Most used financial models.
Title pretty much explains it. Which financial model(s) do equity researchers build/use the most? DCF, Forecast model.. Obviously not LBO.
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PE forward multiple
We model out earnings a few years and slap on a multiple. Some teams do use DCF also.
How much weight do you put on the valuation resulting from your model? How much does this figure influence your stock rating?
For example, if your personal outlook on the firm (having undergone thorough research) is a moderate buy yet the value in the model shows very high returns would this change your final recommendation? Hope that's explained well enough!
none whatsoever and neither does the buyside. ER is less about precision and more about direction, meaning your model is essentially useless. Buyside doesn't care how you think a stock will perform, it cares why you think it will, and each analyst has certain data points they bring to the table.
Say you have an analyst with a credit background - they're probably very good at credit analysis but couldn't tell you anything about growth in X vs Y verticals in an upcycle. Then say another analyst in same sector has a bunch of reliable channel checks for industry trends but consistently draws the wrong conclusions.
Isolated, each analyst model is useless, and the buyside runs their own anyway. But if your credit-background analyst identifies how a company could re-fi some debt to get rid of a dividend covenant that you didn't see, but concludes the market is going to take 2 years to turn around. Meanwhile your channel check guy thinks that sector is about to inflect from 5 year downturn bc of a channel check who knows India is going to double demand and there not enough supply, but because the company can't pay a dividend likes Company B. Now you have reason to do some deeper research and think about allocating some.
Or maybe the sector idiot pounds the table on company C, so now you know not to touch it.
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