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What’s in an Equity Research Report?

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Even though you can easily find real equity research reports via the magical tool known as “Google,” we’ve continued to get questions on this topic.

Whenever I see the same question over and over again, you know what I do: I bash my head in repeatedly and contemplate jumping off a building…

…and then I write an article to answer the question.

To understand an equity research report, you must understand what goes into a  stock pitch first.

The idea is similar, but an ER report is a “watered-down” version of a stock pitch.

But banks have some very solid reasons for publishing equity research reports:

Why Do Equity Research Reports Matter?

You might remember from previous articles that equity research teams do not spend that much time writing these reports .

Most of their time is spent speaking with management teams and institutional investors and sharing their views on sectors and companies.

However, equity research reports are still important because:

• You do still spend some time doing the required modeling work (~15%) and writing the reports (~20%).
• You might have to write a research report as part of the interview process.

For example, if you apply to an equity research role or an equity research internship , especially in an off-cycle process, you might be asked to draft a short report on a company.

And then in roles outside of ER, you need to know how to interpret reports quickly and extract the key information.

Equity Research Reports: Myth vs. Reality

If you want to understand equity research reports, you have to understand first why banks publish them: to earn higher commissions from trading activity.

A bank wants to encourage institutional investors to buy more shares of the companies it covers.

Doing so generates more trading volume and higher commissions for the bank.

This is why you rarely, if ever, see “Sell” ratings, and why “Hold” ratings are far less common than “Buy” ratings.

Different Types of Equity Research Reports

One last point before getting into the tutorial: There are many different types of research reports.

“Initiating Coverage” reports tend to be long – 50-100 pages or more – and have tons of industry research and data.

“Sector Reports” on entire industries are also very long. And there are other types, which you can read about here .

In this tutorial, we’re focusing on the “Company Update” or “Company Note”-type reports, which are the most common ones.

The Full Tutorial, Video, and Sample Equity Research Reports

For our full walk-through of equity research reports, please see the video below:

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

You can get the reports and documents referenced in the video here:

• Equity Research Report – Jazz Pharmaceuticals [JAZZ] – OUTPERFORM [BUY] Recommendation [PDF]
• Equity Research Report – Shawbrook [SHAW] – NEUTRAL [HOLD] Recommendation [PDF]
• Equity Research Reports vs. Stock Pitches – Slides [PDF]

If you want the text version instead, keep reading:

Watered-Down Stock Pitches

You should think of equity research reports as “watered-down stock pitches.”

If you’ve forgotten, a hedge fund or asset management stock pitch ( sample stock pitch here ) has the following components:

• Part 1: Recommendation
• Part 2: Company Background
• Part 3: Investment Thesis
• Part 4: Catalysts
• Part 5: Valuation
• Part 6: Investment Risks and How to Mitigate Them
• Part 7: The Worst-Case Scenario and How to Avoid It

In a stock pitch, you’ll spend most of your time and energy on the Catalysts, Valuation, and Investment Risks because you want to express a VERY different view of the company .

For example, the company’s stock price is $100, but you believe it’s worth only $50 because it’s about to report earnings 80% lower than expectations.

Therefore, you recommend shorting the stock. You also recommend purchasing call options at an exercise price of $125 to limit your losses to 25% if the stock moves in the opposite direction.

In an equity research report, you’ll still express a view of the company that’s different from the consensus, but your view won’t be dramatically different.

You’ll spend more time on the Company Background and Valuation sections, and far less time and space on the Catalysts and Risk Factors. And you won’t even write a Worst-Case Scenario section.

If a company seems overvalued by 50%, a research analyst would probably write a “Hold” recommendation, say that there’s “uncertainty around several customers,” and claim that the company’s current market value is appropriate.

Oh, and by the way, one risk factor is that the company might report lower-than-expected earnings.

The Four Main Differences in Equity Research Reports

The main differences are as follows:

1) There’s More Emphasis on Recent Results and Announcements

For example, how does a recent product announcement, clinical trial result, or earnings report impact the company?

You’ll almost always see recent news and updates on the first page of a research report:

These factors may play a role in hedge fund stock pitches as well, but more so in short recommendations since timing is more important there.

2) Far-Outside-the-Mainstream Views Are Less Common

One comical example of this trend is how all 15 equity research analysts covering Enron rated it a “buy” right before it collapsed :

Sell-side analysts are far less likely to point out that the emperor has no clothes than buy-side analysts.

3) Research Reports Give “Target Prices” Rather Than Target Price Ranges

For example, the company is trading at $50.00 right now, but we expect its price to increase to exactly $75.00 in the next twelve months.

This idea is completely ridiculous because valuation is always about the range of possible outcomes, not a specific outcome.

Despite horrendously low accuracy , this practice continues.

To be fair, many analysts do give target prices in different cases, which is an improvement:

4) The Investment Thesis, Catalysts, and Risk Factors Are “Looser”

These sections tend to be “afterthoughts” in most reports.

For example, the bank might give a few reasons why it expects the company’s share price to rise: the company will capture more market share than expected, it will be able to increase its product prices more rapidly than expected, and a competitor is about to go bankrupt.

However, the sell-side analyst will not tie these factors to specific share-price impacts as a buy-side analyst would.

Similarly, the report might mention catalysts and investment risks, but there won’t be a link to a specific valuation impact from each factor.

So the typical stock pitch logic (“We think there’s a 50% chance of gaining 80% and a 50% chance of losing 20%”) won’t be spelled out explicitly:

Your Sample Equity Research Reports

To illustrate these concepts, I’m sharing two equity research reports from our financial modeling courses :

The first one is from the valuation case study in our Advanced Financial Modeling course , and the second one is from the main case study in our Bank Modeling course .

These are comprehensive examples, backed by industry data and outside research, but if you want a shorter/simpler example you can recreate in a few hours, the Core Financial Modeling course has just that.

In each case, we started by creating traditional HF/AM stock pitches and valuations and then made our views weaker in the research reports.

The Typical Sections of an Equity Research Report

So let’s briefly go through the main sections of these reports, using the two examples above:

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.

For example, in both these reports we reference recent earnings results from the companies and expectations for the next fiscal year:

We also give a “target price,” explain where it comes from, and give our estimates for the company’s key financial metrics.

We mention catalysts in both reports, but we don’t link anything to a specific valuation impact.

One problem with providing a specific “target price” is that it 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 analyst or equity research associate forecast the company’s performance and came up with the numbers used in the 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 75 th percentile EV/EBITDA multiple, and explain why they are the most meaningful ones.

For example, you might argue that since the company’s growth rates and margins exceed the medians of the set, it deserves to be valued at the 75 th percentile multiples rather than the median multiples:

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 mis-priced, but the reasoning isn’t that detailed.

For example, in the Shawbrook report we state that the U.K. mortgage market might slow down and that regulatory changes might reduce the market size and the company’s market share:

Those are legitimate catalysts, but the report doesn’t explain their share-price impact in the same way that a stock pitch would.

Finally, banks present Investment Risks mostly so they can say, “Well, we warned you there were risks and that our recommendation might be wrong.”

By contrast, buy-side analysts present Investment Risks so they can say, “There is a legitimate chance we could lose 50% – let’s hedge against that risk with options or other investments so that our fund does not collapse .”

How These Reports Both Differ from the Corresponding Stock Pitches

The Jazz equity research report corresponds to a “Long” pitch that’s much stronger:

• We estimate its intrinsic value as $180 – $220 / share , up from $170 in the report.
• We estimate the per-share impact of each catalyst: price increases add 15% to the share price, more patients from marketing efforts add 10%, and later-than-expected generics competition adds 15%.
• We also estimate the per-share impact from the risk factors and conclude that in the worst case , the company’s share price might decline from $130 to $75-$80. But in all likelihood, even if we’re wrong, the company is simply valued appropriately at $130.
• And then we explain how to hedge against these risks with put options.

The same differences apply to the Shawbrook research report vs. the stock pitch, but the stock pitch there is a “Short” recommendation where we claim that the company is overvalued by 30-50%.

And that sums up the differences perfectly: A Short recommendation with 30-50% downside in a stock pitch turns into a “Hold” recommendation with roughly equal upside and downside in a sell-side research report.

I’ve been harsh on equity research here, but I don’t want to disparage it too much.

There are many positives: You do get more creativity than in IB, it might be better for hedge fund or asset management exits, and it’s more fun to follow companies than to grind through grunt work on deals.

But no matter how you slice it, most equity research reports are watered-down stock pitches.

So, make sure you understand the “strong stuff” first before you downgrade – even if your long-term goal is equity research.

You might be interested in:

• The Equity Research Analyst Career Path: The Best Escape from a Ph.D. Program, or a Pathway into the Abyss?
• Private Equity Regulation : 2023 Changes and Impact on Finance Careers
• Stock Pitch Guide: How to Pitch a Stock in Interviews and Win Offers

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street . In his spare time, he enjoys lifting weights, running, traveling, obsessively watching TV shows, and defeating Sauron.

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15 thoughts on “ What’s in an Equity Research Report? ”

Hi Brian, what softwares are available to publish Research Reports?

We use Word templates. Some large banks have specialized/custom programs, but not sure how common they are.

Is it possible if you can send me a template in word of an equity report? It will help the graduate stock management fund a lot at Umass Boston.

We only have PDF versions for these, but Word should be able to open any PDF reasonably well.

Do you also provide a pre constructed version of an ER in word?

We have editable examples of equity research reports in Word, but we generally only share PDF versions on this site.

Hey Brian Can you please help me with coverage initiated reports on oil companies. I could not find them on the net. I need to them to get equity research experience, after which only I will be able to get into the field. I searched but reports could not be found even for a price. Thanks

We have an example of an oil & gas stock pitch on this site… do a search…

https://mergersandinquisitions.com/oil-gas-stock-pitch/

Beyond that, sorry, we cannot look for reports and then share them with you or we’d be inundated with requests to do that every day.

No worries. Thanks!

Hi! Brian! Do u know how investment bankers design and layout an equity research? the software they use. like MS Word, Adobe Indesign or something…? And how to create and layout one? Thanks

where can I get free equity research report? I am a Chinese student and now study in Australia. Is the Morning Star a good resource for research report?

Get a TD Ameritrade to access free reports there for certain companies.

How do you view the ER industry since the trading commission has been down 50% since 2007. And there are new in coming regulation governing the ER reports have to explicitly priced and funds need to pay for the report explicity rather than as a service comes free with brokerage?

In addition the whole S&T environment is becoming highly automated.

People have been predicting the death of equity research for over a decade, but it’s still here. It may not be around in 100 years, but it will still be around in another 10 years, though it will be smaller and less relevant.

Yes, things are becoming more automated, but the actual job of an equity research analyst or associate hasn’t changed dramatically. A machine can’t speak with investors to assess their sentiment on a company – only humans can do that.

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How to Write an Equity Research Report

By Brian Dzingai |

 Reviewed By Rebecca Baldridge |

November 15, 2022

What is an Equity Research Report?

An equity research report may focus on a specific stock or industry sector, currency, commodity, or fixed-income instrument, or even on a geographic region or country, and generally make buy or sell recommendations. These reports are produced by a variety of sources, ranging from market research firms to in-house research departments at large financial institutions or boutique investment banks.

Key Learning Points

• An equity research report is a document prepared by an analyst that provides a recommendation to buy, hold, or sell shares of a public company. 
• An equity research report is a document prepared by an analyst who is part of an investment research team in a brokerage firm or investment bank
• It provides an overview of the business, the industry it operates in, the management team, the company’s financial performance, and risks, and includes a target price and investment recommendation.
• It is intended to help an investor decide whether to invest in a stock.

Equity Research Report Structure

An equity research report can include varying levels of detail, and although there is no industry standard when it comes to formatting, there are common elements to all equity research reports. This guide includes some fundamental features and information that should be considered essential to any research report, as well as some tips for making your analysis and report as effective as possible. 

Access the download to see a real-world example of an Equity Research Report, annotated to show each element discussed below. 

Basic Information

The research report should begin with basic information about the firm, including the company’s ticker symbol, the primary exchange where its shares are traded, the primary sector and industry in which it operates, the current stock price and market capitalization, the target stock price, and the investment recommendation. 

