What's in an Equity Research Report?
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- เผยแพร่เมื่อ 20 ส.ค. 2024
- In this tutorial, you'll learn what goes into an equity research report, including how it differs from a stock pitch in terms of structure and argument, the main sections of the reports, and how you might write your own reports.
www.mergersandi...
Table of Contents:
1:43 Part 1: Stock Pitches vs. Equity Research Reports
6:00 Part 2: The 4 Main Differences in Research Reports
12:46 Part 3: Sample Reports and the Typical Sections
20:53 Recap and Summary
Part 1: Stock Pitches vs. Equity Research Reports
The main difference is that equity research reports are like "watered-down" stock pitches: you still recommend for or against investment in a public company, but your views are weaker, "Sell" recommendations are rare, and you spend a lot more time describing the company and its operations and financials.
By contrast, in hedge fund stock pitches you take more extreme views and spend more time explaining how your views differ from those of the market as a whole.
Part 2: The 4 Main Differences in Research Reports
1) There's More Emphasis on Recent Results and Announcements
2) Far-Outside-the-Mainstream Views Are Less Common
3) Research Reports Give "Target Prices" Rather Than Target Price Ranges
4) The Investment Thesis, Catalysts, and Risk Factors Are "Looser"
Part 3: Sample Reports and the Typical Sections
The main sections of a report are as follows:
Page 1: Update, Rating, Price Target, and Recent Results
The first page of an "Update" report states the bank's recommendation (Buy, Hold, or Sell, sometimes with slightly different terminology), and gives recent updates on the company.
A specific "target price" must be based on specific multiples and specific assumptions in a DCF or DDM.
So with Jazz, we explain that the $170.00 target is based on 20.7x and 15.3x EV/EBITDA multiples for the comps, and a discount rate of 8.07% and Terminal FCF growth rate of 0.3% in the DCF.
Next: Operations and Financial Summary
Next, you'll see a section with lots of graphs and charts detailing the company's financial performance, market share, and important metrics and ratios.
For a pharmaceutical company like Jazz, you might see revenue by product, pricing and # of patients per product per year, and EBITDA margins.
For a commercial bank like Shawbrook, you might see loan growth, interest rates, interest income and net income, and regulatory capital figures such as the Common Equity Tier 1 (CET 1) and Tangible Common Equity (TCE) ratios:
This section of the report explains how the research analyst/associate forecast the company's performance and came up with the numbers used in the valuation.
Valuation
The valuation section is the one that's most similar in a research report and a stock pitch.
In both fields, you explain how you arrived at the company's implied value, which usually involves pasting in a DCF or DDM analysis and comparable companies and transactions.
The methodologies are the same, but the assumptions might differ substantially.
In research, you're also more likely to point to specific multiples, such as the 75th percentile EV/EBITDA multiple, and explain why they are the most meaningful ones.
Investment Thesis, Catalysts, and Risks
This section is short, and it is more of an afterthought than anything else.
We do give reasons for why these companies might be mispriced, but the reasoning isn't that detailed and it's not linked to specific share prices.
Banks present Investment Risks mostly so they can say, "Well, we warned you there were risks and that our recommendation might be wrong."
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Having 15 years in ER, I respectfully disagree with how you explain the differences between reports and stock pitches. You've more described BAD research. Well-written research, and the type of research that strong research departments are increasingly providing in the interests of the client (rather than allowing individual analysts to write whatever they want), incorporates clear elements of what you describe as a stock pitch. It's commercial and client friendly, but also provides the extra detail that a stock pitch cannot include.
Hi Mike, I am building something that would help equity researchers. I would love to get input and feedback from someone as experienced as you.
What e-mail can I reach you at?
15 years in ER and you still watch this video, what a loser you are.
MikeUnthertz comments like this are why I scroll down after watching videos. I found your perspective very interesting and together with the video helped me to better understand what a well rounded report should be. Thank you for contributing with your comment.
@@donniewaston2796 How ironic coming from someone that commented what you just said.
Hi, first I want to let you know you are delivering great content. I want to ask, I have been thinking to get into PE/HF/VC and particularly TMT sector but really don't know how to become a sector expert, what to know, where to find resources and what employers expect of a candidate in this regard . So may be you can make a video about doing industry/sector research. Thanks again for your great effort.
That is a really broad topic and probably not ideal to explain in video format. I would suggest starting by reading some of the industry-specific articles on M&I and the resources there, such as:
www.mergersandinquisitions.com/how-to-learn-an-industry/
www.mergersandinquisitions.com/investment-banking/#groups-regions under "Industry Groups"
Okay, Thanks a lot.
What is the approach to research for a specific sector? (e.g. transport)
For what informations are analysts looking? And where do they find their information?
Assumed you get a brand new sector (transport) as an analyst, what are you looking for to understand the industry?
That is a really broad question, so I don't know if I can answer it in a TH-cam comment. Our "industry group" articles on M&I are a starting point for researching different sectors, and we focus on the key metrics, data, and research sources in each industry there:
www.mergersandinquisitions.com/investment-banking/#groups-regions (Under "Industry Groups")
Mergers & Inquisitions / Breaking Into Wall Street Thank you very much! That's what I was looking for.
Gorgeous,brilliant explain about equity report
Thanks for watching!
If you are pretty sure the stock price can only fall 30-40%, why do you use put option to hedge? I mean that put option is basically used to deal with the far left hand risk. This is not consistant with the logic in the stock pitch.
