major news breaks. In a flash report, the analyst will discuss the relevant news and how it may impact the company and its stock price.

Sector Reports

Sell-side firms also issue sector reports. The sector reports will dive into trends within the sector, a high-level analysis of the top companies in the sector, and past and future predicted performance of the stocks within the sector.

Industry Reports

Like sector reports, industry reports discuss the competitive landscape and major players within an industry. An industry is a subset of a sector. For example, the technology sector includes the semiconductor, personal computer, and cloud computing industries. Industry reports focus on a narrower industry rather than a broader sector.

Equity Research Report Example

Although each sell-side firm has a unique style for presenting analysts’ research in equity research reports, most contain similar types of information. Let’s conclude our discussion of equity research reports by looking at a recent Microsoft report written by Argus analyst Joseph Bonner after the company issued its fourth quarter 2022 results.

The report starts with several tables of key statistics, such as financial and valuation ratios and the analyst’s investment thesis. The table also includes the analyst’s rating and target price for the stock.

The report continues with the analyst’s investment thesis for Microsoft stock. This thesis briefly explains the analyst’s rationale for his Buy rating on MSFT stock.

A section detailing recent developments within the company, which the analyst derives from the company’s earnings report and conference call, is followed by a look at select financial data. An analysis of growth rates for several key metrics like revenue and margins leads to an overview of risks that investors of Microsoft may face.

Equity research reports offer investors a great way to harness the power of Wall Street analysts. These analysts live and breathe the companies they follow. Investors can use their expertise to advise them in the investing process.

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• Research in Bull & Bear Markets

How Equity Research Is Changing

• Who Pays for Research?
• The Role of Fee-Based Research

The Bottom Line

The changing role of equity research.

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

The role of equity research is to provide information to the market. A lack of information creates inefficiencies that result in stocks being misrepresented (whether over or undervalued). Analysts use their expertise and spend a lot of time analyzing a stock, its industry, and its peer group to provide earnings and valuation estimates. Research is valuable because it fills information gaps so that each individual investor does not need to analyze every stock. This division of labor makes the market more efficient.

The title of this article is perhaps a bit misleading, because the role of equity research really hasn't changed since the first U.S. stock trade occurred under the buttonwood tree on Manhattan Island. What has changed is the economic and trading environments (e.g. the character of bull and bear markets) that influence research.

Key Takeaways

• Equity research is a key piece of Wall Street analysis, used by investors large and small to make better-informed investment decisions in the stock market.
• Often research is funded by institutional investors on a fee-basis or using soft dollars.
• Depending on whether the market is in a bull or bear mode, equity research has begun to shift its lens of analysis and the types of reports issued.

Research in Bull and Bear Markets

In every bull market, some excesses become apparent only in the bear market that follows. Whether it is dotcoms or organic foods, each age has its mania that distorts the normal functioning of the market. In a rush to make money, rationality is the first casualty. Investors rush to jump on the bandwagon and the market over-allocates capital to the "hot" sector(s). This herd mentality is the reason why bull markets have funded so many "me-too" ideas throughout history.

Research is a function of the market and is influenced by these swings. In a bull market, investment bankers , the media and investors pressure analysts to focus on the hot sectors. Some analysts morph into promoters as they ride the market. Those analysts that remain, rational practitioners, are ignored, and their research reports go unread.

Seeking to blame someone for investment losses is a normal event in bear markets. It happened in the 1930s, 1970s, during the dot com crash and the financial crisis of 2008, too. Some of the criticisms are deserved, but generally, the need to provide information about companies has not changed.

To discuss the role of research in today's market , we need to differentiate between Wall Street research and other research. The major brokerages provide Wall Street research—typically sell-side firms—both on and off Wall Street. Other research is produced by independent research firms and small boutique brokerage firms.

This differentiation is important. First, Wall Street research has become focused on large-cap , very liquid stocks, and ignores the majority of publicly traded stocks. To remain profitable, Wall Street firms have focused on big-cap stocks to generate highly lucrative investment banking deals and trade profits, but also face the daunting task of cutting costs.

Those companies that are likely to provide the research firms with sizable investment banking deals are the stocks that are determined worthy of being followed by the market. The stock's long-term investment potential is often secondary.

Other research is filling the information gap created by Wall Street. Independent research firms and boutique brokerage firms are providing research on the stocks that have been orphaned by Wall Street. This means that independent research firms are becoming a primary source of information on the majority of stocks, but investors are reluctant to pay for research because they don't know what they are paying for until well after the purchase. Unfortunately, not all research is worth buying, as the information can be inaccurate and misleading.

These days there is a great deal of research that is provided for free to clients via email. Even at essentially zero cost to the investor, a large majority of the research goes unread.

Who Pays for Research? Big Investors Do!

The ironic thing is that while research has proven to be valuable, individual investors do not seem to want to pay for it. This may be because, under the traditional system, brokerage houses provided research to gain and keep clients. Investors just had to ask their brokers for a report and received it at no charge. What seems to have gone unnoticed is that the investor commissions paid for that research.

A good indicator of the value of research is the amount institutional investors are willing to pay for it. Institutional investors typically hire their own analysts to gain a competitive edge over other investors. Although spending on equity research analysts has significantly declined in recent years, institutions may also pay for the sell-side research they receive (either with dollars or by giving the supplying brokerage firm trades to execute).

European regulations that went into effect in 2018, known as  MiFID II , require asset managers to fund external research from their own profit and loss account (P&L) or through research payments that are tracked with clear audit trails. This will lead to billing clients for research and trading separately.

The Role of Fee-Based Research

Fee-based research increases market efficiency and bridges the gap between investors who want research (without paying) and companies who realize that Wall Street is not likely to provide research on their stock. This research provides information to the widest possible audience at no charge to the reader because the subject company has funded the research.

It is important to differentiate between objective fee-based research and research that is promotional. Objective fee-based research is similar to the role of your doctor. You pay a doctor not to tell you that you feel good, but to give you their professional and truthful opinion of your condition.

Legitimate fee-based research is a professional and objective analysis and opinion of a company's investment potential. Promotional research is short on analysis and full of hype. One example of this is the email reports and misleading social media posts about the penny stocks that will supposedly triple in a short time.

Legitimate fee-based research firms have the following characteristics:

• They provide analytical, not promotional services.
• They are paid a set annual fee in cash; they do not accept any form of equity, which may cause conflicts of interest .
• They provide full and clear disclosure of the relationship between the company and the research firm so investors can evaluate objectivity.

Companies that engage a legitimate fee-based research firm to analyze their stock are trying to get information to investors and improve market efficiency.