In addition, a security’s liquidity and float are important considerations for the equity analyst. The liquidity of a stock refers to the degree to which it can be purchased and sold without affecting the price. The analyst should understand that periods of financial stress can affect liquidity. A stock’s float refers to the number of shares that are publicly owned and available for trading and generally excludes restricted shares and insider holdings. The float of a stock can be significantly smaller than its market capitalization and thus is an important consideration for large institutional investors, especially when it comes to investing in companies with smaller market capitalizations. Consequently, a relatively small float deserves mention. Finally, it is good practice to identify the major shareholders of a firm. 

Business Description 

This section should include a detailed description of the company and its products and services. It should convey a clear understanding of the company’s economics, including a discussion of the key drivers of revenues and expenses. Much of this information can be sourced from the company itself and from its regulatory filings as well as from industry publications. 

Industry Overview and Competitive Positioning

This section should include an overview of the industry dynamics, including a competitive analysis of the industry. Most firms’ annual reports include some discussion of the competitive environment. A group of peer companies should be developed for competitive analysis. The “Porter’s Five Forces” framework for industry analysis is an effective tool for examining the health and competitive intensity of an industry. Production capacity levels, pricing, distribution, and stability of market share are also important considerations. 

It is important to note that there are different paths to success. Strength of brand, cost leadership, and access to protected technology or resources are just some of the ways in which companies set themselves apart from the competition. Famed investor Warren Buffett describes a firm’s competitive advantage as an economic “moat.” He says, “In business, I look for economic castles protected by unbreachable moats.” 

Investment Summary

This section should include a brief description of the company, significant recent developments, an earnings forecast, a valuation summary, and the recommended investment action. If the purchase or sale of a security is being advised, there should be a clear and concise explanation as to why the security is deemed to be mispriced. That is, what is the market currently not properly discounting in the stock’s price, and what will prompt the market to re-price the security? 

This section should include a thorough valuation of the company using conventional valuation metrics and formulas. Equity valuation models can derive either absolute or relative values. Absolute valuation models derive an asset’s intrinsic value and generally take the form of discounted cash flow models. Relative equity valuation models estimate a stock’s value relative to another stock and can be based on a number of different metrics, including price/sales, price/earnings, price/cash flow, and price/book value. Because model outputs can vary, more than one valuation model should be used. 

Financial Analysis

This section should include a detailed analysis of the company’s historical financial performance and a forecast of future performance. Financial results are commonly manipulated to portray firms in the most favorable light. It is the responsibility of the analyst to understand the underlying financial reality. Accordingly, a careful reading of the footnotes of a company’s financial disclosures is an essential part of any examination of earnings quality. Non-recurring events, the use of off-balance-sheet financing, income and reserve recognition, and depreciation policies are all examples of items that can distort a firm’s financial results. 

Financial modeling of future results helps to measure the effects of changes in certain inputs on the various financial statements. Analysts should be especially careful, however, about extrapolating past trends into the future. This is especially important in the case of cyclical firms. Projecting forward from the top or bottom of a business cycle is a common mistake. 

Finally, it can be informative to use industry-specific financial ratios as part of the financial analysis. Examples include proven reserves/shares for oil companies, revenue/subscribers for cable or wireless companies, and revenue/available rooms for the hotel industry. 

Investment Risks

This section should address potential negative industry and company developments that could pose a risk to the investment thesis. Risks can be operational or financial or related to regulatory issues or legal proceedings. 

Although companies are generally obligated to discuss risks in their regulatory disclosures, risks are often subjective and hard to quantify (e.g., the threat of a competing technology). It is the job of the analyst to make these determinations. Of course, disclosures of “qualified opinions” from auditors and “material weakness in internal control over financial reporting” should be automatic red flags for analysts. 

Environmental, Social & Governance (ESG)

This section should include information on how the company manages the relationships related to Environmental, Social, and Governance. Below are some examples within these three areas that can have a lasting impact on the company’s short- and long-term prospects:

• E nvironmental – how is the company working towards the conservation of the natural world? This can include climate change and carbon emissions, air and water pollution, energy efficiency, waste management, and more. 
• S ocial – how does the company consider people and relationships? This can include community relations, human rights, gender and diversity, labor standards, customer satisfaction, and employee engagement. 
• G overnance – what are the standards for running the company? This can include board composition, audit committee structure, executive compensation, succession planning, leadership experience, and bribery and corruption policies. 

Enroll in our online ESG course and learn to identify the principles of ESG and how they are applied to investment strategies.

If you are interested in a career as an equity research analysts or in fixed income research, our online course covers all the key skills needed as either a sell side analyst in an investment bank or a buy side analyst working in an investment management firm.  

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Example of an equity research report.

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The Value of Equity Research

Equity research is an invaluable asset for anyone looking to stay up-to-date on market and industry trends. In this guide, you will learn about the type of information contained in equity research, the value it offers to corporate professionals, and how the most advanced teams are already leveraging the expertise of Wall Street’s top analysts to inform critical business decisions.

Get the guide

Introduction.

Equity research, which forms a multi-billion dollar industry for investment banks, is produced by thousands of analysts worldwide to provide the market with valuable information on companies, industries, and market trends. Today, over 90% of equity research is consumed by fund managers, who have the Wall Street relationships to acquire it and the analyst resources to mine it for insights. For corporate strategy professionals who lack this access, however, equity research has historically been challenging to obtain and navigate.

To help corporations circumvent these challenges, AlphaSense has introduced Wall Street Insights, the first and only equity research collection purpose-built for the corporate user. Through the AlphaSense platform, any business making strategic plans or product decisions, conducting competitive analysis, evaluating M&A, or engaging in investor relations can now tap into the deep industry expertise of Wall Street’s top analysts.

What is Equity Research?

Equity research is developed by sell-side firms to help investors and hedge fund managers discover market opportunities and make informed investment decisions. Increasingly, this expert analysis has also been identified by forward-looking corporations as a highly valuable tool to inform strategic decision-making.

There are thousands of sell-side firms that employ expert analysts around the globe to write equity research for the market. The majority of firms producing equity research are hyper-focused and only have one or two analysts developing reports on a specific industry. However, larger firms, such as Morgan Stanley and Bank of America, collectively employ thousands of analysts to write reports on thousands of public companies–covering everything from TMT giants to niche products.

Equity research analysts are deep subject matter experts who are often former executives, industry veterans, or academics. These analysts conduct in-depth research and publish reports on corporations, industries, and macro trends, offering an expert lens into a subject.

Historically, over 90% of equity research was consumed by buy-side fund managers, who had the Wall Street relationships to acquire it and the analyst resources to mine it for insights. For buy-side professionals, equity research is a critical tool to inform sound investment decisions backed by expert insights.

Today, equity research is increasingly relied upon by corporate teams as a high-value source of information. These teams leverage equity research to make strategic business plans, conduct competitive analysis, evaluate mergers and acquisitions, and make product and marketing decisions. For corporations, the value of equity research lies in the detailed coverage of their company, their competitors, and how they are performing related to the marketplace they are within.

What is an Equity Research Report?

An equity research report is a document prepared by an equity research analyst that often provides insight on whether investors should buy, hold, or sell shares of a public company. In an equity research report, an analyst lays out their recommendation, target price, investment thesis, valuation, and risks.

There are multiple forms of equity research, including (but not limited to):

An update report that highlights the latest news, company announcements, earnings reports, Buy Sell Hold ratings, M&A activity, anything that impacts the value of the company.

A comprehensive company report that is compiled when an analyst or firm initiates their coverage of a stock. Initiation reports cover all of the divisions and products of a company in-depth to provide a baseline of what the company is and how it is performing. Initiation reports can be tens to hundreds of pages long, depending on the complexity of a company.

General industry updates that cover a group of similar companies within a sector. Industry-specific reports typically dive into additional factors such as loan growth, interest rates, interest income, net income, and regulatory capital.

A report compiled by research firms either daily or weekly. These reports can often be a great place to get more in-depth insight on commodities and also get market opinions from commodity analysts or traders who write the reports.

A quick 1-2 page report that comments on a news release from a company or other quick information

What is Included in a Typical Equity Research Report?

Research reports don’t need to follow a specific formula. Analysts at different investment banks have some latitude in determining the look and feel of their reports. But more often than not, research reports follow a certain protocol of what investors expect them to look like.

A typical equity research report includes in-depth industry research, management analysis, financial histories, trends, forecasting, valuations, and recommendations for investors. Sometimes called broker research reports or investment research reports, equity research reports are designed to provide a comprehensive snapshot that investors or corporate leaders can leverage to make informed decisions.

Here’s a quick overview of what a standard equity research report covers:

This section covers events, such as quarterly results, guidance, and general company updates.

Upgrades/Downgrades are positive or negative changes in an analyst’s outlook of a particular stock valuation. These updates are usually triggered by qualitative and quantitative analysis that contributes to an increase or decrease in the financial valuation of that security.

Estimates are detailed projections of what a company will earn over the next several years. Valuations of those earnings estimates form price targets. The price target is based on assumptions about the asset’s future supply & demand and fundamentals.

Management Overview and Commentary helps potential investors understand the quality and makeup of a company’s management team. This section can also include a history of leadership within the company and their record with capital allocation, ESG, compensation, incentives, stock ownership. Plus, an overview of the company’s board of directors.

This section covers competitors, industry trends, and a company’s standing among its sector. Industry research includes everything from politics to economics, social trends, technological innovation, and more.

Historical Financial Results typically cover the history of a company’s stock, plus expectations based on the current market and events surrounding it. To determine if a company is at or above market expectations, Analysts must deeply understand the history of a specific industry and find patterns or trends to support their recommendations.

Based on the market analysis, historical financial results, etc., an analyst will run equity valuation models. In some cases, analysts will run more than one valuation model to determine the worth of company stock or asset.

Absolute valuation models : calculates a company’s or asset’s inherent value.

Relative equity valuation models : calculates a company’s or asset’s value relative to another company or asset. Relative valuations base their numbers on price/sales, price/earnings, price/cash flow.

An equity research analyst’s recommendation to buy, hold, or sell. The analyst also will have a target price that tells investors where they expect the stock to be in a year’s time.

What Does an Equity Research Analyst Do?

Equity research analysts exist on both the buy-side and the sell-side of the financial services market. Although these roles differ, both buy-side and sell-side analysts produce reports, projections, and recommendations for specific companies and stocks.

An equity research analyst specializes in a group of companies in a particular industry or country to develop high-level expertise and produce accurate projects and recommendations. Since ER analysts generally focus on a small set of stocks (5-20), they become specialists in those specific companies and industries that they evaluate or follow. These analysts monitor market data and news reports and speak to contacts within the companies/industries they study to update their research daily.

Analysts need to comprehend everything about their ‘coverage’ to give investment endorsements. Equity research analysts must be conversant with the business regulations and regime policies within the country to decide how it will affect the market environment and business in general. The more you understand the industries in detail, the easier it will be for you to decipher market dynamics.

One prevalent aspect of an equity research analyst’s job is building and maintaining valuable relationships with corporate leaders, clients, and peers. Equity research is largely about an analyst’s ability to service clients and provide insightful ideas that positively influence their investing strategy.

EQUITY RESEARCH ANALYSTS:

• Analyze stocks to help portfolio managers make better-informed investment decisions.
• Analyze a stock against market activity to predict a stock’s outlook.
• Develop investment models and provide trading strategies.
• Provide expertise on markets and industries based on their competitive analysis, business analysis, and market research.
• Use data to model and measure the financial risk associated with particular investment decisions.
• Understand the details of various markets to compare a company’s and sector’s stock

Buy-Side vs. Sell-Side Analysts

Although the roles of buy-side and sell-side analysts do overlap in some respects, the purpose of their research differs.

How Do Corporates Currently Access Equity Research?

If you were to Google “equity research reports,” you would not get access to equity research, earnings call transcripts or trade journals. You would, however, discover an unmanageable amount of noise to sift through.

Accessing equity research reports is highly dependent on relationships and entitlements, particularly for corporate teams. Unlike financial firms and investor relations teams, who can access equity research by procuring the right entitlements, corporate teams have a much harder time finding and purchasing high-quality equity research.