Because the point is that the stock price COULD FALL by far more than 30-40%. That is our estimate, but we might be horribly wrong. If we are horribly wrong, we use options to limit the potential downside (obviously that only works up to a certain point, investment size, etc.).
This is great! I'm covering another company for practice and this is the kind of info I was looking for. Btw, is there a guide somewhere for formatting reports to look like that? All I know about MS Word is typing in words haha
Thanks! There is no formatting guide I know of, but you could try importing the PDFs into Word. We do have Word templates in our courses as well. You could also just simplify this and remove some of the trickier formatting and just keep the header/footer, different header styles, and so on.
Thanks for the suggestion, Brian. I really like how the formatting for your content is simple yet really stands out. I have one more question for you: if I'm covering a company that is halfway through its fiscal year, do I use last year's annual report and combine information from its quarterly reports?
Yes, you should show quarterly results.
Thank you very much
Enron was a mad outlier and not an appropriate example. They were requesting analysts who will only recommend the stock from the “partner banks”. There was a case of an analyst getting fired because he wouldn’t go for it.
Yes, sure, but it's still funny to look back on it and the ridiculousness of banks doing whatever the client or potential client wants, even if it's unethical or illegal. If only WeWork had actually gone public...
Thanks Brian for this info. Could you make a full Equity research course from Valuation into writing the report ?
Equity research reports are already covered in the existing courses. Read the outlines.
Hi - @ 6:38 you mention recent reports/ events/ catalysts that might impact a company's valuation or stock price. This question might be a little off track, but in order to make as much of an accurate prediction of the stock price due to the said event, don't we have to be prepared on trading and propoablity questions ? Like if this and this scenario happens, by how much do you think the stock price will go up ? Where and how can we find questions like these and how can we prepare for them ?
No, not really, because the idea is that you're trying to find stocks that are so mispriced that even if you're wrong about the magnitude, you'll still be correct about the direction (e.g., you think it will fall by 80%, but it only falls by 50%... well, OK, but you've still made money with your recommendation). Probability questions are more important for quant interviews and actual trading interviews but are unlikely in equity research interviews.
@@financialmodeling Thank you. Very much appreciate your feedback.
Great video. Thanks for uploading it. Are Breaking into Wall Street and Mergers & Acquisitions the same company?
Thanks. Yes, we are the same.
Thanks. I have an interview coming up next week for the role of an Equity Research Associate. I have to write a short report on a stock. I signed up for the Financial Institution modeling course at BIWS few weeks ago. The course has been great so far but it would be great if you can share some resources which can help me in writing a well structured, concise, and effective report. Thank you
Please see Module 3 of the course... the full Word doc outline/template for Shawbrook and the explanation are there. You can just use the first 1-2 pages for a short report.
Thanks!
I'm a cfa level 1 candidate
And I'm planning to make an equity research report for apple
Do you think it might be a good idea?
If this is your first report, try a simpler organization with just one range of products/business lines. The goal here is to get a feel for valuation and writing reports.
What Varun said - Apple is not a good pick because it has too many products, and everyone has a strong view on it in either direction. Pick a simpler company that is lesser-known by the general public.
@@vfrancis1998 thank you so much❤️
@@financialmodeling yes thank you☺️
I laughed out loud when you said target prices are completely nonsense
They really are, just look at reports for Enron... or Worldcom... or, more recently, Tesla...
Thanks for the video!
whre can I download the templates in word/doc format? Thanks
Click "Show More" and scroll down to the links.
What’s the name of your equity research course
We don't have a separate course on equity research, but there are valuation and equity research reports in most of the BIWS courses (Core Financial Modeling, Advanced, Bank Modeling, Real Estate Modeling, etc.). breakingintowallstreet.com/breaking-into-wall-street-courses/
There's a substantial valuation case study in each one that finishes with a stock pitch and equity research report.
Do you offer course on equity research?
Our Excel & Fundamentals course (breakingintowallstreet.com/biws/excel-financial-modeling-fundamentals/) has examples of how to build models and write equity research based on the models.
Do you do buy/sell options ?
??? Are you asking me if I do that on a personal account? No, because I do not invest in the public markets personally as I work 70-80 hours week on this business and have little time for anything else.
Mergers & Inquisitions Oh,whats your business? Can I have the link to your website?
I think he's talking about his website? (The same name as this channel). Or maybe he has another business we don't know about!
Maybe its ... breakingintowallstreet.com/biws/homepage/
or maybe its something else.
Anyways, thanks for your comment Mike.
Yes that is it. Please see the intro video in the channel and the description...
Are all tutorials at this chanel are segments of courses availible for purchase at BIWS website?
Sort of, but not exactly. Some videos just answer questions from readers or customers, so they're not exactly taken from the courses. Other videos are excerpts or modified versions, while others are spliced-together versions of separate concepts. The entire channel is representative of the courses, but it's not a 1:1 pairing.
Thank you for your response! I looked up your Excel and Fundamentals course but couldn't find some information. Do you cover corporate finance topics in depth? I'm interested in things like capital budgeting, working capital management, estimating debt etc. I'm not sure this course is right for me. Could you please clear this up?
It's not really designed for corporate finance at normal companies. So we don't go into capital budgeting, breakeven points, etc. It is more focused on IB/PE/HF roles. Some of the lessons might be relevant, but overall I don't think the course is worth it if your goal is corporate finance at a large company.
Thanks.