Writing an Equity Research Report

I am currently a Global Business/Finance major at a non-target with a 3.7 GPA. I am looking to break into equity research by obtaining an internship next summer (I tried for this summer but did not have luck). I have very little relevant experience and I don't really have any connections, so I decided that if I create equity research reports of my own it will give me an edge.

Is this something that could make a difference or am I wasting my time? Also, I have never written an equity research report before. I have seen some examples of a few so I have a general idea but that's about it. Does anyone have any advice/tips to share?

Thanks!

 

Yes, absolutely do it.

Doing so will help you get a solid understanding of the companies you are researching and will allow you to break down an investment thesis succinctly, which is something that ER interviewers want to see in a potential hire. Also I would suggest building a model and including that with your reports.

When I started interviewed for ER roles, I would actually bring my reports to the interview and leave them in my padfolio where interviewers could see them. More often than not, the colored reports would catch their eye and they would want a copy and me to walk through it with them. It received pretty great remarks all around as it demonstrates to them that you have initiative (putting together a good report takes several hours, at minimum) and are genuinely interested in the work that you will be doing once on the job.

There are numerous templates out there on the web to model/shape yours off of.

 

Hey me 2, if anyone has any sample ER reports (preferably initiation coverage/detailed industry's ones, the draggy long long ones) i would also love to have some sample ER reports. Thanks a lot!

 

There is a thread floating around here somewhere with a few full ER reports from the likes of Bernstein, Deutsche, etc... Do a thorough search and you may be able to find it.

 

If you are in school you probably have access to sell side research through your library or career center. i'd rather not post any of my own research and i don't have any competitor's research on my laptop. Generally the first page summarizes key points from the report- what happened, how it affects your thesis, how it affects your valuation. It really depends on the type of report though, there is everything from 3 paragraph news blasts, to 20 page initiations of coverage, to 50+ page detailed industry reports. Generally reports will go into some detail on the industry, comps, valuation, business model, general company overview, etc.

 

For the benefit of everyone else, I'll write up a note:

First page of the report (assuming NOT a coverage initiation) generally has these items:

Decision: Buy/Sell/Hold Current Price Your price target A chart showing the past 12-24 months EPS data for the past 2-3 years (on a quarterly basis), including the next 2-6 quarters A brief rundown of recent data points/summary (it could be comments on earnings, management guidance, thoughts on a new product launch and its effects, etc.)

The second-third page will generally have: Thesis (why are you buying or selling this?) Catalysts (what will cause the stock to pop?) Risks (what could you be wrong about - super important) Valuation (how'd you value this thing? P/E multiple, EV/EBITDA, DCF, some blend of these?) Maybe a chart showing upside/downside potential in price target.

Other stuff could go in here, too. For example in a chemicals company there could be a few pages on a specific product line, its pricing, etc. If there is a major catalyst you are viewing will be coming to fruition shortly you'll need to comment on that in some detail.

Note, some analysts suck and will only do the first page. I almost never call these analysts as it shows cursory coverage. You don't necessarily want a 30 pager, either.

PM me with questions (and CalBear is perfectly right - most school have access to ThomsonONE or Bloomberg. You can pull tons of reports on there).

 

You could probably also find some older reports from scribd that would be helpful.

Generally on the front page for an earnings report, aside from the stock/earnings data which is often automatically inserted, you write a brief summary, implications, change of estimates and price target or estimated value paragraph. 4 paragraphs usually but every analyst has his/her own style. Second and third pages get further down into the details... (breaking down different business segments etc).

Every firm has different report templates and ways of approaching a report though, so reports can differ.

 

Hi,

As part of an ER interview I have been asked to write up a report comparing 2 companies (GM and Ford) and judge which will "perform better in the future". Not having worked in ER before, have a few questions -

  1. The general consensus on the length of the report on this forum and elsewhere seems to be about 10 pages. However, that was for 1 co. Should I write a 7-8 page report on each and then dedicate the last 2 to a compare and contrast? What should be the ideal length for this report?

  2. Should I follow the same report format as listed on some of the other threads in this forum?

Any insights for a ER report on the auto industry, i.e., anything in particular people think is particularly relevant to this specific industry?

Would really appreciate your help! Thanks!

 
Best Response

I'll give you a simple high level process to work through.

For your first time trying to research a company first pick a sector that you can understand/know or have some interaction with (might want to even boil that down to a GICS industry group so that the companies you're comparing are highly similar). Then look at the companies in that industry/sector and get the multiples to see how they're valued comparatively with each other. You can just use the basic P/E, P/S, P/CF, EV/EBITDA, Div yield, debt/cap, debt/assets for your first time. If any of the companies sticks out here then you can choose it and from there and form an initial idea. Once you've chosen a company I'd just get a basic history of it, you could get it from either the company website or wikipedia to get a feel of how the company has evolved into its present day form. I'd then just take a quick glance at the long term price chart to get a feel for how the stock has performed and see if there are any wild movements that you can cross reference with the history you just went through. From there you can jump into the most recent 10-k. By the way you want to take notes throughout the whole process, don't just try and form the thesis in your head.

