How often do ER analysts build operating models?
I was under the impression that Operating Models were the main way that an analyst forecasts their assumptions and the main drivers in a build … although is a P/L statement enough to get to a valuation?
This is far too complicated for valuation in ER. Most analysts use a dynamic model linked to FactSet or CapIQ. Most models work like this:
If buy rated, then current share price* 1.3 = price target
If sell rated, then current share price* 0.7 = price target
Funniest shit i've ever seen
Don't know what the guy above is talking about. Every single model I have worked on has operational tabs which are modelled, that feed through to the FS. P/L is not enough at all, every division is modelled as we typically perform a sum of the parts.
I take it you mean revenue build (market sizing) when referring to operating model. Yes, in this case every ER analyst would have some sort of drivers that lead to operation revenue, which then feeds into IS statement. Some analysts have more complicated build while others may be simpler. For some smaller revenue/product there’s a possibility that some analysts may choose to use growth rate only. It depends on the company and analyst and what sorts of data are available out there.
I meant in terms of a full 3 statement model forecast
Largely depends on company’s disclosures. Could do a bottoms-up build by product if the company discloses enough info (or if you can piece it together between company disclosure + alternative data) but it might be as simple as organic growth (maybe split into price/volume)
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