If you were to search online for equity research, for example, you would be presented with sub-par options such as:

Some websites allow you to search for research reports on companies or by firms. Some of the reports are free, but you must pay for most of them. Prices range from just $15 to thousands of dollars.

If you want just the bottom-line recommendations from analysts, many sites summarize the data. Nearly all the websites that provide stock quotes also compile analyst recommendations, however, you will only get the big picture and not any of the detailed analysis.

Some independent research providers sell their reports directly to investors. These reports typically include an overview of what a stock’s price could be, plus an analysis of the company’s earnings. These reports often cost less than $100 but can be more.

The majority of equity research is completely unsearchable, which is why AlphaSense’s Wall Street Insights is changing the game for corporations globally. Now, with WSI, corporations can leverage this high-quality research to augment their understanding of specific companies and industries; plus, AlphaSense’s corporate clients can now conduct more meaningful analysis and make more data-driven decisions.

Real-Time Research : Real-Time research is available to eligible users (based on an entitlement) immediately upon publication by the broker. Financial Services users with entitlements are the primary consumers of real-time research, while some Corporate professionals are also eligible. Payment for real-time research is made directly from clients to brokers through trading commissions or hard dollar agreements.

Aftermarket Research : Aftermarket research is a collection of many of the same documents as the real-time collection, but it is available after a zero to fifteen-day delay. Investment bankers, consultants, and corporate users are the primary consumers of Aftermarket research.

What is Wall Street Insights?

Wall Street Insights is the first and only equity research collection purpose-built for the corporate market, providing corporations unprecedented access to a deep pool of equity research reports from thousands of expert analysts.

Through partnerships with Morgan Stanley, Bank of America, Barclays, Bernstein, Bernstein Autonomous, Cowen, Deutsche Bank, Evercore ISI, HSBC, and others, corporate professionals can now access the world’s most revered equity research, indexed and searchable in the AlphaSense platform.

From macro market trends and industry analyses to company deep-dives, the Wall Street Insights content collection provides corporate professionals with a 360-degree view of every market. With the valuable expertise of thousands of analysts on your side, corporate teams can quickly compare insights, validate internal assumptions, and generate new ideas to guide critical business decisions and strategies.

In terms of search and accessibility, Wall Street Insights is the first of its kind. Not only does AlphaSense offer hard-to-find equity research reports, but we also provide a robust and seamless search experience.

What Research Do You Get Access to with WSI?

Get access to the world’s leading equity research with Wall Street Insights. Download the e-book to learn more about equity research from Morgan Stanley, Barclays, Bernstein, Deutsche Bank, and more.

“We are delighted to partner with AlphaSense to expand access to Morgan Stanley’s global research platform,” says Simon Bound, Global Head of Research at Morgan Stanley. We have over 600 publishing analysts covering companies, industries, commodities, and macroeconomic developments across more than 50 countries. Morgan Stanley will bring corporates a unique perspective from our best in class analysts, a global platform, and a collaborative culture that enables us to unravel the most complex market and industry trends.”

How Can Companies Leverage Equity Research?

Discover how the world’s most innovative companies leverage Wall Street Insights to make critical business decisions every day. Download the e-book to read real case studies from a Corporate Development team and a Corporate Strategy team.

“AlphaSense’s corporate users are typically Corporate Strategy, Corporate Development, and Investor Relations professionals. Today, thousands of enterprises rely on equity research to power data-driven decision making. These teams leverage equity research reports to:”

• Create investment ideas
• Monitor peers in real-time (and discover what equity research is being produced about them)
• Model and evaluate companies (for M&A or general benchmarking)
• Dive deep into customers, partners, and prospects
• Get up-to-speed quickly on specific industry trends
• Prepare for earnings season

Ready to explore the world’s leading equity research

How to Write an Equity Research Report

If you're interested in the financial industry or you're studying finance, you've probably heard of equity research reports. These documents are crucial for investment banking and trading firms that need to analyze and evaluate different strategics in the market. But what exactly are equity research reports, and how can you write one yourself? In this article, we'll guide you through the process of creating an equity research report, step-by-step.

Understanding the purpose of an equity research report.

The first step to writing a great equity research report is understanding its purpose. At its core, an equity research report is a document that provides in-depth analysis and valuation of a company's stock. The report is written for investors who want to understand whether the company is a good investment opportunity.

Equity research analysts spend countless hours researching and analyzing a company's financial statements, industry trends, and economic conditions before they write their report. They use a variety of analytical tools and techniques to evaluate a company's performance, including financial ratios, discounted cash flow analysis, and market multiples.

One of the key goals of an equity research report is to provide investors with an objective and unbiased assessment of a company's future prospects. Analysts are expected to be independent and free of conflicts of interest, so that investors can trust the information they provide.

What is an Equity Research Report?

An equity research report is a comprehensive document that contains detailed information on a particular company, industry, or asset. The report is prepared by an equity analyst, who works for an investment banking or trading firm.

Equity research reports typically include a variety of sections, including an executive summary, company overview, industry analysis, financial analysis, valuation , and investment recommendation. The executive summary provides a brief overview of the report's findings, while the company overview provides a detailed description of the company's business model, products, and services.

The industry analysis section provides an overview of the company's industry, including market size, growth prospects, and competitive landscape. The financial analysis section provides an in-depth analysis of the company's financial statements, including income statements, balance sheets, and cash flow statements.

The valuation section provides an estimate of the company's intrinsic value, based on a variety of factors, including earnings, cash flow, and assets. The investment recommendation section provides the analyst's opinion on whether the stock is a buy, hold, or sell, based on their analysis of the company's financial health and future prospects.

Importance of Equity Research Reports in the Financial Industry

Equity research reports are important in the financial industry because they help investors make informed decisions about which stocks to buy, hold or sell. These documents provide valuable information on a company's financial health, strategy, and overall performance.

Equity research reports are also important for companies, as they can help them attract new investors and improve their stock price. A positive equity research report can increase investor confidence in a company, leading to increased demand for its stock and a higher stock price.

However, equity research reports can also be controversial, as analysts may have conflicts of interest that can bias their recommendations. For example, an analyst may work for an investment bank that has a financial interest in the company being analyzed, which could lead to a biased report.

Overall, equity research reports play an important role in the financial industry, providing investors with valuable information that can help them make informed investment decisions.

Preparing to Write an Equity Research Report

Equity research reports are crucial in the world of finance as they help investors make informed decisions. These reports are written by equity research analysts, who analyze a company's financial performance and provide recommendations to investors. Before you start writing your equity research report, you need to gather relevant information and perform extensive research on the company you're analyzing. The following steps will help you prepare for your report:

Gathering Relevant Company Information

Before you start analyzing a company, you need to know everything about it. You must start by gathering information on the company you're analyzing. This includes the company's official name, primary business, history, management team, and more. You can find this information on the company's official website, annual reports, regulatory filings, and other relevant sources. It is important to ensure that the information you gather is accurate and up-to-date.

For instance, if you're analyzing a tech company, you need to know what products or services they offer. You also need to know how long they've been in business, who their key executives are, and what their mission statement is. This information will help you gain a better understanding of the company and its operations.

Analyzing Financial Statements

Once you have gathered information about the company, you need to analyze its financial statements. Financial statements are the company's official records that show its financial performance. These documents include the balance sheet, income statement, and cash flow statement. You can use financial ratios and financial modeling techniques to analyze the company's financial health.

For instance, you can use the price-to-earnings ratio (P/E ratio) to determine whether a company's stock is undervalued or overvalued. You can also use the debt-to-equity ratio to determine whether a company is financially stable or not. By analyzing a company's financial statements, you can gain insights into its profitability, liquidity, and solvency.

Conducting Industry and Competitor Analysis

Finally, you need to conduct industry and competitor analysis. This involves researching the industry in which the company operates, as well as analyzing its competitors. Understanding the competitive landscape can help you evaluate the company's strengths and weaknesses and identify future growth opportunities.

For instance, if you're analyzing a company in the retail industry, you need to know who its competitors are and what they're doing. This will help you identify the company's competitive advantage and determine whether it can sustain its growth in the long run. Industry analysis can also help you identify trends and changes in the market that may affect the company's performance.

Writing the Executive Summary

The executive summary is a crucial part of the equity research report. It provides a concise overview of the report's key findings and investment recommendations. In essence, it serves as a snapshot of the entire report, allowing investors to quickly grasp the main points and decide whether to read the full report.

However, writing a great executive summary can be a challenge. It requires the writer to condense a large amount of information into a few paragraphs while still conveying the most important details. Here are some tips for writing a great executive summary:

Key Components of an Executive Summary

A great executive summary should include the following components:

• Company Overview: This section should include a brief summary of the company you're analyzing. It should cover the company's history, its products or services, and its mission statement. This section should also include any recent news or developments that are relevant to the company's performance.
• Industry Analysis: This section provides an overview of the industry in which the company operates. It should cover the size of the industry, its growth prospects, and any major trends or challenges facing the industry. This section should also include an analysis of the company's position within the industry.
• Financial Analysis : This section provides an overview of the company's financial performance. It should cover the company's revenue, profitability, and cash flow. This section should also include an analysis of the company's financial ratios, such as its price-to-earnings ratio and its debt-to-equity ratio.
• Investment Recommendations: This section should include your buy, hold, or sell recommendations, along with the target price and time horizon. It should be based on your analysis of the company's financial performance, its position within the industry, and any other relevant factors.

Tips for Writing a Concise and Informative Executive Summary

When writing your executive summary, you should keep the following tips in mind:

• Keep it short and concise: Aim for a summary that is one or two paragraphs long. Remember that the purpose of the executive summary is to provide a quick overview of the report, so it should be brief and to the point.
• Focus on the most important information: Highlight the key findings and recommendations that are most relevant to investors. Avoid getting bogged down in details that are not essential to the investment decision.
• Use clear and concise language: Avoid using jargon or technical terms that investors may not understand. Use simple, straightforward language that is easy to understand.
• Include a call to action: End your executive summary with a clear call to action, such as "Buy," "Hold," or "Sell." This will help investors quickly understand your investment recommendation.

By following these tips, you can write an executive summary that effectively communicates your investment analysis and recommendations to investors. Remember that the executive summary is often the first thing investors will read, so it's important to make a strong first impression.

Assessing the Company's Business Model and Strategy

After writing your executive summary, the next step is to assess the company's business model and strategy. This is an important step in determining the company's strengths and weaknesses, and identifying areas for improvement.

When assessing the company's business model and strategy, it's important to consider a variety of factors. These may include the company's competitive advantage, growth strategy, and financial performance.

Evaluating the Company's Competitive Advantage

One key factor to consider when evaluating the company's competitive advantage is product differentiation. Does the company offer unique products or services that distinguish it from its competitors? This can be a major advantage, as it can help the company attract and retain customers.

Another important factor to consider is cost advantage. Does the company have lower production costs than its competitors? This can help the company maintain a competitive edge by offering lower prices or higher profit margins.

Brand recognition is also an important factor to consider. Is the company's brand well-known and respected? A strong brand can help the company build customer loyalty and increase its market share.

Analyzing the Company's Growth Strategy

Another key factor to consider when assessing the company's business model and strategy is its growth strategy. This includes the company's plans for expansion, research and development, and mergers and acquisitions.

Expansion can be a key driver of growth for a company, but it can also be risky. It's important to evaluate the company's expansion plans carefully to ensure that they are well thought out and have a high likelihood of success.

Research and development is another important factor to consider. Is the company investing in new products or technologies that could give it a competitive advantage in the future? If so, this could be a good sign for the company's long-term growth potential.

Mergers and acquisitions can also be a key part of a company's growth strategy. However, it's important to evaluate these deals carefully to ensure that they make strategic sense and will create value for the company's shareholders.

Performing Financial Analysis

Once you have gathered all the necessary financial data, the next step is to perform financial analysis to evaluate the company's financial health. This is a crucial step in the investment process, as it helps investors make informed decisions about whether or not to invest in a particular company.

Financial analysis involves using a variety of tools and techniques to analyze the company's financial statements, including financial ratios, cash flow analysis, and valuation methods.

