Hi,
I was working on a sample ER report to show to people as I network with them (cold-calling etc). The issue here is that I finished the report around the 1st week of October. I then got strep throat and was out for 2 weeks nearabout.
During that time, the price of the stock went up almost 12% (as of today). Even though its still around 3% below my price target, I was wondering if I have to update my report before I send it over. I had my rating as outperform (should that now be neutral?)
The other issue here is that the person reading the report wont exactly be interested in me telling him that the current price is near fair value. What are my choices here?
Assuming you want to keep a Buy, move the PT up by increasing earnings (i.e. cite growth from potential product/strategy) or up the multiple by explaining that the company deserves a premium multiple vs peers due to y.
If I were to see your report, would your new estimates be significantly ahead of consensus? That's great if you can really defend your assumptions.
Does the company actually deserve a premium multiple? If your more optimistic growth estimates are accurate, maybe it does.
But if you can't strongly defend both, your conversations with ER analysts will be counter-productive. I think they'd be able to quickly deduce that you are working backwards from a Buy rating, rather than being true to your research process.
lol like most of them actually have any room to talk (ER peeps that is)
As the commenter above me alluded to me, most analysts will not have the time to really delve into the assumptions that the OP made to get to his PT. There will be no estimate changes' slide so OP does not have to identify the reasons he would be moving up his estimates or multiple. In the case where the analyst does question whether the valuation is justified, a sell-side research report is as much as a sales job as it is a research job so as long as his explanation for higher-than-consensus estimates (or premium multiple) is deemed reasonable, the analyst will appreciate the thought process and put less weight on the actual numbers.
In the OP's situation where he is fighting for an analyst's attention, he is correct that he will get less attention from a Fair Value than he would from a Buy or Sell. Given that the point of this exercise is more to get a job and less to identify the next mispriced security, I would advise the quick fix in order to focus on more important things like networking.
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