In the 10-K you're trying to find out more of what the company does, what drives the operations/is its primary growth generator and what risks/threats there are to it. You want to see what management's strategy is, what non-gaap metrics it uses to gauge its performance, understand the cash position, make sure there's no issues with the auditor's opinion, who the company sees as competitors if they list them, any large customers or suppliers, any one time items like special tax situations or restructuring charges that had a material effect on earnings, any risks that management discloses that are specific to the company and not an industry wide issue, debt position. Don't spend a ton of time reading every single word in the 10-K, for your purpose just try and get an understanding of those things listed, at this point you're just trying to get a feel for the company. Once you get to the actual gaap numbers you can start to build out a spread sheet. I would go back at least to 2007 so you can see how the company has performed throughout the cycle. You don't need to grab anything other than the numbers from past 10-K's unless something really looks strange in some year. Once you've compiled the numbers you can get growth rates and margins from that and see the company's long term trends. It's up to you if you want to forecast future years but no one is expecting you to be able to spit out a DCF especially if you don't over an industry on the daily and don't really understand what is going to drive the growth rates.

You're then gonna wanna take a quick look at the most recent proxy. In there you want to find out if there is any activist action or shareholder movements, a little history on the directors and management, how independent the board is, top holders, how much executives and directors own in aggregate, what metrics management is paid on for both the short term incentive plan and long term incentive plans, any questionable related party transactions, and see if auditor pay has stayed fairly consistent. You're just trying to get a general feel for who is running the company and what might be driving management's decisions as well as if there is anything that raises questions.

Jump into any recent presentations at conferences or analyst days and the transcripts that go with them, can be found on the IR page for most companies. Here you'll get a good view on the company's strategy and vision of its future.

Read or listen to at least the most recent earnings call, again can find on the IR page. Here you'll want to pay more attention to the Q&A and see how management fields sometimes difficult questions and just their overall tone in answering these questions.

At this point you should have formed an opinion for yourself and now you can read through some outside opinions whether it be sell side research, blogs, articles, whatever is available to you and contrast their opinions with your own.

Now you should have enough to put together a concise investment thesis. No one is expecting it to be incredible (i'm assuming you are writing a report to supplement a job application or use in an interview) but the ideas need to be clear and structured. I would structure it like this: First present some numbers at the top: multiples, price, market cap, etc... Then give a description of the business, short and clear, what does this business do. Next you want to present your recommendation. This also can be very short, just something like I recommend buying/selling ABC stock. Next is where you will present your ideas, I would first present the bull case, then the bear case, and then your conclusion that supports your recommendation. Bull case is why you would buy the stock, bear case is why you would sell the stock, and conclusion summarizes that and you'll give a reason why you're taking either the bull or the bear case. Might also attach a copy of your financials (more so if you decided to try and model the financials forward) and maybe a price chart but not necessary.

That should be enough to write a high level research report. You could probably get through all of that in a day or two depending on the company/industry that you choose.

 

I haven't attached it to my resume but I did put a note in there saying I could send them a sample research report. Generally speaking, I haven't seen it help me a whole lot in terms of garnering interviews. But one analyst did request to see my sample after the interview. So it might be worth it.

I also suspect that if you're light in experience, it can't hurt to have one done. If anything, you gain a good amount of experience doing the research and it'll show during interviews.

 

Overall it is best to keep it clean and stick with only "asked for materials".

Your best bet to recruiting is sticking with only a resume and using tools such as linked-in, indeed, doostang, etc etc.

The reason why is it will look "strange" when it hits the analyst's inbox he is going to be confused because he didn't "ask for this". Typical finance rule of thumb is when you begin to "do exactly what you are told to do" this is for IB/Research/S&T when you first start up that is.

Now it is certainly very important to keep a solid research sample with you. Always keep your best work in some hidden file anywhere so if they do ask for a report you have it with you. This is a good rule of thumb for all roles in finance.

One caveat is that it may work for smaller shops because they will view it as taking the initiative. Overall though likely better to veer on the side of safety and pound the phones and internet connections as much as possible.

 

what about in terms of equity research jobs? It seems to me that if we're light on experience (ie I have none) but I have taken financial modeling courses and use it for my personal portfolio.

I think the best way to generate value would be to take a (justified) contrarian view of a security, since that's how profits are generated in the market (identifying mispricings and acting before it corrects). It shows you think differently (and hopefully 'correct').

Also, why would they not want to see an example of your work? It seems like an easy way to reduce the companies risk of hiring a shitty employee.

My plan is this: 1. Request an informational interview or w/e they're called. 2. Offer to give them an example report on a company in their industry 3. ??? 4. Job

No idea if it'll work or not.

 

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