Ratio Analysis

Ratio analysis is a popular method of financial analysis that involves comparing different financial ratios to evaluate the company's financial health. Financial ratios are useful because they allow investors to compare a company's performance over time, or against its competitors or industry benchmarks.

Some of the most common financial ratios used in ratio analysis include the debt-to-equity ratio, return on equity, and profit margin. These ratios can provide valuable insights into a company's financial health, including its ability to generate profits, manage debt, and create shareholder value.

Cash Flow Analysis

Cash flow analysis is another important tool for evaluating a company's financial health. This involves analyzing the company's cash flow statement to understand its ability to generate cash and fund operations.

When performing cash flow analysis, it's important to look at the company's operating cash flow, investing cash flow, and financing cash flow. By understanding how the company generates and uses cash, investors can gain a better understanding of its financial health and future prospects.

Valuation Methods

Valuation methods are used to determine a company's fair value. There are several different valuation methods that investors can use, including discounted cash flow analysis, multiples analysis, and precedent transactions analysis.

Discounted cash flow analysis involves estimating the future cash flows of a company and discounting them back to their present value. Multiples analysis involves comparing a company's financial ratios to those of its peers or industry benchmarks. Precedent transactions analysis involves looking at the prices paid for similar companies in the past to estimate the fair value of the company being analyzed.

By using a combination of financial analysis tools and techniques, investors can gain a comprehensive understanding of a company's financial health and make informed investment decisions.

Providing Investment Recommendations

After performing financial analysis and evaluating the company's business model and strategy, the next step is to provide investment recommendations. This is a critical step in the investment process, as it can have a significant impact on the performance of your investment portfolio.

When providing investment recommendations, it's important to consider a variety of factors and to provide a clear and concise recommendation that reflects your analysis and evaluation of the company's financial health, competitive advantages, growth potential, and valuation.

Buy, Hold, or Sell Recommendations

Your investment recommendations should be based on a thorough analysis of the company's financial health, competitive advantages, growth potential, and valuation. Based on this analysis, you should provide a clear and concise recommendation to buy, hold, or sell the company's stock.

If you recommend buying the stock, you should provide a detailed explanation of why you believe the stock is undervalued and has strong growth potential. If you recommend holding the stock, you should explain why you believe the stock is fairly valued and has limited upside potential. If you recommend selling the stock, you should explain why you believe the stock is overvalued and has limited growth potential.

Risk Factors and Considerations

When providing investment recommendations, it's important to consider and highlight the risks associated with investing in the company. These risks can include regulatory risks, competitive risks, and operational risks.

For example, if the company operates in a highly regulated industry, you should consider the potential impact of changes in regulations on the company's financial performance. Similarly, if the company operates in a highly competitive industry, you should consider the potential impact of increased competition on the company's market share and profitability.

Target Price and Time Horizon

Finally, when providing investment recommendations, you should provide a target price and time horizon. The target price represents the price at which you believe the stock is undervalued, while the time horizon represents the period over which the target price is expected to be achieved.

When determining the target price and time horizon, it's important to consider a variety of factors, including the company's financial performance, industry trends, and macroeconomic conditions. Additionally, it's important to periodically review and update your target price and time horizon as new information becomes available.

Overall, providing investment recommendations requires a thorough analysis of the company's financial health, competitive advantages, growth potential, and valuation. By considering a variety of factors and providing a clear and concise recommendation, you can help investors make informed investment decisions and achieve their investment goals.

Formatting and Presenting the Equity Research Report

The final step is to format and present your equity research report. Here are some tips for formatting your report:

Structuring the Report for Clarity and Flow

Your report should be structured in a logical and easy-to-follow way. You should use headings and subheadings to break up the content into different sections. Each section should be clearly labeled, with a brief summary of its contents.

It's important to keep in mind that your report will likely be read by busy investors who are looking for information quickly. By structuring your report in a clear and organized way, you can make it easier for them to find the information they need.

One effective way to structure your report is to begin with an executive summary that provides a high-level overview of the company's financial performance and prospects. This can be followed by sections that provide more detail on the company's financial statements, industry trends, and competitive landscape.

Visual Aids and Supporting Data

You can use charts, graphs, and tables to present data in a visual and clear way. These visual aids can help investors understand complex financial information more easily.

When using visual aids, it's important to keep them simple and easy to read. Use clear labels and avoid cluttering the chart or graph with too much information. You should also ensure that the visual aids support the points you are making in your report.

In addition to visual aids, you should also include supporting data in your report. This can include financial ratios, industry benchmarks, and other relevant data points. By including this data, you can provide additional context for your analysis and help investors make informed decisions.

Proofreading and Editing the Report

Finally, you should proofread and edit your report for clarity, grammar, and style. It's a good idea to have a colleague or mentor review your report before submitting it to ensure that it is error-free and presents a cohesive picture of the company's financial health.

When proofreading your report, pay close attention to the language you are using. Avoid technical jargon and use clear, concise language that is accessible to a wide range of readers. You should also ensure that your report is well-organized and easy to read, with a consistent style throughout.

By taking the time to format and present your equity research report effectively, you can increase its impact and make it more likely to be read and acted upon by investors.

Conclusion and Key Takeaways

In summary, writing an equity research report involves gathering relevant information, performing financial analysis, evaluating a company's business model and strategy, and providing investment recommendations. By following these steps and formatting your report in a clear and concise way, you can create a valuable resource for investors in the financial industry.

Finally, it's important to note that equity research is a constantly evolving field. To be successful, you must have a strong foundation and continuously improve your skills and knowledge through ongoing education and professional development.

Recap of the Equity Research Report Process

The equity research report process involves:

• Gathering relevant information about the company.
• Analyzing the company's financial health.
• Evaluating the company's business model and strategy.
• Providing investment recommendations.
• Formatting and presenting the equity research report.

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Equity Research Report

These reports serve as comprehensive summaries that investors or company leaders may utilize to make informed decisions.

Finance and Business Analytics & Information Technology with a minors in Spanish and Earth & Planetary Sciences

Graduation: B.Com (MIT Pune)

Post Graduation: MSc in Econ (MIT WPU)

Working as Admin, Senior Prelim Reviewer, Financial Chief Editor, & Editor Specialist at WSO.

Honors & awards: Student of The Year - Academics (PG) Vishwakarad Merit Scholarship (Attained twice in PG)

• What Is An Equity Research Report?
• Understanding The Equity Research Report
• Contents Of An Equity Research Report
• Uses Of Equity Research Report

Drawbacks Of Equity Research Report

What is an equity research report.

An equity research report is a thorough analysis of a company's stock or securities written by research teams or financial analysts. It offers insights and detailed information about the stock.

Investors, fund managers, and other financial professionals use these reports, which are usually generated by brokerage firms, investment banks, or independent research organizations, to help them make well-informed investment decisions.

The main goal of equities research reports is to provide investors and hedge fund managers with market information and investment suggestions. However, forward-thinking companies also understand how important this information is when making strategic choices for their own operations.

Equity research analysts are usually highly skilled individuals with knowledge of many industries. Their credentials as seasoned industry executives, professors, or previous CEOs typically enable them to offer authoritative viewpoints and in-depth analyses of firms, industries, and macroeconomic trends.

Sell-side firms produce equity research reports covering thousands of publicly traded businesses. Bigger firms, such as Morgan Stanley and Bank of America , have hundreds of analysts who cover different industries and offer in-depth analyses of various businesses.

Because they provide in-depth information about the company, its rivals, and its performance in relation to the market, equity research reports are beneficial for businesses.

By using this information, businesses may maintain their competitiveness and make well-informed decisions that support their strategic goals.

Key Takeaways

• Equity research reports provide detailed analysis and insights into stocks or securities, aiding investors, fund managers, and businesses in making informed decisions.
• Reports vary in format, covering company-specific, sector, thematic, geographic, event-driven, quantitative, technical analysis, and economic/market outlook perspectives.
• Typical sections of the report include recent results, upgrades/downgrades, management commentary, industry overview, financial history, valuation, recommendations, and more.
• Reports serve various purposes, including investment decisions, portfolio management, valuation, strategic decision-making, regulatory compliance, investor relations, and education.

Understanding the Equity Research report

A document made by an equity research analyst gives suggestions on how an investor should act upon a company that is being traded. This could include holding the share, selling it, or purchasing it.

An analyst outlines their recommendation, target price, investment thesis , value, and risks in an equities research report.

The format of equity research reports might vary based on the objective, target audience, and level of analysis. These are a few typical formats:

1. Company-specific Reports

These reports analyze stocks of specific firms. They usually include detailed financial analyses, valuation indicators , investment suggestions, and perceptions of company-specific elements, including management caliber, competitive positioning, and growth potential.

2. Sector Reports

Sector reports offer insights and analysis on certain economic sectors or entire industries. They look at possibilities, problems, and trends in a particular industry as well as the state of play and future prospects of major players in that field.

Sector reports may address more general market trends impacting the sector and frequently compare various companies within the industry.

3. Thematic Reports

These types of reports center on particular investment topics or trends that are anticipated to influence the market's performance. They examine how various industries and businesses are impacted by themes like developing technologies, demographic shifts, and regulatory changes.

Based on the themes found, thematic reports frequently offer investment advice.

4. Geographic Reports

These reports examine businesses or sectors operating in a particular market or geographic area. These papers offer insights into local economic situations, legal frameworks, and cultural aspects that can influence investment prospects, with an emphasis on global, regional, or national markets.

5. Event-driven Reports

These types of reports concentrate on particular occurrences or triggers, including earnings releases, mergers and acquisitions , court rulings, or new product introductions, that may affect a company's stock price.

After analyzing the event's possible effects on the company's financial performance , these reports offer investment recommendations based on the anticipated outcome.

6. Quantitative Reports

Quantitative reports employ quantitative research techniques, including statistical modeling and data analysis, to find investment possibilities or market trends. To bolster their analysis, these reports could contain quantitative measures, graphs, and charts.

Quantitative Reports are frequently appealing to investors who want to make decisions based on data.

7. Technical Analysis Reports

The primary goal of technical analysis reports is to find patterns and trends in stock prices by examining historical price and volume data. These reports forecast future market movements and trading opportunities using charting techniques and technical indicators.

Traders and investors who incorporate technical analysis into their investment plans could find technical analysis reports interesting.

8. Economic and Market Outlook Reports

These papers analyze and project macroeconomic variables, market patterns, and geopolitical developments that may affect the stock market as a whole. They might provide information on GDP growth, interest rates, inflation, and other economic variables that influence investment choices.

Contents of an Equity Research Report

An equity research report typically includes in-depth industry research, management analysis, financial history, trends, projections, valuations, and investor recommendations.

This kind of report, also known as broker research or investment research report, is intended to offer a thorough overview that investors or business executives may use to make informed judgments.

Here is a summary of what a typical report includes:

1. News & announcements of recent results

This section offers information on recent outcomes, including quarterly earnings, predictions, and general business updates, to help investors stay current on the company's performance.

2. Upgrades/Downgrades

Upgrades and downgrades are modifications to an analyst's forecast for the price of a specific stock. These revisions are often prompted by qualitative and quantitative studies that affect the security's financial valuation, either positively or negatively.

3. Revisions to the Estimate/Price Target

Estimates are detailed forecasts of how much a firm will make over the next few years. Price targets are derived from valuations of those earnings predictions.

The price target is based on fundamentals and future supply and demand forecasts for the asset.

4. A summary of Management & Commentary

Potential investors might read the Management Overview and Commentary to learn more about the caliber and makeup of a company's management team.

This section can also include a history of the company's leadership, including its track record with capital allocation, ESG , remuneration, incentives, and stock ownership, as well as a description of the firm's directors.

5. Industry Overview

This section discusses the firm's sector, rivals, and industry developments. In addition, industry research covers politics, economics , social trends, technical innovation, and more.

6. Financial Result History

Historical Financial Results often include a company's stock history and projections based on the present market and external factors.

Analysts must thoroughly comprehend the history of a certain sector and look for patterns or trends to support their recommendations. They must also judge whether a firm is performing at or above market expectations.

7. Valuation

A market analyst will perform stock valuation models using information such as previous financial data and market analysis. Analysts may use more than one valuation model to calculate the value of a company's shares or assets.