Such a company is making the following important statements:

• It believes its shares are undervalued because investors are not aware of the company.
• It is aware that Wall Street is no longer an option.
• It believes that its investment potential can withstand objective analysis.

The National Investor Relations Institute (NIRI) was probably the first group to recognize the need for fee-based research. In January 2020, NIRI issued a letter emphasizing the need for small-cap companies to find alternatives to Wall Street research to get their information to investors.

The reputation and credibility of a company and research firm depends on the efforts they make to inform investors. A company does not want to be tarnished by being associated with unreliable or misleading research. Similarly, a research firm will only want to analyze companies that have strong fundamentals and long-term investment potential. Fee-based research continues to provide a professional and objective analysis of a company's investment potential, although the market for its services remains challenged in the current business environment.

CFA Institute. " MiFID II Equity Research Costs Survey ."

National Investor Relations Institute (NIRI). " NIRI Proposes Guidance on Company-sponsored Research ."

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The Comprehensive Guide to Equity Research

When it comes to making money in the stock market, there is no one silver bullet. If you want to be successful, you need to use a variety of strategies and tools at your disposal. One of the most important tools that any investor can use is equity research. Equity research can give you an edge over the competition by helping you make informed investment decisions. In this guide, we will discuss what equity research is, how it works, and why it is so important for investors. We will also provide tips on how to find high-quality equity research reports. So whether you are a seasoned investor or just starting out, this guide has something for you!

On the other hand, if you are looking to boost your ROI on a private equity exit, then you might want to read How ESG Will Sweeten Your Private Equity Exit!

What is equity research and what does it entail?

What is the role of equity research analysts, how does an equity research report help investors make informed decisions, tips for finding high-quality equity research reports, the benefits of using equity research in your investment strategy.

Equity research is the process of analyzing a company’s financial statement in order to make better-informed investment decisions. It involves looking at a variety of factors, including the company’s financial health, its competitive position, and the overall market conditions.

Equity research can be used to make both buy and sell decisions. When equity research is performed for a buy decision, the goal is to find companies that are undervalued by the market and have the potential to generate above-average returns.

For sell decisions, the goal is to identify companies that are overvalued and likely to underperform in the future. Equity research is an important tool for investment professionals, but it can also be useful for individual investors who are looking to make informed decisions about where to invest their money.

Equity research analysts play an important role in the financial world. They provide analysis and recommendations to clients, including institutional investors such as banks and hedge funds, about which stocks to buy and sell.

Equity analysts begin their research by reviewing a company’s financial statements and other publicly available information. This includes reading company financial filings, attending earnings calls, and speaking with industry experts. They then use this information to build models that predict the company’s future revenue, earnings, and cash flow.

In addition, equity analysts also conduct interviews with the company’s management team, customers, and suppliers in order to get a better understanding of the business.

Based on this research, analysts produce reports that offer their thoughts on a company’s prospects and provide guidance on whether to buy, hold, or sell its stock. While equity research analysts work for banks, asset managers, and other financial institutions, they are also available to the general public through equity research reports that are published online.

While equity research can be time-consuming and complex, it is an essential part of the investment process. By conducting thorough research on companies, an equity research analyst helps investors make more informed decisions about where to allocate their capital.

Equity research reports provide a detailed analysis of a company’s financials, business model, and competitive landscape. They also offer insights into the market trends that may impact the company’s performance. As a result, equity research reports can help investors identify companies that are well-positioned to succeed in the current market environment. While no research report can guarantee success, it can provide investors with the information they need to make better-informed investment decisions.

When you’re looking for equity research reports, it’s important to find ones that are accurate and unbiased. After all, these reports can play a major role in your investment decisions. Here are a few tips to help you find quality equity research reports:

1. Look for well-established firms

Equity research is a competitive business, and the best equity research firms tend to be well-established and have a reputation to uphold. These firms are usually more careful about the quality of their research and have more resources to devote to producing high-quality reports.

In addition, these firms tend to be more independent and objective in their research since they are not as reliant on investment banking business as the companies they cover. As a result, if you are looking for high-quality equity research, it is generally best to focus on well-established firms. If you prefer the white glove approach, you can always find of one the many independent equity research boutiques.

2. Pay attention to equity analyst credentials

One way to evaluate the quality of an equity research report is to look at the credentials of the equity analyst. Check for experience in the industry and a good track record of accurately predicting stock performance. These are signs that the equity research analyst knows what they’re talking about and can be trusted to give reliable insights.

When you’re making investment decisions, you want to base them on the best information possible, so it’s worth taking the time to find reports from analysts with strong credentials.

3. Read multiple reports on the same company

Looking at multiple reports on the same company is a great way to get a complete picture of what is going on. This is because each report will highlight different aspects of the company. One report may focus on the financials, while another may focus on the products and services. By reading multiple reports, you can get a more well-rounded view of the company.

Additionally, you can compare and contrast the different reports to see where they agree and where they differ. This can help you to form your own opinion about the company and make more informed investment decisions.

4. Be wary of investment recommendations

One important tip to keep in mind when looking for high-quality equity research reports is to be wary of investment recommendations. Equity research analysts are not licensed financial advisors, and their primary goal is to provide information, not to give investment advice.

As such, their stock recommendations should be viewed as one possible piece of information to consider but not as a definitive buy or sell signal.

When an equity research analyst does make stock recommendations, it is important to carefully consider the reasoning behind the recommendation and to weigh it against other factors before making any investment decisions.

5. Pay attention to the date of the report

Obviously, you’ll want to make sure that the information is up-to-date. Reports that are more than six months old may not accurately reflect the current state of the company. The company may have had a major event, such as a new product release, or a change in management, that has affected its financial performance.

Additionally, equity research analyst ratings and price targets can change over time, so it’s important to make sure you’re using the most recent data.

6. Read the report thoroughly before making any decisions

Equity research reports can be incredibly helpful when you’re trying to make investment decisions. However, it’s important to read the entire report before making any decisions. Don’t just focus on the parts that confirm your existing beliefs. Instead, read the report thoroughly and consider all of the information before making any decisions.

Equity research reports can provide invaluable insights into potential investments, but you need to be sure that you’re reading the entire equity research report before making any decisions.

7. Be willing to challenge your assumptions

As an investor, it’s important to always be willing to challenge your assumptions. Even the best equity research reports may contain information that contradicts your own analysis. However, if you’re not open to re-evaluating your position, you could miss out on a great opportunity.

By following these tips, you can help ensure that you are getting high-quality equity research reports that will provide valuable insights into your investments.

