An Overview of Equity Research

Equity research gets utilized by financial institutions as a means of helping their investment banking and sales & trading clients, as there is the provision of timely, high-quality information and analysis.

FREMONT, CA: Professionals in equity research evaluate investment prospects and communicate their findings and suggestions to clients, institutions, and investment banks. Analysts and colleagues are part of the Equity Research Division, whether they work for a sell-side investment bank, a buy-side financial institution, or an independent firm. The primary goal of equities research is to help investors make informed decisions to buy, hold, or sell a security based on a thorough review of the company's financials. Banks employ equities research to "help" their investment banking and sales & trading clients by providing their clients with timely, high-quality information and analysis.

An overview of management: Understanding a firm's management team's caliber is crucial for anyone considering making a financial investment in that company. Equity research analysts can contribute significantly in this area because they have many opportunities to interact with top management, such as quarterly conference calls, "analyst day," and site visits. Unlike individual investors, they can directly interrogate management about the company's operations, rate management's competency, and then report that information back to investors.

Market study and research: An equity research report's industry trends and rival firms' profiles will comprise a large portion of this section. Frameworks are helpful to ensure that companies have thought of everything influencing their sector, including politics, economics, social trends, and technical innovation. Predicting the consequences of financial situations is more of an art than a science. The number of clients or units sold are two examples of the groundwork that forms the foundation of a bottom-up revenue estimate.

Historical financial performance: Comparing past economic outcomes with either previously issued guidance or the analyst's expectations is a fundamental part of any stock research project. As a stock's performance mainly depends on reality vs. expectations, an analyst must evaluate and comprehend whether or not actual historical outcomes fell short of, met, or surpassed market expectations. Equity analysts get tasked with making quarterly projections based on historical trends.

Valuation: Forecasting is an art, but the value is even more so. Each valuation approach adds assumptions to the forecast's foundation, including using a subjective value multiple and discount rates. Revenue is the final step in the top-down forecasting process, which begins with industry analysis, then the company's expected market share. Equity research analysts need skills in financial modeling, including the ability to construct a 3-statement model, DCF model, and others as required.