Absolute valuation models determine a business or asset's intrinsic worth. Relative equity valuation methods determine how much one firm or asset is worth in relation to another. Price/sales, Price/earnings, and Price/ cash flow are the foundations for relative values.

8. Recommendations

 A buy, hold, or sell recommendation made by a stock research analyst. The analyst will also provide investors with a target price that indicates where they anticipate the stock to be in a year.

Uses of Equity Research Report

Equity research reports have several significant uses for different financial market participants:

1. Making Investment Decisions

Investors rely on equities research reports to make well-informed choices regarding purchasing, disposing of, or retaining stocks. These reports offer insightful analysis and useful information about the risks, growth potential, valuation, and financial performance of certain businesses, sectors, or market trends.

2. Portfolio Management

To create and oversee investment portfolios, portfolio managers consult equities research reports.

These reports help them diversify their portfolios across various sectors and industries, find appealing investment possibilities, and adjust their holdings in response to shifting market conditions and investing goals.

Equity research reports help investors assess the risks associated with potential investments. Analysts analyze various factors, including financial metrics, industry dynamics, competitive positioning, and macroeconomic trends, to identify potential risks and uncertainties that may impact a company's future performance and stock price.

3. Valuation

Equity research reports provide insights into the valuation of individual stocks or entire sectors.

Analysts use various valuation methodologies, such as discounted cash flow ( DCF ), comparable company analysis (CCA), and precedent transactions analysis (PTA), to estimate a company's intrinsic value and assess its potential upside or downside.

4. Strategic Decision Making

Corporate executives and management teams consult equity research reports to learn about their own businesses, industry competitors, and market trends.

They may make strategic decisions about business operations, capital allocation, and growth plans with the aid of these reports, which also help them comprehend investor perceptions and pinpoint areas for improvement.

5. Regulatory Compliance

Regulations, including those set down by stock exchanges and securities regulators, apply to equity research reports.

Analysts must follow disclosure standards, transparency rules, and conflict-of-interest policies when writing and disseminating research findings to ensure compliance with regulatory requirements and preserve market integrity.

6. Investor Relations

These reports are a common tool used by businesses in their investor relations campaigns to reach out to analysts, shareholders, and prospective investors.

They cover the company's business strategy, financial performance, growth prospects, and strategic goals in great detail, which contributes to investor confidence and capital attraction.

7. Educational Purposes

They are used for educational purposes by professionals, investors, and students who want to learn about investment analysis, financial markets , and market trends.

They assist people in improving their knowledge and abilities in the subject of finance by offering practical examples of market research procedures, valuation approaches, and financial analysis tools.

Even though equities research reports offer investors insightful information and analysis, it's crucial to take into account their limitations and potential downsides before utilizing them to guide your investing decisions.

To ensure a comprehensive grasp of potential investments, investors should complement stock research with their own due diligence and analysis.

Some disadvantages of the report are:

• Conflicts of Interest and Biases: Analysts may have conflicts of interest or biases, which could influence their recommendations.
• Restricted Coverage: Reports may only cover a few companies or industries, which leaves room for analysis gaps.
• Complexity: Some investors may find it difficult to comprehend complex financial concepts and technical language.
• Possible Inaccuracies: Reports can contain mistakes or erroneous assumptions that result in suggestions that are not correct.
• Problems with timeliness: Reports might not always accurately depict the state of the market or recent advancements.
• Focus on the Short Term: Prioritising performance measures over long-term principles could have unintended consequences.
• Regulatory Risks: The creation and distribution of research reports may be impacted by compliance standards and regulatory modifications.

Equity research reports are a mainstay in financial analysis, providing a plethora of data and analysis to inform investment and strategic decisions. With their thorough insights into organizations, industries, and market trends, these reports are a reliable resource for fund managers, investors, and enterprises alike.

Despite their indisputable importance, equity research reports must recognize their inherent limitations. Conflicts of interest, a lack of coverage, and the intrinsic complexity of financial analysis may introduce biases and errors.

Furthermore, due to the constantly changing regulatory environment and market conditions, reports might not always include the most recent data.

Equity research reports are still a valuable resource if used carefully and in concert with independent analysis. They promote a greater comprehension of financial markets, help strategic planning , and enable well-informed decision-making.

However, equity research reports—despite their flaws—remain indispensable for navigating the complexities of the investing landscape and enabling stakeholders to make wise and informed decisions.

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ESG | The Report

The Comprehensive Guide to Equity Research

When it comes to making money in the stock market, there is no one silver bullet. If you want to be successful, you need to use a variety of strategies and tools at your disposal. One of the most important tools that any investor can use is equity research. Equity research can give you an edge over the competition by helping you make informed investment decisions. In this guide, we will discuss what equity research is, how it works, and why it is so important for investors. We will also provide tips on how to find high-quality equity research reports. So whether you are a seasoned investor or just starting out, this guide has something for you!

On the other hand, if you are looking to boost your ROI on a private equity exit, then you might want to read How ESG Will Sweeten Your Private Equity Exit!

What is equity research and what does it entail?

What is the role of equity research analysts, how does an equity research report help investors make informed decisions, tips for finding high-quality equity research reports, the benefits of using equity research in your investment strategy.

Equity research is the process of analyzing a company’s financial statement in order to make better-informed investment decisions. It involves looking at a variety of factors, including the company’s financial health, its competitive position, and the overall market conditions.

Equity research can be used to make both buy and sell decisions. When equity research is performed for a buy decision, the goal is to find companies that are undervalued by the market and have the potential to generate above-average returns.

For sell decisions, the goal is to identify companies that are overvalued and likely to underperform in the future. Equity research is an important tool for investment professionals, but it can also be useful for individual investors who are looking to make informed decisions about where to invest their money.

Equity research analysts play an important role in the financial world. They provide analysis and recommendations to clients, including institutional investors such as banks and hedge funds, about which stocks to buy and sell.

Equity analysts begin their research by reviewing a company’s financial statements and other publicly available information. This includes reading company financial filings, attending earnings calls, and speaking with industry experts. They then use this information to build models that predict the company’s future revenue, earnings, and cash flow.

In addition, equity analysts also conduct interviews with the company’s management team, customers, and suppliers in order to get a better understanding of the business.

Based on this research, analysts produce reports that offer their thoughts on a company’s prospects and provide guidance on whether to buy, hold, or sell its stock. While equity research analysts work for banks, asset managers, and other financial institutions, they are also available to the general public through equity research reports that are published online.

While equity research can be time-consuming and complex, it is an essential part of the investment process. By conducting thorough research on companies, an equity research analyst helps investors make more informed decisions about where to allocate their capital.

Equity research reports provide a detailed analysis of a company’s financials, business model, and competitive landscape. They also offer insights into the market trends that may impact the company’s performance. As a result, equity research reports can help investors identify companies that are well-positioned to succeed in the current market environment. While no research report can guarantee success, it can provide investors with the information they need to make better-informed investment decisions.

When you’re looking for equity research reports, it’s important to find ones that are accurate and unbiased. After all, these reports can play a major role in your investment decisions. Here are a few tips to help you find quality equity research reports:

1. Look for well-established firms

Equity research is a competitive business, and the best equity research firms tend to be well-established and have a reputation to uphold. These firms are usually more careful about the quality of their research and have more resources to devote to producing high-quality reports.

In addition, these firms tend to be more independent and objective in their research since they are not as reliant on investment banking business as the companies they cover. As a result, if you are looking for high-quality equity research, it is generally best to focus on well-established firms. If you prefer the white glove approach, you can always find of one the many independent equity research boutiques.

2. Pay attention to equity analyst credentials

One way to evaluate the quality of an equity research report is to look at the credentials of the equity analyst. Check for experience in the industry and a good track record of accurately predicting stock performance. These are signs that the equity research analyst knows what they’re talking about and can be trusted to give reliable insights.

When you’re making investment decisions, you want to base them on the best information possible, so it’s worth taking the time to find reports from analysts with strong credentials.

3. Read multiple reports on the same company

Looking at multiple reports on the same company is a great way to get a complete picture of what is going on. This is because each report will highlight different aspects of the company. One report may focus on the financials, while another may focus on the products and services. By reading multiple reports, you can get a more well-rounded view of the company.

Additionally, you can compare and contrast the different reports to see where they agree and where they differ. This can help you to form your own opinion about the company and make more informed investment decisions.

4. Be wary of investment recommendations

One important tip to keep in mind when looking for high-quality equity research reports is to be wary of investment recommendations. Equity research analysts are not licensed financial advisors, and their primary goal is to provide information, not to give investment advice.

As such, their stock recommendations should be viewed as one possible piece of information to consider but not as a definitive buy or sell signal.

When an equity research analyst does make stock recommendations, it is important to carefully consider the reasoning behind the recommendation and to weigh it against other factors before making any investment decisions.

5. Pay attention to the date of the report

Obviously, you’ll want to make sure that the information is up-to-date. Reports that are more than six months old may not accurately reflect the current state of the company. The company may have had a major event, such as a new product release, or a change in management, that has affected its financial performance.

Additionally, equity research analyst ratings and price targets can change over time, so it’s important to make sure you’re using the most recent data.

6. Read the report thoroughly before making any decisions

Equity research reports can be incredibly helpful when you’re trying to make investment decisions. However, it’s important to read the entire report before making any decisions. Don’t just focus on the parts that confirm your existing beliefs. Instead, read the report thoroughly and consider all of the information before making any decisions.

Equity research reports can provide invaluable insights into potential investments, but you need to be sure that you’re reading the entire equity research report before making any decisions.

7. Be willing to challenge your assumptions

As an investor, it’s important to always be willing to challenge your assumptions. Even the best equity research reports may contain information that contradicts your own analysis. However, if you’re not open to re-evaluating your position, you could miss out on a great opportunity.

By following these tips, you can help ensure that you are getting high-quality equity research reports that will provide valuable insights into your investments.

Equity research is a type of analysis that assesses the value of a company’s stock. Equity researchers typically work for investment banks, mutual funds, or hedge funds. However, there is a growing trend of individual investors using equity research to inform their investment decisions. There are many benefits of using equity research, including:

1. Helps to identify potential investments

An equity research report can help investors identify companies that are undervalued by the market and may be ripe for investment. By analyzing the financial statements of a company, an equity research analyst can provide investors with an assessment of its true worth and potential for growth.

This information can be invaluable in making investment decisions, as it can help to identify opportunities that may have been overlooked by the market. In addition, equity research can provide insights into a company’s competitive strengths and weaknesses, which can play a vital role when deciding to invest.

2. Gives an overview of a company

One of the benefits of using equity research in your investment strategy is that it will provide you with an overview of a company’s business model, financials, competitors, and growth prospects. This information can be very helpful in making investment decisions about whether or not to invest in a company.

3. Analyzes risk

Another benefit of using an equity research report in your investment strategy is that analysts will often assess the risks associated with investing in a particular company. This can help investors be more clear about where to allocate their capital.

Equity research can help you to identify potential risks and learn more about a company before making an investment. This information can be invaluable in helping you to protect your investments and reach your financial goals.

4. Saves time

When you use equity research in your investment strategy, it can save you a lot of time. Equity research includes information gathering, analysis, and recommendations, which can all be time-consuming tasks if you try to do them yourself. By using equity research, you can outsource these tasks to professionals who have the expertise and experience to do them quickly and effectively.

This can free up your time so that you can focus on other aspects of your investment strategy or simply enjoy your life outside of investing. In today’s fast-paced world, saving time is a valuable commodity, and equity research can help you do just that.

5. Can be used in conjunction with other tools

Equity research can be used in conjunction with other tools. This includes technical analysis and fundamental analysis. Technical analysis is a method of evaluating securities by analyzing market data, such as price and volume.

Fundamental analysis is a method of evaluating a security by analyzing its financial statements. By using both methods, investors can get a complete picture of any security and decide what’s best for them.

6. Helps you stay disciplined

When it comes to investing, discipline is key. Without it, you can easily get caught up in the emotions of the market and make decisions that are not based on sound logic. This is where equity research comes in.