Equity research is a type of analysis that assesses the value of a company’s stock. Equity researchers typically work for investment banks, mutual funds, or hedge funds. However, there is a growing trend of individual investors using equity research to inform their investment decisions. There are many benefits of using equity research, including:

1. Helps to identify potential investments

An equity research report can help investors identify companies that are undervalued by the market and may be ripe for investment. By analyzing the financial statements of a company, an equity research analyst can provide investors with an assessment of its true worth and potential for growth.

This information can be invaluable in making investment decisions, as it can help to identify opportunities that may have been overlooked by the market. In addition, equity research can provide insights into a company’s competitive strengths and weaknesses, which can play a vital role when deciding to invest.

2. Gives an overview of a company

One of the benefits of using equity research in your investment strategy is that it will provide you with an overview of a company’s business model, financials, competitors, and growth prospects. This information can be very helpful in making investment decisions about whether or not to invest in a company.

3. Analyzes risk

Another benefit of using an equity research report in your investment strategy is that analysts will often assess the risks associated with investing in a particular company. This can help investors be more clear about where to allocate their capital.

Equity research can help you to identify potential risks and learn more about a company before making an investment. This information can be invaluable in helping you to protect your investments and reach your financial goals.

4. Saves time

When you use equity research in your investment strategy, it can save you a lot of time. Equity research includes information gathering, analysis, and recommendations, which can all be time-consuming tasks if you try to do them yourself. By using equity research, you can outsource these tasks to professionals who have the expertise and experience to do them quickly and effectively.

This can free up your time so that you can focus on other aspects of your investment strategy or simply enjoy your life outside of investing. In today’s fast-paced world, saving time is a valuable commodity, and equity research can help you do just that.

5. Can be used in conjunction with other tools

Equity research can be used in conjunction with other tools. This includes technical analysis and fundamental analysis. Technical analysis is a method of evaluating securities by analyzing market data, such as price and volume.

Fundamental analysis is a method of evaluating a security by analyzing its financial statements. By using both methods, investors can get a complete picture of any security and decide what’s best for them.

6. Helps you stay disciplined

When it comes to investing, discipline is key. Without it, you can easily get caught up in the emotions of the market and make decisions that are not based on sound logic. This is where equity research comes in.

By providing you with all of the information you need about a company, equity research can help you stay disciplined and focused on your investment strategy. In addition, by using equity research alongside other tools, such as technical analysis, you can further increase your chances of making successful investments.

7. Gives you an edge over other investors

Utilizing equity research can give you an advantage over other investors who do not. Equity research provides an extensive analysis of a company, its financials, products, and all its prospects. This information is not always readily available or easy to find, so by using it, you can give yourself an edge in your investment strategy.

What is investment banking?

Investment banking is a financial institution that helps companies raise money by issuing and selling securities. Investment banks also help companies by providing advice on mergers, acquisitions, and other strategic decisions.

In addition to working with companies, investment banks also work with governments and other organizations. Investment banking is a complex and risky business, but it can be very profitable for both firms and their employees.

Investment bankers typically have a bachelor’s degree in business or economics. Many investment bankers also have an MBA or a master’s degree in finance. But eventually, it all comes down to the experience and ability to handle financial and nonfinancial reports and make financial models.

What is the role of investment bankers?

Investment bankers are financial professionals who work with clients to raise capital by issuing and selling securities. They typically work for banks, but there is a growing number of independent firms. Investment bankers typically have a four-year degree in business or economics, although some jobs may require a master’s degree. In addition to their educational background, investment bankers must be very good at multitasking, managing large sums of money, and working under pressure.

The role of an investment banker is to act as a middleman between the company that wants to issue securities and the investors who want to buy them. Investment bankers typically work with large corporate clients, but they may also work with smaller companies, governments, and even individuals.

They first assess the needs of their client and then develop a plan to raise the needed capital. This plan will include finding potential investors, negotiating terms, and then issuing and selling the securities. Once the securities have been sold, the investment banker will monitor the market conditions to ensure that the securities maintain their value.

Investment bankers play an important role in our economy by helping companies raise the capital they need to grow and expand. They provide an essential service by connecting companies with potential investors and helping to ensure that investments are made wisely.

What are the types of the investment banking industry?

Investment banking can generally be classified into one of three categories:

1. Bulge bracket banks

Bulge bracket banks are the largest and most prestigious investment banks in the world. They typically have a global reach, and their clients include major corporations, governments, and financial institutions.

Bulge bracket banks is a term that was coined in the 1970s, and it refers to the top tier of investment banks. The name comes from the fact that these banks are much larger than their competitors, and they often have a dominant market share.

Some of the largest bulge bracket banks include Goldman Sachs, JPMorgan Chase, and Morgan Stanley. These banks are often involved in the most complex and high-profile transactions, and they have a team of experienced professionals who can provide a wide range of services.

Bulge bracket banks typically have a strong presence in key financial markets around the world, and they are often able to offer their clients preferential treatment.

2. Middle-market banks

Middle-market banks are a type of investment banking that focuses on providing capital to entities with annual revenue of $50 million to $1 billion. These banks usually have fewer than 500 employees and are headquartered in the United States. They typically provide loans, lines of credit, and other financial services to small and medium-sized businesses.

Middle-market banks are typically divided into two categories: regional banks and national banks. Regional banks are typically smaller and focused on a specific geographic region, while national banks are larger and have a nationwide presence. Some middle-market banks may also have international operations.

3. Boutique banks

The third type of investment banking industry is boutique banks. They are smaller, more nimble institutions that often focus on providing specialized services to a particular type of customer, while some focus on high-net-worth individuals. For example, some boutique banks may focus on small businesses, while others may cater to a specific niche, such as healthcare or technology.

Because they are less beholden to shareholders and other stakeholders, boutique banks can often offer more personalized service than their larger counterparts. As a result, these institutions are quickly becoming a popular choice for those who want a more intimate banking experience.

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Is equity research the same as investment banking?

No, equity research is not the same as investment banking. Equity research is focused on providing analysis and recommendations to institutional investors, while investment banking is focused on providing corporate finance and capital market services to issuers of securities.

While there is some overlap between the two fields, they are distinct disciplines with different clientele, objectives, and activities. Equity research analysts conduct independent research and collaborate with portfolio managers to make investment decisions, while investment bankers work with issuers of securities to underwrite new debt and equity issues and provide other financial advisory services.

Thus, while both equity research and investment banking are important parts of the financial services industry, they are distinct occupations that serve different purposes.

Final thoughts

Equity research is a process of evaluating a company and its securities with the aim of determining its investment potential. By providing an in-depth analysis of a company, equity research can help you make sound decisions about what investments are best for you. It can also give you an edge over other investors who do not have access to this information. Investment bankers play an important role in our economy by helping companies raise the money they need to grow and expand. They provide an essential service by connecting companies with potential investors and helping to ensure that investments are made wisely.

