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8960 Equity Research Methodology 112603
8960 Equity Research Methodology 112603
Step 1
Review public information
10K's 10Q's Annual Reports Conference Calls
Step 2
Conversations with company management for detailed information
Establish relationships with new companies Most meetings with companies done via phone; some in-person meetings Obtain a better understanding of: Trends Leverage/margins Efficiency programs Costs - current, changes
Step 3
Prepare 3-Year Preliminary Earnings Model
EPS Growth Rate Earnings Prospects Balance sheet and
Step 4
Review financial assumptions with company as appropriate for company guidance (e.g. earnings comparisons)
Step 7
Analyst uses multiple criteria for valuing a company, including: Intrinsic Value Analysis Relative Valuation Sum of Parts Risk Assessment/Adjustment These criteria are defined as follows:
Criteria / Definition Intrinsic Value Analysis Determine security's "intrinsic value" based on discounted "free" cash flow (DCF) analysis. Estimates of future "free" cash flows are discounted back to current dollars, including variables like risk assessment and capital structure Present value of shares vs. current share price 10-15 year projection Defined parameters around DCF to make it more reasonable (e.g. interest rate inputs) Relative Valuation Assessing a security's relative value by comparing appropriate financial ratios across peer groups Comparison with industry group P/E Efficiency Margins
Assess:
Management team Competitive environment Suppliers Buyers Substitutes Barriers to entry Regulatory environment
Coverage Criteria
S&P Composite 1500 Index constituent Significant trading volume Market capitalization Corporate actions (mergers/ acquisitions, spin-offs) Emerging growth companies
cash flows
Analyst value-add Assumptions Analysis Analyst assigns weightings to each criterion and arrives at final valuation
Company value P/E trading history High/low in cycle Current P /E level justification Valuation vs. appropriate index
Sum of Parts Determining "fair value" of a stock by determining private market values for a firm's individual units No clear comparison and/or conglomerate Break divisions up as stand-alone business units Calculate a relative value for each division Arrive at a blended valuation Risk Assessment/Adjustment Technical Insider buying Beta
Institutional Equity Insights Market Insight Professional Investor Insight Research Insight Stock Guide
Quarterly updates published and distributed Material events Changes in recommendations Stock report updates MarketScope updates First Call notes
Step 3
Top-Down Analysis
55
Charles Baumann Diane Cappadona Mike Fink Barry King Charles Laporta William Mack Colin McArdle Jeff Perlmutter Andrew West Paul Willig Peter Willson
WATER STREET,
44 TH
FL ., NEW YORK ,
NY 10041
Kenneth Shea Managing Director, Global Equity Research Stephen Biggar VP-Deputy Director, Equity Research
INVESTMENT POLICY
Mark Arbeter, CMT Chief Technical Analyst David M. Blitzer, Ph.D Managing Director, Quantitative Services James Branscome Chair, Investment Policy Committee Sam Stovall Chief Investment Strategist David Wyss, Ph.D. Chief Economist
CONSUMER DISCRETIONARY
Richard Joy, Group Head Beverages, Packaged Foods Joseph Agnese Drug Retail, Food Retail Howard Choe Household Products, Tobacco Anishka Clarke Diversified Consumer Staples John Kartsonas Oilfield Services & Drilling Justin McCann Electric Utilities Craig Shere, CFA Gas Utilities Tina Vital Integrated Oil & Gas
HEALTH CARE
Thomas Graves, CFA, Group Head Lodging & Gaming Tuna N. Amobi, CFA, CPA Media & Entertainment Jason Asaeda General Merchandise Stores William Donald Publishing, Advertising Marie Driscoll, CFA Apparel Retailers & Mfrs. Efraim Levy, CFA Automobile Manufacturers Dennis Milton Restaurants Amrit Tewary Household Durables, Consumer Electronics Yogeesh Wagle Specialty Retail & Footwear
Robert Gold, Group Head Health Care Equipment Frank Connelly Diversified Health Care Frank DiLorenzo, CFA Biotechnology Herman Saftlas Pharmaceuticals Phillip Seligman Managed Health Care
FINANCIALS
Michael Jaffe, Group Head Homebuilding, Electrical Components & Equipment James Corridore Airlines & Trucking Robert Friedman, CPA Aerospace & Defense Stewart Glickman Diversified Materials Bryon Korutz Paper Products, Forest Products Leo Larkin Diversified Metals & Mining Richard OReilly, CFA Chemicals James Sanders Industrial Machinery Stewart Scharf Environmental Services, Water Utilities & Packaging
INFO. TECHNOLOGY/ TELECOM SVCS.
EUROPEAN EQUITY RESEARCH 14 RYDER STREET, ST. JAMESS LONDON SW1Y 6QB UNITED KINGDOM PHONE: +44 (0) 207 312 7000
Catherine Seifert, Group Head Insurance Susan Dawkins Insurance Brokers Erik Eisenstein Thrifts & Mortgage Finance Robert Hansen Investment Banking & Brokerage Raymond Mathis Real Estate Investment Trusts Robert McMillan Real Estate Investment Trusts Evan Momios, CFA Regional Banks Mark Morgan Diversified Banks
Thomas Smith, CFA, Group Head Semiconductors Ari Bensinger Telecommunications Equipment Stephanie Crane Office Electronics Megan Graham-Hackett Computer Hardware Scott Kessler Internet Software & Services Kenneth Leon, CPA Wireless Telecom Services Todd Rosenbluth Integrated Telecom Services Jonathan Rudy, CFA Application Software Richard Stice, CFA Computer Storage & Peripherals Richard Tortoriello Semiconductor Equipment
EMERGING GROWTH
Mark Basham, Group Head Emerging Growth Markos Kaminis Emerging Growth Massimo Santicchia Emerging Growth
Subhajit Gupta, CFA Director of Research Europe Telecommunications & Information Technology Alessandra Coppola Consumer Discretionary Matthew Czepliewicz, CFA Financials Christiane Dienhart, CFA Pharmaceuticals Jelena Karafotias, CA Consumer Staples Sreedhar Mahamkali Consumer Staples Yannick Mathieu Consumer Discretionary Habib Nasrallah, CFA Industrials Cristina Perea Telecommunications David Seemungal Pharmaceuticals Sonal Seth Financials David Wilson Utilities Clive McDonnell European Strategist
ANALYSTS ASIA Lorraine Tan, CFA Director of Research Asia Energy, Utilities & Infrastructure Steven Koh, CFA Director Telecoms & Media Sharon Wong, CFA Director Consumer Discretionary Donovan Huang China Utilities & Materials Yeu Huan Lai, CFA Real Estate Chuan-Yang Lim Technology David So Hong Kong Telecoms, Tech & Media. John Yang Japan Technology Samuel Wong, CFA, FRM Quantitative Analyst Winston Siay, CFA Banking & Finance Alison Seng Consumer Staples Christopher Lee Autos & Industrials