Equity Research Internship Interview

I have a superday coming up for a 2018 equity research internship, and I'm currently preparing my stock pitch. For internship interviews, do they expect us to calculate and perform a valuation for the company we pitch? If so, what model is best (DCF, comparable companies analysis, etc.)?

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Aug 12, 2017

may i ask what bank this is for?

Aug 12, 2017

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Best Response
Aug 13, 2017

Including a valuation segment is generally expected, but relying on comparables is usually enough. Use EV/EBITDA, unless you're pitching something that necessitates a unique valuation method (e.g. oil & gas, financials, REITs, etc.).

Doing a full DCF is largely unnecessary for undergraduates, so don't worry about it. This is especially the case when the interviewer gives you a stock ticker and tells you to write a pitch in a week. If you try to do a DCF in such a narrow timeframe, that's just bad time management. You'd be better served spending that time gathering information about the company's business and operations, to develop the core points of your investment thesis.

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Aug 13, 2017

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Aug 13, 2017

Check out the ER forum - there should be some helpful threads going into more detail on what to expect. Couple of things though. Come in ready to pitch a stock, whether its a long or short idea. Either is fine as long as you can articulate your thesis concisely and the relevant points to support that thesis (valuation, secular/industry trends, competitive positioning). Next, know the role of an associate and what you would be expected to do on a day-to-day basis. Last, be able to explain how ER fits into the investment banking model.

In my opinion, those are most important things to me in an ER interview outside of being able to tell your story, why ER, etc. I wouldn't expect too many technical questions but it wouldn't hurt to know your way around the three financial statements, different valuation methods, etc.

Hope that helps.

Aug 13, 2017
ShawnDU2009:

Check out the ER forum - there should be some helpful threads going into more detail on what to expect. Couple of things though. Come in ready to pitch a stock, whether its a long or short idea. Either is fine as long as you can articulate your thesis concisely and the relevant points to support that thesis (valuation, secular/industry trends, competitive positioning). Next, know the role of an associate and what you would be expected to do on a day-to-day basis. Last, be able to explain how ER fits into the investment banking model.

In my opinion, those are most important things to me in an ER interview outside of being able to tell your story, why ER, etc. I wouldn't expect too many technical questions but it wouldn't hurt to know your way around the three financial statements, different valuation methods, etc.

Hope that helps.

Could you explain how ER exactly fits into the investment banking model. thanks

Aug 13, 2017

Good stuff! Thanks

Aug 13, 2017

Sure. So what I meant by that is research doesn't directly bring in revenues for most firms. We don't sell it to clients. It's often provided for "free." Given that though, clients are expected to pay for those services through trades or they'll ultimately get cut off by the firm. In addition to providing research, analysts often provide access to management teams of the companies they cover, whether its at a conference, company marketing, bus tours or industry conferences. Clients are expected to pay for that through trading with your firm as well. To get at all of this, you want research analysts who can provide access to senior level management, as well as generate unbiased differentiated research. That combination will often bring in more revenues to the firm.

Now there's also another way that research brings in money to the firm and this is through investment banking fees. Just to preface this, research professionals are in no way allowed to solicit their firms investment banking business. I think this is fairly obvious but it needs to be stated. I'll provide one example below of how this is done.

Research analysts often meet with private companies that are primed to go public. This is done for two primary reasons. 1) These companies can provide you with more information since they're private and they're often large enough to take share away from companies in your coverage universe. Clearly this can help you understand the overall industry and competitive positioning of certain companies better by meeting with privates. 2) You're laying the ground work for your bankers to come in and win the mandate for an IPO, whether it be as a co-manager or a bookrunner.

To make a couple things clear on that last point. First, you cannot solicit your banking business as I mentioned above. Second, you're not obligated to go see these companies. In otherwords, banking can't tell you what you should be doing. It's up to you at the end of the day as an analyst. There are other ways that research indirectly brings in banking business but I thought one example would be good enough.

Aug 13, 2017
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