Who can become an equity research analyst?

In order to become an equity research analyst, one must have a bachelor’s degree in a relevant field such as business, finance, or economics. In addition, it is helpful to have experience working in the financial sector. Finally, an equity research analyst must be able to effectively communicate their findings to both clients and colleagues.

What is financial modeling?

Financial modeling is the process of creating a detailed model of a financial situation. It is a tool that is used by investment professionals to help make informed decisions about investments, projects, or businesses. Financial models are based on extensive industry research and are used by portfolio managers and senior analysts at investment firms to make recommendations about which stocks or other assets to buy or sell. Private companies also use financial modeling to raise capital from investors. Financial modeling can be used to predict things like future cash flow, profitability, and risk. It can also be used to compare different investment options or to assess the impact of changing economic conditions. Financial modeling is a powerful tool, but it requires careful planning and analysis to produce accurate results.

What is private equity?

Private equity is an alternative asset class that refers to the investment of capital in privately held companies. A private equity fund manager typically invests in companies that are not listed on public stock exchanges and often takes an active role in driving the growth and management of these businesses. Similarly, a private equity analyst conducts due diligence on potential investments and provides recommendations to the fund managers. If you’re interested in getting into equity research, you’ll need to have experience in finance and accounting, as well as strong analytical skills.

What is an investment thesis?

An investment thesis is an argument or set of arguments used to justify why a particular security or group of securities is worth investing in. A strong thesis will be clear and concise, research-based, and backed by data. It should also be tailored to the investor’s specific goals and risk tolerance . An investment thesis can be applied to a wide range of investments, from stocks and bonds to real estate and commodities. Ultimately, the goal of an investment thesis is to help investors make informed decisions about where to put their money.

How can I get an equity research job?

There are a few ways to break into equity research from the outside. One is to network with people you know who work on Wall Street. Another is to look for job postings online, either on job boards or on the websites of an investment bank, wealth management firm, or any investment firm. Finally, you can try cold-emailing equity researchers at firms you’re interested in working for. Keep in mind that most equity research jobs are filled by people who have already worked as investment banking analysts or research associates at an investment bank. Aspiring equity researchers also need to be aware of the earnings season schedule and be able to produce high-quality research during that time. Equity research careers can be extremely rewarding, both financially and professionally. With a little effort, you can find a job that’s a perfect fit for your skills and interests.

What is the job of an equity research associate?

Equity research associates are responsible for analyzing companies and industries in order to support the investment decisions of senior analysts and portfolio managers. This involves conducting fundamental analysis, building financial models , and writing research reports. An equity research associate must have a strong understanding of accounting and finance, as well as experience with Excel and other financial analysis software. In addition, an equity research associate must be able to effectively communicate the findings to both senior analysts and clients. If the equity research associate is successful in this role, he may go on to become an equity research analyst or senior analyst.

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All About Equity Research [The ONLY Guide You’ll Need in 2024]

Equity research is a key pillar in the world of finance that bridges the gap between companies, investors, and the market . In this guide, we will delve deep into the world of equity research, exploring its purpose, the process, the roles involved, and the skills required to succeed in this field.

We’ll also discuss the types of equity research, dissect the intricacies of equity research reports, and shed light on the exciting job opportunities this sector offers. Furthermore, we will touch upon the evolving trends in equity research and how they’re shaping the industry’s future.

Let’s get started-

What Is Equity Research?

In the world of finance, ‘equity’ refers to the ownership of assets after all debts associated with those assets are paid off. In simpler terms, if you were to sell all of your company’s assets and pay off its debts, the leftover money would represent your company’s equity. Hence, equity research is an in-depth analysis of a company’s total equity or value.

But equity research isn’t just a mere calculation of assets and liabilities. It’s a rigorous, methodical examination of all the aspects that contribute to a company’s financial performance, and thus, its equity. It is akin to a detective’s investigation, digging through layers of financial statements, market trends, sector overviews, and macroeconomic factors to arrive at a comprehensive understanding of a company’s financial standing and future prospects.

Understanding Equity Research With a Simple Example

Let’s illustrate this with an example. Suppose an equity research analyst is studying a pharmaceutical company . They won’t only look at the balance sheets or profit and loss statements. They’ll consider factors such as the company’s research and development efforts, the potential market for new drugs, any pending patents, the status of regulatory approvals, and even the broader trends in the healthcare industry.

They might investigate how the company performed during different economic conditions, how well its product pipeline compares to competitors, and how regulatory changes could impact future earnings.

The analyst will also look at macroeconomic indicators. For instance, if a new law threatens to increase the cost of a raw material vital to the company’s main product, that could impact the company’s future profitability, and the analyst would need to factor this into their analysis.

At the end of this investigation, the equity research analyst forms an estimation of the company’s intrinsic value, which they then compare to its current market value . If the intrinsic value is significantly higher than the market value, the analyst might recommend the stock as a good buy, as it’s likely undervalued . On the other hand, if the market value is much higher than the intrinsic value, the stock might be overpriced , and the analyst might recommend investors to sell or avoid it.

Equity research, in essence, is this deep dive into the world of a company’s financials , providing a guide to investors, helping them navigate through their investment journey. It’s the compass that points towards profitable investment decisions.

Roles and Responsibilities of an Equity Research Analyst

An Equity Research Analyst acts as a conduit between investors and the ever-dynamic financial markets, providing them with information and insights necessary to make sound investment decisions. Let’s see how their day looks like –

Deep-Dive Research

Their day-to-day responsibilities start with conducting extensive research i nto specific companies or sectors. They meticulously scrutinize financial reports, balance sheets, cash flow statements, and earnings releases. However, their research isn’t limited to mere numbers. They also keep tabs on industry trends, regulatory changes, and macroeconomic factors that could impact the companies they are following.

Example – An analyst is covering technology companies, they need to be abreast of developments like privacy legislation, advancements in artificial intelligence, or shifts in consumer behavior towards tech products. This requires constant learning and staying updated with news and trends in the sector.

Financial Modelling and Valuation

Equity Research Analysts are also adept at creating complex financial models . They use these models to project future earnings , based on various potential scenarios. Based on these projections, they calculate the intrinsic value of a company’s shares.

Example – Let’s say there’s an auto company that’s planning to launch a new electric car model. An Equity Research Analyst covering this company would build a financial model to estimate additional revenues from this new model, the costs associated with its production, the potential impact on the company’s market share, and so on. They would then use these estimates to calculate what this could mean for the company’s future profitability , and how it could impact the company’s share price.