By providing you with all of the information you need about a company, equity research can help you stay disciplined and focused on your investment strategy. In addition, by using equity research alongside other tools, such as technical analysis, you can further increase your chances of making successful investments.

7. Gives you an edge over other investors

Utilizing equity research can give you an advantage over other investors who do not. Equity research provides an extensive analysis of a company, its financials, products, and all its prospects. This information is not always readily available or easy to find, so by using it, you can give yourself an edge in your investment strategy.

What is investment banking?

Investment banking is a financial institution that helps companies raise money by issuing and selling securities. Investment banks also help companies by providing advice on mergers, acquisitions, and other strategic decisions.

In addition to working with companies, investment banks also work with governments and other organizations. Investment banking is a complex and risky business, but it can be very profitable for both firms and their employees.

Investment bankers typically have a bachelor’s degree in business or economics. Many investment bankers also have an MBA or a master’s degree in finance. But eventually, it all comes down to the experience and ability to handle financial and nonfinancial reports and make financial models.

What is the role of investment bankers?

Investment bankers are financial professionals who work with clients to raise capital by issuing and selling securities. They typically work for banks, but there is a growing number of independent firms. Investment bankers typically have a four-year degree in business or economics, although some jobs may require a master’s degree. In addition to their educational background, investment bankers must be very good at multitasking, managing large sums of money, and working under pressure.

The role of an investment banker is to act as a middleman between the company that wants to issue securities and the investors who want to buy them. Investment bankers typically work with large corporate clients, but they may also work with smaller companies, governments, and even individuals.

They first assess the needs of their client and then develop a plan to raise the needed capital. This plan will include finding potential investors, negotiating terms, and then issuing and selling the securities. Once the securities have been sold, the investment banker will monitor the market conditions to ensure that the securities maintain their value.

Investment bankers play an important role in our economy by helping companies raise the capital they need to grow and expand. They provide an essential service by connecting companies with potential investors and helping to ensure that investments are made wisely.

What are the types of the investment banking industry?

Investment banking can generally be classified into one of three categories:

1. Bulge bracket banks

Bulge bracket banks are the largest and most prestigious investment banks in the world. They typically have a global reach, and their clients include major corporations, governments, and financial institutions.

Bulge bracket banks is a term that was coined in the 1970s, and it refers to the top tier of investment banks. The name comes from the fact that these banks are much larger than their competitors, and they often have a dominant market share.

Some of the largest bulge bracket banks include Goldman Sachs, JPMorgan Chase, and Morgan Stanley. These banks are often involved in the most complex and high-profile transactions, and they have a team of experienced professionals who can provide a wide range of services.

Bulge bracket banks typically have a strong presence in key financial markets around the world, and they are often able to offer their clients preferential treatment.

2. Middle-market banks

Middle-market banks are a type of investment banking that focuses on providing capital to entities with annual revenue of $50 million to $1 billion. These banks usually have fewer than 500 employees and are headquartered in the United States. They typically provide loans, lines of credit, and other financial services to small and medium-sized businesses.

Middle-market banks are typically divided into two categories: regional banks and national banks. Regional banks are typically smaller and focused on a specific geographic region, while national banks are larger and have a nationwide presence. Some middle-market banks may also have international operations.

3. Boutique banks

The third type of investment banking industry is boutique banks. They are smaller, more nimble institutions that often focus on providing specialized services to a particular type of customer, while some focus on high-net-worth individuals. For example, some boutique banks may focus on small businesses, while others may cater to a specific niche, such as healthcare or technology.

Because they are less beholden to shareholders and other stakeholders, boutique banks can often offer more personalized service than their larger counterparts. As a result, these institutions are quickly becoming a popular choice for those who want a more intimate banking experience.

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Is equity research the same as investment banking?

No, equity research is not the same as investment banking. Equity research is focused on providing analysis and recommendations to institutional investors, while investment banking is focused on providing corporate finance and capital market services to issuers of securities.

While there is some overlap between the two fields, they are distinct disciplines with different clientele, objectives, and activities. Equity research analysts conduct independent research and collaborate with portfolio managers to make investment decisions, while investment bankers work with issuers of securities to underwrite new debt and equity issues and provide other financial advisory services.

Thus, while both equity research and investment banking are important parts of the financial services industry, they are distinct occupations that serve different purposes.

Final thoughts

Equity research is a process of evaluating a company and its securities with the aim of determining its investment potential. By providing an in-depth analysis of a company, equity research can help you make sound decisions about what investments are best for you. It can also give you an edge over other investors who do not have access to this information. Investment bankers play an important role in our economy by helping companies raise the money they need to grow and expand. They provide an essential service by connecting companies with potential investors and helping to ensure that investments are made wisely.

Who can become an equity research analyst?

In order to become an equity research analyst, one must have a bachelor’s degree in a relevant field such as business, finance, or economics. In addition, it is helpful to have experience working in the financial sector. Finally, an equity research analyst must be able to effectively communicate their findings to both clients and colleagues.

What is financial modeling?

Financial modeling is the process of creating a detailed model of a financial situation. It is a tool that is used by investment professionals to help make informed decisions about investments, projects, or businesses. Financial models are based on extensive industry research and are used by portfolio managers and senior analysts at investment firms to make recommendations about which stocks or other assets to buy or sell. Private companies also use financial modeling to raise capital from investors. Financial modeling can be used to predict things like future cash flow, profitability, and risk. It can also be used to compare different investment options or to assess the impact of changing economic conditions. Financial modeling is a powerful tool, but it requires careful planning and analysis to produce accurate results.

What is private equity?

Private equity is an alternative asset class that refers to the investment of capital in privately held companies. A private equity fund manager typically invests in companies that are not listed on public stock exchanges and often takes an active role in driving the growth and management of these businesses. Similarly, a private equity analyst conducts due diligence on potential investments and provides recommendations to the fund managers. If you’re interested in getting into equity research, you’ll need to have experience in finance and accounting, as well as strong analytical skills.

What is an investment thesis?

An investment thesis is an argument or set of arguments used to justify why a particular security or group of securities is worth investing in. A strong thesis will be clear and concise, research-based, and backed by data. It should also be tailored to the investor’s specific goals and risk tolerance . An investment thesis can be applied to a wide range of investments, from stocks and bonds to real estate and commodities. Ultimately, the goal of an investment thesis is to help investors make informed decisions about where to put their money.

How can I get an equity research job?

There are a few ways to break into equity research from the outside. One is to network with people you know who work on Wall Street. Another is to look for job postings online, either on job boards or on the websites of an investment bank, wealth management firm, or any investment firm. Finally, you can try cold-emailing equity researchers at firms you’re interested in working for. Keep in mind that most equity research jobs are filled by people who have already worked as investment banking analysts or research associates at an investment bank. Aspiring equity researchers also need to be aware of the earnings season schedule and be able to produce high-quality research during that time. Equity research careers can be extremely rewarding, both financially and professionally. With a little effort, you can find a job that’s a perfect fit for your skills and interests.

What is the job of an equity research associate?

Equity research associates are responsible for analyzing companies and industries in order to support the investment decisions of senior analysts and portfolio managers. This involves conducting fundamental analysis, building financial models , and writing research reports. An equity research associate must have a strong understanding of accounting and finance, as well as experience with Excel and other financial analysis software. In addition, an equity research associate must be able to effectively communicate the findings to both senior analysts and clients. If the equity research associate is successful in this role, he may go on to become an equity research analyst or senior analyst.

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How To Do Equity Research: An Actionable Guide

October 8, 2023

Are you ready to learn how to do equity research? Here is the truth. 

Whether you are a finance student, a career switcher, or an aspiring analyst, mastering equity research is your ticket to financial expertise and success. 

How to do equity research? To conduct an effective equity research : Start by defining your  investment objectives  and  risk tolerance .  Select stocks  based on financial stability, competitive positioning, and management quality.  Analyze financial statements, industry dynamics, and market conditions, and use valuation methods like DCF and comparative analysis.  Finally,  continuously monitor your portfolio  and stay informed about market developments to make informed investment decisions.

In this guide, you will learn the actionable tips to do equity research.

But where do you start, and how do you navigate this complex field of equity research?

It does not happen overnight, and it demands dedication, effort , and, most importantly, a burning passion for what you are doing.

An equity research analyst’s job isn’t just about crunching numbers and dissecting financial statements. 

It is about uncovering opportunities, managing risks , and ultimately making choices that can transform your financial future . 

It is about taking control of your investments and not leaving your financial destiny to chance, and that’s what you will learn in this guide.

Ready to learn? Let’s get started!

Actionable Steps – How To Do Equity Research

Sell-side firms create equity research to assist investors and hedge fund managers in identifying market prospects and enabling them to make well-informed investment choices.

Investment analysts rely on equity research and financial modeling to assess the potential risks and returns associated with various investment opportunities in the stock market.

Follow the following specific tips and strategies for each stage of the equity research process. 

Actionable Steps for Conducting Equity Research

These actionable insights will empower you to make informed decisions and excel in your own equity research firm and journey.

Step 1: Define your objectives

You need to start by defining your goals in order to stay on track. Here are a few of them:

What are you trying to achieve? 

Are you seeking stocks for long-term growth, short-term gains, or dividend income? 

Step 2: Choose your stocks

Begin by selecting the stocks you want to analyze. You can focus on a particular industry, market sector, or geographical region.

Criteria for selecting stocks

Financial stability:  Look for companies with a strong financial foundation, including healthy balance sheets, consistent revenue growth, and manageable debt.

Competitive position:  Identify firms with a competitive advantage, whether it is through innovative products, a strong brand, or dominant market share.

Management quality:  Assess the leadership team’s track record and integrity. A skilled and ethical management team can significantly impact a company’s success.

Diversification is key; don’t put all your eggs in one basket. Let’s talk about how to identify industries and sectors of interest:

Follow your passion:  Start with industries or sectors you are genuinely interested in. Your passion can be a powerful motivator for in-depth research.

Market trends:  Keep an eye on emerging market trends and technologies. Invest in industries with long-term growth potential.

Step 3: Gather data

At this stage, your financial literacy and data sources come into play. Collect essential financial data on the selected companies, including their financial statements, earnings reports, and relevant market data.

Where to find reliable financial data and news sources

• SEC filings:  The  U.S. Securities and Exchange Commission’s EDGAR  database is a goldmine for company filings and reports.
• Financial news websites:  Reputable financial news websites like  Bloomberg ,  CNBC , and  Reuters  provide up-to-date market news and analysis.

Company websites: Company websites often offer investor relations sections with financial reports and presentations.

Tools and resources for fundamental analysis

Stock screeners:  Utilize stock screening tools to filter stocks based on specific criteria like market cap, P/E ratios, or dividend yield.

• Financial analysis software:  Consider using software like  Microsoft Excel  or specialized financial analysis tools for in-depth number crunching.

Step 4: Analyze financials

Assess profitability, liquidity, debt levels, and cash flow. Look for trends, anomalies, and red flags. Financial ratios like  P/E , P/B, and ROE are your tools for evaluation.

Key Ratios and Metrics

Price-to-Earnings (P/E) Ratio:  Helps you gauge a stock’s relative value. A lower P/E may indicate an undervalued stock.

Return on Equity (ROE):  Measures a company’s profitability in relation to shareholders’ equity. High ROE can signal efficient use of capital.

Debt-to-Equity Ratio:  Assesses a company’s leverage. Lower debt ratios are generally preferable.

Analyzing financial statements

Income Statements:  Focus on revenue trends, profit margins, and earnings growth.

Balance Sheets:  Examine assets, liabilities, and equity to understand a company’s financial position.

Cash Flow Statements:  Evaluate cash flow from operations, investing, and financing activities.

Step 5: Industry and market analysis

Zoom out and examine the broader industry and market dynamics. 

How does the company compare to its peers? 

Are there any sector-specific risks or opportunities?

How to evaluate a company’s management, competitive advantage, and industry position

Management assessment:  Investigate the CEO’s vision, track record, and transparency. Good leadership can steer a company to success.

Competitive advantage:  Identify what sets the company apart, whether it’s a unique product, strong brand, or cost leadership.

Industry position:  Understand the company’s position within its industry and its growth prospects compared to peers.

