How to Read SS Research Critically for M&A?
I’m a first year Tech IB Analyst (Classic) and a lot of times I noticed we can just take an equity research reports assumptions or the average of a few as a quick and dirty way to project out financials.
I understand this is fine as a starting point because research analysts specialize in studying these stocks, so any information we can find publicly they also have considered and then a bunch more of proprietary data that informs their reports as well. I just can’t help but feel like all these damn equity research reports after earnings sound all the same with minimal differentiation (besides the PT) from one broker or another. If I want to “get smart” on a company and also assess how trustworthy one broker is over another when reading 3-4 quarterly earnings reports, how would I go about doing that?
Do you kind of just analyze what they have in common and take that as a fact? How do you evaluate the sources they state in their report? Do buyside analysts care about these at all or do they just rely on their own internal research?
Post earnings reports are like the bottom barrel of equity research reports - they're often not even written by the analyst lol - you're probably reading their junior's work. They're basically a regulatory box checking exercise so the analyst can get on the phone and speak about the stock with clients. This is not what you should be using to form a deep understanding of the business. It helps to clue in on current debates and obviously quarterly financials but not much more.
The differentiation of an analyst comes from several aspects - not all analysts are actually good "analysts". Some are good at being controversial and driving debate. Some are good at selling. Some are actually good forecasters for the Q. Some are long term thematic thinkers. Most are a combination of a couple of these things. You need to read the "big" reports on the stock if available. And talk to the analyst or a junior if possible.
That’s helpful! By “big” reports do you mean like an initiating coverage report? How would you track which analyst is really good at predicting the Q vs. one who is good at sparking a debate? I know some analysts are known for getting awards like EVR ISI but trying to learn how to tell the good vs the bad. Some of it is kinda clear in even the quality of ER report (JPM’s seem pretty insightful and are elegantly written vs. like a DA Davidson), is this just one of those things that takes time to get an eye for?
There are like 4 categories of research report: educational, idea-based, thematic, and maintenance. Earnings quick takes are maintenance, low value add. The rest are the "big" reports and it's most likely stock specific reports would fall in the first two categories. You're looking for those ones - initiations, reiterations of thesis's, ratings changes, new angles. Often, but not always, longer than an earnings note with actual analysis - not just reactionary. If you can't find this from a bank, then the analyst probably doesn't care about the stock that much.
Yeah takes time and I'm honestly surprised that bankers even have to do this. Pretty sure our bankers just use consensus estimates + in house (i.e. my team's) detailed commentary via reports/calls.
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