Also Read: All About Financial Modeling [The ONLY Guide You’ll Need in 2024]

Writing Equity Research Reports

One of the key deliverables of an Equity Research Analyst is the Equity Research Report. These reports encapsulate the findings of their research and analysis in a format that’s digestible for investors. The report typically includes

• An overview of the company
• A summary of recent developments
• Detailed financial analysis
• Future projections, and
• Most importantly, an investment recommendation (buy, hold, or sell)

The equity research reports have a broad audience – institutional investors, retail investors, fund managers, and sometimes, the companies themselves. Given the diverse readership, the reports need to be accurate, unbiased, and clear. A well-written report can significantly influence investment decisions, underscoring the responsibility on the analyst’s shoulders.

Communication and Presentation

Finally, an Equity Research Analyst often has to present their findings to clients, fund managers, or within their own organizations. This could be through conference calls, presentations, or even TV interviews. Hence, strong communication skills and the ability to explain complex financial concepts in a simple way are essential traits for an Equity Research Analyst.

The Process of Equity Research

The process of equity research is like peeling back the layers of an onion to reveal the core truth about a company’s financial health and potential. It involves multiple steps, each equally important in creating a well-rounded view of the company.

Step 1: Selection of Companies

The first step in equity research is the selection of companies. Analysts often specialize in specific sectors or industries , such as technology, healthcare, or energy. The choice of companies to analyze within those sectors depends on several factors, including market capitalization, relevance in the industry, or particular events like mergers or IPOs.

Step 2: Industry Analysis

After choosing the companies, analysts start with a broad industry analysis . They look at the industry size, growth rate, major competitors, regulatory environment, and key trends. This macro view provides context for the company’s operations and potential growth.

Step 3: Company Analysis

Once they’ve understood the industry context, analysts move onto detailed company analysis. This involves a deep dive into the company’s financial statements, including balance sheets, income statements, and cash flow statements. They also examine the company’s business model, products or services, competitive positioning, management quality, and corporate governance practices.

Step 4: Financial Modelling and Projections

After developing an in-depth understanding of the company, analysts use this information to build detailed financial models. These models involve projections of the company’s future revenues, expenses, and earnings, often under different scenarios. For example, they might project how the company’s earnings could be affected under different economic conditions or if a new product line succeeds or fails.

Step 5: Valuation

The next step is the valuation, where analysts use techniques such as Discounted Cash Flow (DCF) analysis, Price/Earnings (P/E) ratio, or Comparables analysis to estimate the intrinsic value of the company’s shares . This value is then compared with the current market price to determine whether the company’s shares are undervalued or overvalued.

Step 6: Report Writing and Recommendation

Finally, analysts compile their research findings, financial model outputs, and valuation results into a comprehensive equity research report . The report also includes a recommendation, typically a ‘buy’, ‘hold’, or ‘sell’ for the company’s stock based on the analyst’s analysis.

It’s important to note that equity research is a continuous process . Companies release financial information quarterly, industry trends evolve, and macroeconomic conditions change. Therefore, analysts regularly update their reports to reflect the most recent data and insights.

Key Aspects of Equity Research Reports

An Equity Research Report is a comprehensive document that encapsulates an analyst’s view of a company, sector, or industry . These reports are essential tools that investors use to understand and navigate the financial markets. Here are the key aspects of an equity research report:

Executive Summary

Every report begins with an executive summary that provides a brief overview of the analyst’s findings and recommendations. This part is designed to provide a quick snapshot of the key takeaways from the report.

Company Overview

This section provides a detailed description of the company , including its history, management, product or service offerings, and business model. It also includes an overview of the company’s key strategies and competitive advantages. This information helps readers understand the company’s operations and its position within its industry.

Industry Overview

The industry overview offers an analysis of the broader sector or industry in which the company operates. It covers aspects such as industry size, growth rates, key trends, major competitors, and regulatory environment . This context is crucial in understanding the company’s potential for growth and the challenges it might face.

Financial Analysis

In this part of the report, the analyst presents their detailed analysis of the company’s financials. This usually includes examination of the i ncome statement, balance sheet, and cash flow statement. The analyst may also discuss financial ratios, growth rates, profitability metrics, and other key financial indicators. This section provides insights into the company’s financial health and performance.

Financial Projections and Valuation

The heart of the equity research report is the financial projections and valuation section. Here, the analyst lays out their forecasts for the company’s future earnings and financial performance. They also present their valuation of the company’s stock, typically arrived at using financial modelling techniques like Discounted Cash Flow (DCF), Price/Earnings (P/E) ratio, or Comparables analysis.

Investment Thesis and Recommendations

In the final section, the analyst presents their investment thesis – their argument for why an investor should or should not invest in the company’s stock. They also provide a clear investment recommendation, typically a ‘buy’, ‘hold’, or ‘sell’ rating. This section is the culmination of all the analyst’s research and analysis.

Types of Equity Research

Equity research is carried out by different types of institutions for various purposes . Understanding the differences among them can help in comprehending the perspectives and potential biases in the research. Here are the key types of equity research:

Sell-Side Equity Research

Sell-side analysts work for brokerage firms and investment banks. Their research is primarily aimed at selling securities, providing investment recommendations, and facilitating transactions , which helps their companies earn brokerage and transaction fees. Sell-side research is generally freely available, and the firms distribute it widely to attract business from institutional and retail investors.

Buy-Side Equity Research

Buy-side analysts work for institutional investors such as mutual funds, hedge funds, pension funds, and insurance companies. They conduct research to assist the fund’s managers in making investment decisions for the fund’s portfolio. Their research is typically proprietary and is used solely for the benefit of the fund that employs them.

Independent Equity Research

Independent equity research firms are third-party entities that aren’t directly involved in trading securities. They sell their research to hedge funds, asset managers, and sometimes individual investors . Since these firms don’t have a trading department and aren’t seeking investment banking business, their research is perceived as unbiased. They have gained popularity over the past decade due to their perceived objectivity.

Internal Equity Research

Large corporations often have their internal equity research teams. These analysts perform research on competitors, suppliers, and customers to assist in strategic decision-making. This research is generally not available to the public as it is used for internal corporate strategy and planning purposes.

Each type of equity research has its strengths and weaknesses , and they all play essential roles in the financial ecosystem. Understanding their differences and potential biases can help investors and decision-makers use this research more effectively.

Skills Required for a Career in Equity Research

Equity research is a challenging and intellectually demanding field that requires a combination of hard and soft skills. If you’re considering a career in equity research, here are the key skills you’ll need to succeed:

Financial Literacy

A fundamental understanding of financial principles is the bedrock of equity research. This includes knowledge of financial accounting, corporate finance, economics, and statistics . Analysts need to be comfortable reading and interpreting financial statements, calculating financial ratios, and understanding economic indicators.