How to assess external factors

PESTEL Analysis:  Evaluate Political, Economic, Social, Technological, Environmental, and Legal factors that can impact the company’s performance.

SWOT Analysis:  Assess the company’s Strengths, Weaknesses, Opportunities, and Threats to gain a holistic perspective.

Step 6: Company valuation

Now that earnings estimates are out, it’s time for senior analysts, fund managers , hedge fund managers, and institutional investors to get into equity research and determine the intrinsic value of the stocks.

Methods for determining intrinsic value

Discounted Cash Flow (DCF):  Discounted Cash Flows estimate the present value of future cash flows, considering factors like growth rates and discount rates.

Comparative Analysis:  Compare a company’s financial metrics to industry benchmarks or similar firms.

Earnings Multiples:  Use P/E ratios, Price-to-Sales (P/S) ratios, or Price-to-Book (P/B) ratios to gauge relative value.

Step 7: Risk assessment

Assess the risks associated with each stock. Consider both company-specific risks (e.g., management issues) and market risks (e.g., economic downturns). 

Your earlier definition of risk tolerance will guide you here.

How to identify and mitigate investment risks:

Diversification:  Spread your investments across various asset classes and industries to reduce risk.

Beta and volatility:  Understand a stock’s beta to gauge its sensitivity to market movements. Lower beta stocks tend to be less volatile.

Step 8: Make recommendations

Based on your analysis, make investment recommendations. Should you buy, sell, or hold each stock? 

Back your recommendations with solid reasoning from your research reports.

Step 9: Create a portfolio

Diversify your investments in investment banks by creating a well-balanced portfolio of various securities research by investment banks. 

Allocate your funds among the chosen stocks by the investment bank based on your research and risk tolerance by the investment banks.

Strategies for ongoing portfolio management

Regular check-ins:  Review your portfolio periodically to ensure it aligns with your investment goals.

Stay informed:  Keep up with company news, industry trends, and market conditions.

Rebalance as needed:  Adjust your portfolio allocation as market conditions and your objectives evolve.

When to buy, hold, or sell stocks

Buy:  When your research suggests a stock is undervalued and aligns with your investment strategy.

Hold:  Maintain positions in fundamentally sound companies, even during market fluctuations.

Sell:  If a stock no longer meets your criteria, consider selling to reallocate funds to more promising opportunities.

Step 10: Monitor and adjust

Your equity research journey does not end after you have made your initial investments. Continuously monitor your portfolio and the market. 

Stay informed about a company’s stock price, news, economic changes, and industry developments. Be ready to adjust your portfolio as needed.

Step 11: Learn and evolve

Equity research is an ongoing process. Keep learning, refining your research skills, and adapting to changing market conditions. 

Stay curious and open to new investment ideas and opportunities.

By breaking down the equity research process and conducting it as illustrated in the above stages, you will not only make the journey less daunting but also increase your chances of making informed, successful investment decisions.

How To Do Equity Research – A Brief Outline

Now that you have learned the steps to do equity research, have an overview of the fundamentals of equity research to gain confidence with the process.

So, what’s the deal with the private equity and research firms , and why should you care? Let’s break it down.

What is Equity Research?

Equity Research is the art and science of digging deep into publicly traded companies, their financial health, and the overall market to make informed investment decisions.

Equity Research in Financial Analysis- Role

Think of equity research as the guiding light in financial data. 

Analysts examine everything from a company’s financial statements, industry trends, and competitive landscape to predict how well a stock might perform. 

They are like the weather forecasters of the stock market, helping investors navigate the stormy seas and seize sunny opportunities.

For instance , let’s say you are considering investing in a tech giant like Apple.

Equity research would involve scrutinizing Apple’s financial reports, assessing its market share, and examining the latest innovations in the tech industry. 

By doing so, analysts can recommend whether it’s a golden apple worth biting into or one that might leave a sour taste.

What Does an Equity Research Analyst Do?

As an equity research analyst, your primary responsibilities will involve conducting comprehensive financial analysis, studying company performance, and monitoring market conditions.

Buy-side analysts  

A buy-side firm include a wealth management firm, a pension fund firm’s investment managers, or a hedge fund.

An equity research analyst supplies information and recommendations to the firm’s investment and portfolio managers themselves, who oversee client investment portfolios and make final decisions about what securities to hold. 

Buy-side equity researchers and analysts study and build financial research on companies.

Sell-side analysts

In a sell-side firm, an equity research analyst provides research and analysis on various stocks and companies to help the sell-side analyst and sell-side equity research firm’s clients, institutional investors, make informed investment decisions. 

Sell-side brokerage firms’ equity research analysts monitor market data, publish research reports, make recommendations, and often engage in interactions with clients to provide insights and guidance related to equity investments.

You will use this information to generate insightful research reports and provide investment recommendations to assist clients or your firm in making informed decisions about buying, selling, or holding stocks.

Effective communication and staying up-to-date with industry developments are key aspects of success in this role.

Do you know how investment bankers design and lay out equity research? 

Investment bankers work closely with equity research analysts to design and layout equity research reports.

• They aim to create a visually appealing and easily digestible document that presents the research findings effectively.
• This involves organizing the content logically, using charts and graphs to illustrate key points, and ensuring the report aligns with the firm’s branding guidelines to enhance its professionalism and readability.

Why should Equity Research Analysts care about Equity Research?

Now, let’s shift our focus to the equity researchers and why this matters for you and your clients.

Think of yourself as the tour guide for your clients on their financial planning journey. 

Just like planning a cross-country road trip, would you lead your clients down unfamiliar paths without checking the map, weather forecast, or road conditions? Probably not.

Your clients entrust you with their hard-earned money, their financial dreams, and aspirations. They rely on your expertise to navigate the complex terrain of the financial world. 

Equity research equips you with the tools to make informed decisions, choose the right investment destinations, know when to accelerate or hit the brakes, and steer clear of financial storms. 

It is about safeguarding their financial future so they are not left vulnerable to the unpredictable winds of the market.

By conducting thorough equity research, you empower yourself to be the best possible guide for your clients, helping them navigate the intricate landscape of investments with confidence and precision. 

It is not just about your success; it’s about securing theirs.

Let’s now talk about how to set up your company management and industry research report foundation in Equity Research.

Foundation to Effective Equity Research 

Before you explore headfirst into the world of equity research, ensure you have got the essentials in place.

1. Financial literacy

Before you even think about analyzing stocks or assessing market trends, you must have a solid grasp of financial concepts.

It is like learning the rules of the road before you start driving. You would not have navigate unfamiliar roads without understanding traffic signs, right? 

Similarly, financial literacy is your roadmap through the world of numbers, financial statements, and economic indicators.

2. Data sources

In the digital age, data is gold. Equity research relies heavily on accurate, up-to-date information, and there are numerous sources at your disposal:

• Financial statements: A top company management’s financial reports reveal its past, present, and potential future. Learning how to interpret income statements, balance sheets , and cash flow statements is fundamental.

Market data: Stock exchanges provide real-time data on stock prices, trading volumes, and more. Websites, financial analysts, news outlets, and specialized software are also valuable sources.

Economic indicators: Keeping an eye on broader economic indicators, like GDP growth, inflation rates, and unemployment figures, can give you insights into the overall market direction.

3. Defining investment goals and risk tolerance

Ask yourself:

What are your financial objectives? 

Are you aiming for long-term wealth accumulation, retirement planning, or short-term gains?

How much risk are you willing to take? 

By setting clear goals and understanding your risk tolerance, you’re essentially choosing your financial destination and the path you will take to get there.

So, now that you have learned the essentials let me take you through the Equity Research Report and Framework, where you will learn about the tools and strategies to navigate the world of stocks, analyze companies, and make informed investment decisions.

Equity Research Report

An equity research report is a detailed document prepared by equity research analysts.

Equity reports provide an in-depth analysis of a specific stock or company’s share price move, typically for the purpose of investment decision-making.

Information: It offers comprehensive data and insights into a company’s financial health , industry trends, and competitive positioning.

Investment recommendations: Analysts often buy, sell, or hold recommendations based on their analysis, aiding investors in making informed choices.

Risk assessment: This helps investors assess the risks associated with a particular investment, including factors like volatility and market conditions.

Transparency: Promotes transparency in financial markets by sharing research findings with investors, enabling them to understand the basis for investment decisions.

Market insights: Provides valuable market insights and can influence market sentiment and trading activity.

Regulatory compliance: In some cases, equity research reports are required by regulatory bodies to ensure fair and accurate information dissemination.

Investor confidence: Builds investor confidence by offering credible and expert analysis, which can attract potential investors.

Overall, equity research reports serve as a critical tool for investors, financial institutions, and the broader market to make informed investment decisions and manage risk.

Common Pitfalls to Avoid in Equity Research

While equity research can be highly rewarding, it is essential to steer clear of common pitfalls that can hinder your success. 

Here are some pitfalls to watch out for and guidance on avoiding them:

1. Overconfidence bias

Pitfall: Overestimating your abilities and underestimating the risks involved.

Guidance: Stay humble and recognize that the financial markets are complex and unpredictable. Seek diverse perspectives and continuously educate yourself.

2. Neglecting qualitative factors

Pitfall: Focusing solely on numbers and ignoring qualitative aspects like asset management , quality, and industry trends.

Guidance: Incorporate qualitative analysis and industry research into your research. 

Assess top company management’s leadership, financial model, competitive positioning, financial models, and the firm’s investment in asset managers and the broader industry landscape.

3. Confirmation bias

Pitfall: Seeking information that confirms pre-existing beliefs and ignoring contradictory evidence.

Guidance: Be open to challenging your assumptions. Encourage dissenting opinions in your research process to avoid confirmation bias.

4. Overlooking risk assessment

Pitfall: Neglecting to thoroughly assess and manage risks in your portfolio.

Guidance: Prioritize risk assessment. Understand the risks associated with each investment and develop strategies to mitigate them.

5. Herd mentality

Pitfall: Blindly following the crowd or popular investment trends.

Guidance: Conduct independent research and base your decisions on your analysis rather than market sentiment. Herd behavior can lead to bubbles and market crashes.

6. Lack of diversification

Pitfall: Concentrating your investments in a single stock or industry exposes your portfolio to higher risk.

Guidance: Diversify your investments across different asset classes and industries to spread risk and enhance portfolio stability.

7. Short-term focus

Pitfall: Chasing short-term gains and interest income while neglecting long-term investment strategies.

Guidance: Stay committed to your long-term investment goals and avoid making impulsive decisions based on short-term market fluctuations.

By being aware of these common pitfalls and following the guidance provided, you can navigate the world of equity research with greater confidence and increase your chances of making informed and successful investment decisions.

Frequently Asked Questions

How can i gain practical experience in equity research.

You can start by seeking internships with financial institutions or research firms that offer hands-on experience in corporate finance or equity research. 

You can network with professionals in the field, attend industry events, join finance-related clubs or organizations, and connect with alumni for guidance and opportunities. 

Consider participating in stock pitch competitions or managing a personal investment portfolio to develop your skills further.

What are some of the common challenges equity research analysts face, and how can I overcome them?

Common challenges for both equity analysts and research analysts include dealing with information overload, maintaining objectivity, and staying updated with rapidly changing market conditions. 

To overcome these challenges:

Focus on developing efficient research processes that help you filter relevant information.

Equity research analysts meet the management of the companies they cover so as to get the most timely information in order to update their earnings estimates and reports.

Regularly review and adjust your own investment thesis or theses, and seek input from colleagues to gain different perspectives, which can enhance your analysis and objectivity.

My Exclusive Insights for You

Congratulations! you have now come to the end of this guide on how to do equity research. 

Let’s recap the crucial lessons that can fuel your journey to becoming a proficient private equity analyst and researcher:

Start with a strong foundation of financial literacy to make a mark in the investment banking business.

The choices you make in selecting stocks, defining goals, and assessing risks are at the heart of your equity research journey. 

Equity research is a blend of quantitative and qualitative analysis, including understanding markets, industries, management quality, and more.

Stay hungry for knowledge, embrace continuous learning, and adapt to new technologies, market trends, and investment strategies.

Now, the most important step is to apply what you have learned. Take action! 