Analytical Skills

Equity research involves extensive data analysis. Analysts need to sift through large volumes of data, spot trends, interpret complex information , and draw meaningful conclusions. Strong analytical skills are crucial to understand the past performance of a company and make accurate forecasts about its future.

Financial Modelling

Financial modelling is an essential tool in an equity researcher’s arsenal. Analysts use financial models to forecast a company’s future revenues and earnings and estimate the intrinsic value of its shares. Proficiency in Excel and familiarity with valuation techniques such as discounted cash flow (DCF) and comparable company analysis is a must.

Attention to Detail

The devil is often in the details when it comes to equity research. Analysts need to pay close attention to the footnotes in financial statements, the nuances in a CEO’s comments during an earnings call, or the implications of a regulatory change. A small detail can sometimes have a significant impact on a company’s valuation.

Communication Skills

Analysts need to communicate their findings effectively. This includes writing clear, concise research reports that can be understood by people without a financial background. It also involves presenting and defending their views to clients, colleagues, and sometimes, the media. Strong written and verbal communication skills are vital.

Curiosity and Continuous Learning

Equity research analysts need to stay on top of industry trends, economic news, and changes in financial regulations. This requires a natural curiosity and a commitment to continuous learning. An analyst who stops learning risks falling behind in the fast-paced world of finance.

Job Opportunities in Equity Research

Equity research provides a host of job opportunities in a range of firms including investment banks, asset management companies, research firms etc. Let’s understand these roles, their typical responsibilities, average salaries in India, and potential employers:

Equity Research Analyst

As an Equity Research Analyst, you’ll delve deep into company financials, industry trends, and macroeconomic factors to provide investment recommendations. You may focus on a specific sector or cover a broad range of industries. This role involves financial modelling, report writing, and communicating with clients and company representatives.

Average Salary in India : ₹ 7-10 Lakhs per annum Employers : Major employers include JP Morgan, Goldman Sachs, Morgan Stanley, Credit Suisse, Kotak Securities.

Associate Analyst

Those just starting in equity research often begin as Associate Analysts. Working closely with senior analysts, Associates help in collecting data, building financial models, and drafting research reports. It’s a role that provides a solid foundation in the fundamentals of equity research.

Average Salary in India : ₹ 4-6 Lakhs per annum Employers : Firms like Ernst & Young, KPMG, Deloitte, and PwC.

Senior Analyst/Research Director

With experience, an Analyst or Associate can move up to become a Senior Analyst or Research Director. These roles involve more strategic oversight, including deciding which companies or sectors to cover, mentoring junior analysts, and representing the firm to clients, the media, and the public.

Average Salary in India : ₹ 12-20 Lakhs per annum Employers : Multinational banks and brokerage firms like Citigroup, Barclays, ICICI Securities.

Portfolio Manager

Some equity research analysts transition into portfolio management roles over time. As a Portfolio Manager, you would use the insights from equity research to make investment decisions for a fund or portfolio. This role requires a deep understanding of financial markets, risk management, and asset allocation strategies.

Average Salary in India : ₹ 15-25 Lakhs per annum Employers : Asset management companies like HDFC Asset Management, ICICI Prudential, Reliance Nippon Life Asset Management.

Equity Strategist

Equity Strategists work with a macro view, examining factors like economic indicators, industry trends, and market data to provide investment strategies and identify attractive sectors or themes in the market. While less company-specific than an analyst role, strategists still utilize many of the research and analytical skills developed in equity research.

Average Salary in India : ₹ 10-18 Lakhs per annum Employers : Major investment banks and financial services firms like Deutsche Bank, HSBC, UBS.

Investor Relations Role

Equity research analysts can also move into investor relations roles within companies. These professionals communicate with shareholders, analysts, and the broader financial community. Understanding the perspective of equity analysts is valuable in this role since you’ll be communicating key financial and strategic information about the company to the investment community.

Average Salary in India : ₹ 9-15 Lakhs per annum Employers : Large corporations across industries like Tata Group, Reliance Industries, Infosys, Wipro.

Sales & Trading

Some equity research professionals transition into roles in sales & trading. In this capacity, they use their deep knowledge of industries and companies to advise clients on investment strategies, facilitate transactions, and connect buyers and sellers in the financial market.

Average Salary in India : ₹ 8-16 Lakhs per annum Employers : Banks and brokerage firms such as Axis Bank, HDFC Bank, Edelweiss, Sharekhan.

Trends and Future of Equity Research

Equity research, like all facets of finance, is continually evolving in response to changing regulations, technologies, and investor behaviours. Here are some of the current trends and potential future developments in the field:

Digitization and Automation

The digitization of financial information and the development of advanced data analytics tools are transforming the way analysts conduct research. Automated tools are increasingly being used to collect and process data, allowing analysts to focus more on interpreting the data and generating insights.

For example , artificial intelligence (AI) and machine learning (ML) tools are now used to analyze financial statements, track sentiment in news articles and social media, and even to predict future stock price movements.

Increased Regulatory Oversight

In recent years, regulators around the world have been placing increased scrutiny on equity research to promote transparency and prevent conflicts of interest.

For example , the European Union’s MiFID II regulations now require investment firms to separate the costs of research from trading fees. This has led to more demand for independent research and is forcing sell-side firms to demonstrate the value of their research more explicitly.

Demand for ESG Analysis

There’s a growing trend among investors to consider Environmental, Social, and Governance (ESG) factors in their investment decisions. This is leading to increased demand for equity research that includes analysis of companies’ ESG performance. Analysts are now required to assess factors such as a company’s carbon footprint, its labor practices, and its board diversity in addition to its financial performance.

Crowdsourced Equity Research

Crowdsourced equity research platforms, where independent analysts and investors share their research and opinions, are gaining popularity. These platforms offer a wider range of views and analyses than traditional equity research sources. However, they also pose new challenges in terms of verifying the credibility of the information.

Emergence of Alternative Data

Equity researchers are increasingly using alternative data – information derived from non-traditional sources like s ocial media sentiment, satellite imagery, or website traffic data – to gain additional insights into a company’s performance. These data sources can provide real-time indicators that can complement traditional financial data and provide an edge to the analysts.

Equity research serves as a vital link between companies, investors, and the financial markets . It involves detailed analysis of financial data, sector trends, and macroeconomic factors to formulate clear, actionable investment recommendations.

With its varied roles – from Equity Research Analysts to Portfolio Managers, and from Equity Strategists to Investor Relations Roles – this field offers numerous career paths, each with its own unique blend of challenges and rewards.

Whether you’re a finance enthusiast exploring career paths or an investor seeking insights into your investment choices, understanding the nuances of equity research is highly beneficial. So take the leap, dive deep, and explore the rewarding world of equity research!

Frequently Asked Questions

Equity research analysts examine financial data, conduct analyses, build financial models, and write research reports to make investment recommendations.

Skills include strong analytical abilities, understanding of financial markets, proficiency in financial modeling, and excellent communication skills.

CA Yash Jain

Bain & Co. 5000+ Students Trained in the field of Investment Banking, FRM & CFA

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Writing Equity Research Reports

What to know about financial advice in multilingual markets

A thoroughly analyzed equity research report can increase your business and build trust in your investment bank as your clients learn to listen to your advice. Let’s break down this offering to see where your team could be making a bigger impact.

What is Equity Research?

Equity research is a deep dive into an equity or stock. It incorporates financial context to explain and predict financial performance. Research takes place on the far side of an information barrier separating research for sell-side publications from investment banking teams.

What is an Equity Research Report?

An equity research report serves as a source to justify investment decisions. It can focus on something as narrow as a single stock or as broad as an entire industry.

Clear, concise writing is imperative. Readers should all finish reports with similar conclusions rather than needing to infer takeaways. The investment advice should be actionable and well-supported. It should also be accessible to an audience ranging from individual to corporate investors. An equity research report has a few key elements:

• company highlights
• industry overview
• financial ratio and valuation analyses
• description of risk factors
• analyst recommendations (e.g. buy, sell, hold) and summary
• investment thesis, including rationale for the recommendation
• disclosures (as needed)

Who Reads Equity Research Reports?

The audience for equity research reports is mainly fund managers and anyone responsible for managing wealth and investments. Although retail brokers might not need to meet the same fiduciary requirements as financial advisors, they do need to act in a certain “best interest” and can also use these reports to make recommendations. Hedge funds and mutual funds have different appetites for risk, but they can both use these reports to guide their strategy.

All these players are also choosing where to make their investments and through whom. That’s why it’s crucial equity research reports be thoughtful, reliable publications in any language.  

Who Writes Equity Research Reports?

Research analysts need to be efficient writers capable of meeting short time-to-market requirements. They need  deep industry background to reduce on-ramp time. Although these reports can be many pages long, often readers will skim for highlights. The inverted pyramid writing style applied in journalism helps report consumers get the most important information as soon as they start, so they don't miss a key piece of advice deeper into the piece.

To access the widest possible audience, a multilingual writer is ideal. Unless an analyst is truly bilingual, the original writer may not be the best choice for consistent translations.

Who Should Translate Equity Research Reports?

Of course, not every institution has these staffers on hand all year round—nor should they. That’s where language service providers come in. The specialists at Lionbridge include financial writers , research editors and translators, all with years of experience. They know derivatives, bonds, equity and more in markets around the world and will work with your team to create accurate, on-time publications.

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Sharekhan Blog

Equity research report.

• Feb 11, 2024

In this blog, we’ll study the complications of Equity Research Reports, analysing their contents on why banks highly produce them.

Definition of Equity Research Report

An Equity Research Report is an extensive document created by financial analysts to provide a detailed analysis of a company's financial performance, market position, and growth prospects. These reports act as a guideline for investors, offering crucial information to make informed investment decisions.

Different types of  Equity Research Report

1. initiating coverage:.

This is the initiation tradition into the world of stocks. Analysts look into a company's fundamentals, examining financial statements, management quality, and industry dynamics. The report sets the stage for potential investors by offering a complete overview.

2. Industry Reports:

Industry reports provide an in-depth analysis of the sector a company operates in, evaluating market trends, competition, and regulatory factors. Investors gain a panoramic view, allowing for informed decision-making.

3. Top Picks:

Analysts handpick companies with high growth potential or those suspended for a turnaround. Top Picks reports serve as a curated list, helping investors focus their attention on promising opportunities.

4. Quarterly Results:

Quarterly reports offer a snapshot of a company's profits, revenue, and other vital metrics. Investors eagerly await these updates, using them to measure the company's health and make adjustments to their portfolios.

5. Flash Reports:

Flash reports act as breaking news, offering real-time analysis of unexpected developments such as mergers, acquisitions, or sudden shifts in market sentiment. Investors rely on these reports for immediate insights to stay ahead of the turn.

How are Equity Research Divisions Organised?

For those risking into the domain of equity research, understanding the organisational dynamics is crucial. Unlike the complex hierarchy prevalent in investment banking, equity research opts for a more balanced structure. The key players in this landscape are the Associate and Analyst positions.

Associate and Analyst Dynamics:

In equity research, the traditional corporate finance hierarchy takes a backseat. Surprisingly, the Associate position is more entry-level, while the Analyst position carries more seniority. Typically, an Analyst oversees the work of one or more Associates, forming a collaborative team responsible for covering a specific group of companies.

Industry Focus:

Analysts often specialise in specific industry sectors. This specialisation allows them to gain in-depth knowledge about similar companies within a particular industry. Given the complex nature of various sectors, becoming an expert in one industry proves more beneficial than spreading efforts thin across multiple domains.

Key Industry Sectors:

Equity research is broadly categorised into major industry sectors such as consumer staples, consumer optional, internet, healthcare, energy, mining, technology, and telecommunications. Analysts, accompanied by their team of Associates, focus on a portfolio of companies within these sectors. The number of companies covered can vary, with teams handling anywhere from 5 to 15, depending on factors like seniority, company sizes, and industry intricacies.

Contents of an Equity Research Report:

Banks publish these Equity Research Reports for several reasons:

1. Transparency and Trust:

By sharing detailed analyses, banks build trust with their clients. Transparency promotes a sense of security, which is crucial in an industry where trust is the currency.

2. Client Service:

Banks provide a valuable service to their clients by clarifying complicated financial information into accessible insights. This certifies investors, from seasoned professionals to beginners, to make informed decisions.

3. Market Influence:

Banks exert significant influence in financial markets. By publishing research reports , they contribute to shaping market perceptions and trends. This influence is both a responsibility and an opportunity to contribute to the stability and growth of the financial ecosystem.

4. Regulatory Compliance:

In many jurisdictions, financial institutions are obligated to publish research reports as part of regulatory compliance. This ensures a level playing field and prevents information asymmetry.

Why Do Banks Publish Equity Research Reports?

Banks publish Equity Research Reports for both direct and indirect benefits.

Direct: Trading Commissions

By providing valuable insights, banks attract investors to their trading platforms , earning commissions on the transactions. The more investors trade, the more revenue banks generate through commissions.

Indirect: Investment Banking Relationships

Equity Research Reports also serve as a gateway to building and maintaining strong investment banking relationships. Successful analyses improve a bank's credibility, captivating companies to pursue their services for underwriting, mergers, and acquisitions.

Equity Research Reports are not merely numbers on paper; they are the bridge that connects investors with the complicated world of finance. They are a testament to the ongoing effort to make the financial journey understandable, strategic, and, ultimately, successful. As the financial aspect continues to develop, these reports stand as a beam of knowledge, enlightening the path toward proper investment decisions.

Equity Research Reports are a craft that requires a delicate balance of expertise and empathy, understanding that every recommendation has the potential to shape an individual's financial future.

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Social sharing, extended viewer, attribution for implied temperature rise.

Jun 3, 2024

MSCI Implied Temperature Rise (ITR) is a climate metric designed to show the temperature alignment of companies and portfolios with global climate goals. Beyond climate disclosures, investors may use ITR to set decarbonization targets and support engagement on climate risk.

In this paper, we develop an attribution framework to understand what causes a portfolio’s ITR to change over time. The six driving factors are:

• changes in the portfolio composition,
• changes in the global emissions budget,
• changes in companies’ emissions budgets,
• changes in companies’ projected future emissions,
• changes in the portfolio’s ownership share in the portfolio holdings, and
• the interaction effect among these drivers.

We can show this attribution in the form of a tree. To illustrate this, we considered a hypothetical portfolio based on the MSCI ACWI Index from Jan. 31, 2020, to Jan. 31, 2022. The MSCI Implied Temperature Rise attribution can be analyzed both as a percentage (as shown) as well as by degree Celsius (see report).

ITR attribution tree (%)

ITR data was pulled in November 2023 using modeled history from Jan. 31, 2020, to Jan. 31, 2022. Source: MSCI ESG Research.

Research authors

• Xinxin Wang , Executive Director, MSCI Research
• Guido Giese , Managing Director, MSCI Research
• Drashti Shah , Associate, MSCI Research

Related content

A framework for attributing changes in portfolio carbon footprint.

We present a framework that allows investors to understand to what extent changes in a portfolio’s carbon footprint are due to companies’ real-world decarbonization efforts, a portfolio manager’s investment decisions or changes in companies’ financing.

Designed to show the temperature alignment of your investments with global temperature goals

Climate Target and Commitments Dataset

For untangling corporate decarbonization commitments

UtmAnalytics

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It found the average deal size in the Canadian private equity market increased to $28.7 million, the highest quarterly average since the first quarter of 2020. The report noted in 2023, the private equity market raised a total of $10.3 billion across 647 deals.

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Adani Green Hit By Report From UK-Based Activist Investor: Here Are The Main Arguments

Adani Green Energy (AGEL) , India’s largest renewable power owner, is under fire after a report from Snowcap Advisors has brought the focus back onto the Gautam Adani -led conglomerate more than a year after Hindenburg Research ‘s accusation of financial fraud against the group.

What Happened: The London-based activist investment firm has claimed that the company is inflicted by inflated financial metrics, dubious accounting practices, and looming funding gaps.

Here is a breakdown of Snowcap’s main arguments against Adani Green:

Inflated Financial Metrics

AGEL, boasting an impressive 10.9 gigawatts of operational capacity, claims it will quintuple its capacity by 2030 without raising equity.

However, Snowcap claims that AGEL's self-reported “run-rate EBITDA” is heavily padded as it includes other income such as interest on loans, one-off late payment surcharges and non-cash accounting gains, allegedly inflating the EBITDA figures by up to 19%, if also adjusted for normalised power prices.

Misleading Project Returns

While AGEL promises returns on its renewable projects as high as 17% — far ahead of the renewables sector as a whole — Snowcap says that its capital expenditures have been spruced up by poor revenue accounting.

Adjusting for this, Snowcap claims the actual unlevered returns are closer to 11-12%, while AGEL's cost of debt stands at 9.5%. The company's rapid growth and aggressive EBITDA projections mask these lacklustre returns, Snowcap alleges.

The research firm also claims that the internal rate of return for recent projects may be even lower at around 9%.

Funding Shortfalls and Equity Needs

Snowcap says that despite AGEL’s confident claims of fully funded growth using high organic cashflows and even with an announced equity injection by the Adani family, the company can only cover half of its 50-gigawatt target funding requirement by 2030 without additional equity.

“AGEL has a history of claiming its pipeline is fully funded, only to raise more equity capital,” the research firm claimed. With high debt-servicing burdens and falling project returns, the company's free cash flow is significantly lower than management's optimistic projections.

Snowcap estimates that AGEL’s free cash flow to equity in FY24 was somewhere around ₹700 crore, far lower than what management had previously forecast.

See Also: Vedanta Tops ₹1.6 Lakh Cr Market Cap, Surpasses Nifty Companies Like Hindalco, Hero Motocorp

Underperforming Assets

AGEL’s operational assets are not living up to expectations, Snowcap claims. Key assets like the RG1 U.S. bond solar projects and the Jaisalmer Four hybrid power plant have underperformed their generation forecasts, the research firm says.

AGEL's reported EBITDA for these assets has been bolstered by interest income from related party loans, rather than core operational performance, Snowcap alleges.

“Were it not for this Interest Income, we think RG1 may have struggled to meet its debt service coverage covenants,” it claims.

It also says that government data shows that AGEL’s flagship hybrid plant has not met its minimum 50% capacity utilisation factor, the ratio of the actual output from a solar plant over the year to the maximum possible output from it for a year under ideal conditions.

Overvalued Stock

Snowcap's report points out that AGEL's stock trades at nearly 34 times its EV/EBITDA, compared to 8-10 times for its peers. This implies a potential 90% downside for AGEL's equity value, raising serious concerns about overvaluation.

Reliance on Related Party Transactions

Snowcap also questions AGEL's strategy of selling power on the open market at inflated prices due to short-term conditions is also questioned. It says the firm has also sold power from plants not yet commissioned on the open market.

“Indian renewable developers have historically avoided merchant exposure due to low trading volumes and power price uncertainty,” the research firm explains. “Amidst high short-term power prices, AGEL has achieved upwards of 2x PPA prices for these sales.”

It said that a significant portion of these sales is to related Adani entities, with 81% of FY23’s merchant sales going to Adani Enterprises and Adani Energy Solutions, suggesting a heavy reliance on transactions within the group itself.

Adani Green responded to Benzinga’s request for comment by stating that the report was “factually inaccurate and  containing analytical errors.”

“The report is a misleading and mischievous misrepresentation  of AGEL's comprehensive disclosures,” a company spokesperson said in a statement.

Price Action: Adani Green’s share price was down 0.63% at ₹1,867.75 around noon on Thursday.

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