Avadhut is the Founder of FinanceWalk. He enjoys writing on Finance Careers topics. Check our Financial Modeling Courses . Contact us for  Career Coaching based on Your Inner GPS.

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A Student’s Guide to Writing A Buy-Side Equity Research Report

• via Research , Resources

Marina Chang

A career in finance can take on many different forms — from investment banking to equity research. Equity researchers conduct detailed analyses in order to offer well-supported investment recommendations. Their analyses are then compiled into what is referred to as an equity research report. These reports differ on the sell-side and buy-side, but they do have some overlaps. This guide will break down the key components and formats to help you successfully craft your own equity research report.

What is an equity research report? What is the purpose of a research report?

An equity research report is a document prepared by an analyst that gives an overview of a business, including the industry it operates in, its management team, its financial performance, risks, and its target price. The purpose of a research report is to provide a recommendation on whether investors should buy, hold, or sell shares of a public company.

What’s the difference between a buy-side and sell-side equity research report?

Sell-side reports are the most common type of equity research report. They are typically produced by investment banks for their clients to help guide investment decisions. Sell-side analysts issue the often-heard recommendations of “buy,” “hold,” “neutral,” or “sell” to help clients with their investment decisions. This is favorable for the brokerage firm as each time a client decides to trade the brokerage firm gets a commission on the transaction.

Buy-side reports are internal reports, produced for the bank itself, and are guided by differing perspectives and motivations. Buy-side analysts determine how promising an investment seems and how well it fits with the fund’s investment strategy. These recommendations are made exclusively for the benefit of the fund that employs them and are not available to anyone outside the fund.

What information should be included within your equity research report?

• Recommendation  – Typically to buy, sell, or hold shares in the company. This section also usually includes a target price (i.e., $47.00 in the next 12 months).
• Company Update  – New releases, quarterly or annual results, major contracts, management changes, or any other recent or important information about the company.
• Investment Thesis  – A summary of why the analyst believes the stock will over or underperform and what will cause it to reach the share price target included in the recommendation. This is probably the most interesting part of the report.
• Financial Information & Valuation  – A forecast of the company’s income statement, balance sheet, cash flow, and valuation. This section is often an output from a financial model built in Excel.
• Risk & Disclaimers  – An overview of the risks associated with investing in the stock. This is usually a laundry list of all conceivable risks, thus making it feel like a legal disclaimer. The reports also have extensive disclaimers in addition to the risk section.

What information is needed for the industry pages?

• Competitive Rivalry  – This looks at the number and strength of competitors. How many rivals does the company have? Who are they, and how does the quality of their products and services compare?
• Supplier Power  – This is determined by how easy it is for suppliers to increase their prices. How many potential suppliers does the company have? How unique is the product or service that it provides, and how expensive would it be to switch from one supplier to another?
• Buyer Power  – Here, you ask how easy it is for buyers to drive prices down. How many buyers are there, and how big are their orders? How much would it cost them to switch from the company’s products and services to those of a rival? Are buyers strong enough to dictate terms?
• Threat of Substitution  – This refers to the likelihood of customers finding a different way to do what the company offers.
• Threat of New Entry  – The company’s position can be affected by how easy it is for a new company to enter the industry. How much would it cost, and how tightly is the industry regulated?

How to create and forecast a financial model.

• Gather the company’s most recent 10-K and 10-Q SEC filings.
• For all three financial statements, copy and paste the line items that can be forecasted.
• Make income statement projections based on margins as a percentage of revenue.
• Create a depreciation schedule to account for the reduction of PP&E and intangible assets over time.
• Calculate working capital assumptions.
• Forecast current assets and liabilities on the balance sheet.
• Adjust net change in cash and cash equivalents (CCE) with the cash flow statement.
• Reconcile the cash flow statement with the balance sheet.
• Compute the dividend payout ratio if the company offers a dividend.
• Create the shares repurchase schedule if the company has a share buyback program.
• Construct the debt schedule.
• Calculate interest income and interest expense from the debt schedule.
• Run multiple scenarios – Wall Street Case, Bear Case, Bull Case.
• Sanity check your assumptions.

How many pages should your equity research report contain?

An equity research report should not be more than 10 to 15 pages long. Aim to be both concise and cohesive.

What kind of disclaimer should be included?

It is important for the report to have certain disclaimers to show that the analyst writing the report isn’t biased. Some typical disclaimers are as follows: 

• Every ER report entirely reflects the views and personal opinions of the analyst as on the date of publication.
• The equity research analyst does not have an interest in the shares of the company.
• Compensation of the analyst is not linked directly to any specific research recommendations contained in the report.
• Financial analysts or equity research analysts working in brokerage firms or sell-side analysts write equity research reports.

With all these points in mind, you are now ready to write your own equity research report. Select a public company, use this guide as a reference, and see what results from your analysis. Congratulations in advance on completing your research report!

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The  Analyst Prep Program  teaches the technical and practical skills that investment banks, hedge funds, and private equity & consulting firms look for in a candidate. Students begin with little to no technical skills and develop into fully prepared professionals who can perform as first-year analysts from day one.

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References:

• https://www.financewalk.com/equity-research-report/
• https://corporatefinanceinstitute.com/resources/knowledge/valuation/equity-research-report/#:~:text=What%20is%20an%20Equity%20Research,distributes%20that%20research%20to%20clients.
• https://quickbooks.intuit.com/r/marketing/market-research-tips-how-to-conduct-an-industry-analysis/

About the Author

Marina Chang is a business student at New York University pursuing a double concentration in Finance and Data Science. She is currently an Investment Research Intern at Romero Capital. Marina is an Analyst at NYU's Smart Woman Securities, where she worked with a team of 5 to compete in a stock pitch. She is also a Staff Consultant at 180 Degrees Consulting. The organization provides affordable advising services for non-profits and social enterprises. Marina was a mentee of the Analyst Prep Program.

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How Can You Learn and Make Equity Research Reports?

• February 6, 2020

Ever wondered how do you get those buy-sell recommendations regarding securities on the business news channel or your daily newspaper? Well, let’s take you behind the scenes to know better how and who does the magic there.

What are equity research reports?

If you want to learn to make equity research reports you are in for a treat as you’ll be explained in detail what equity research reports are. Equity research reports are detailed documents constructed by equity research analysts, the emphasis of the research could be a specific stock of a company, any given currency, commodity or fixed-income instrument, or any given industry.

Research reports mostly have actionable investment strategies, like whether to buy or sell or hold a given stock. The main objective of conducting this kind of complex analysis is to help channel investment into profitable ventures.  The equity research report provides a subject of communication from a securities firm to its prospective clients with a very precise purpose of resource allocation.

The equity research reports broadly talk about an array of things that includes the investment thesis, financial information and valuation, associated risk & disclaimer and the final recommendation. In addition to this, the equity research report digs a little deeper into the functioning of the business by providing a detailed overview of the business including subject matters like the industry it operates in, its management team, the financial performance, risks, and the target price point.

How to make equity research reports?

Creating an equity report varies to a great deal on what kind of equity report you are preparing. The general equity research reports begin with a thought-provoking headline around the subject and go on to talk about factors like target price & recommendation, stock vs. index graph, investment report summary, stock data, business description, industry overview, and competitive positioning, Valuation, financial analysis, and the associated business risk. The variation can range from initiation report and sector report to strategic and result reports etc.

Initiation reports are the reports that are generated in the very initial stages when the company takes the case for the firm being researched. Being the first detailed research report from the brokerage/ equity firm it is a lengthy one and is generally in the range of 20-50 pages. In addition to the stock details, it also takes into account factors like overall competition, industry dynamics, etc.

The industry or sector report gives major emphasis on Industry dynamics, firm’s competitors, government policies and regulations and key forecasts. It provides the client with a holistic knowledge of the industry ecosystem and peers in the sphere. The strategic or economic reports include information on general macroeconomics, the currency movements, commodities, etc. reports are especially useful for portfolio managers to take the decision on country-specific fund flows.

Broadly it can be concluded that the equity reports start with an overview of what the company does, followed by the recent performance and projections for the future. The report also includes the growth prospects and the risk associated with the business supported by some relevant data.

Dos and Don’ts of equity research reports

It’s important to follow the standard writing techniques while preparing such reports as it's for a specific purpose and should do nothing more than the intended outcome. The reports should not summaries the finding in the very beginning. It should be clear consie and to the point, as the decision-makers are bounded by time constraints.

Time is of the essence here, the equity research reports induce the investor to invest in a particular stock or security, given the highly volatile nature of the stock market and the financial industry in general, timely updates are paramount, any delay is a strict no-no here!

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How to close the Black tech talent gap

While the number and variety of tech jobs have grown steadily over two decades, the technology workforce has not evolved to reflect the makeup of the American workforce. Organizations have worked to improve representation among Black employees and executives in technology-related jobs across industries, but there is more work to be done.

The Black technology workforce

Black people make up 12 percent of the US workforce but only 8 percent of employees in tech jobs. 1 State of the tech workforce , CompTIA, March 2022. That percentage is even smaller further up the corporate ladder; just 3 percent of technology executives in the C-suite are Black, according to a McKinsey analysis of Fortune 500 executives. 2 Based on an analysis of Fortune 500 tech executives in chief information officer or chief technology officer roles who identify as Black. That gap is likely to widen over the next decade. Across all industries, technology jobs—those in data science, engineering, cybersecurity, and software development—are expected to grow 14 percent by 2032. Black tech talent in those roles is expected to grow only 8 percent over the same period (Exhibit 1).

Developing inclusive technologies and bridging a gap worth billions

Black households stand to lose out on more than a cumulative $350 billion in tech job wages by 2030, an amount equal to one-tenth the total wealth held by those households, according to a McKinsey Institute for Black Economic Mobility analysis.

The wage gap in tech roles is expected to grow nearly 37 percent, from $37.5 billion in 2023 to $51.3 billion in annual lost wages by 2030, according to our analysis (Exhibit 2).

Increasing Black representation in technology jobs isn’t just about bridging wage gaps. It means improving the lives of those who are regularly othered, diminished, and discounted in workplaces where they may be the only Black person. It’s also about developing inclusive technologies  that have transformative potential for Black communities. For example, digital banking platforms designed to be inclusive of Black consumers provide financial services that can improve the living standards in communities underserved by traditional banks.

Businesses, nonprofit organizations, and public-sector agencies must take coordinated action to increase Black representation in tech jobs. Specifically, they should reexamine their approach at five critical junctures throughout the career journey for Black tech talent, by improving STEM education at the K–12 level, strengthening HBCU partnerships, expanding opportunities for alternatively skilled talent, replacing mentorship with sponsorship, and empowering Black leaders to thrive. Doing so will support the Black technology workforce for generations to come.

Meet STEM students where they are

Education programs focused on science, technology, engineering, and math (STEM) fields in K–12 schools have long been seen as potential feeders into the technology workforce. Programs focused on helping subsets of students began to proliferate from both the public sector and nonprofits in the 2010s; Girls Who Code and NASA’s Next Gen STEM are just two examples.

Such programs are a promising start, but there’s a lot of opportunity to do more. According to the Pew Research Center, Black students earned only 7 percent of STEM bachelor’s degrees in 2018, compared with 10 percent of all bachelor’s degrees. 3 Rick Fry, Cary Funk, and Brian Kennedy, “STEM jobs see uneven progress in increasing gender, racial and ethnic diversity,” Pew Research Center, April 1, 2021. The COVID-19 pandemic may have further shrunk the pipeline: Black and Hispanic students experienced sharper declines in fourth-grade math test scores during the pandemic compared with their White and Asian peers, wiping out decades of progress. 4 Sarah Mervosh and Ashley Wu, “Math scores fell in nearly every state, and reading dipped on national exam,” New York Times , October 24, 2022. Without intervention, it’s possible the lagging test scores will lead to a decrease in the number of Black students who eventually pursue STEM careers.

While much of the nonprofit sector’s work has increased diversity in STEM, there could be more targeted efforts from businesses specifically designed to encourage Black student participation. Only 20 percent of Fortune 100 companies have a K–12 STEM partnership focused on students in underserved communities, according to a McKinsey analysis.

Businesses can meet students where they are by underwriting technology courses or offering information sessions in predominantly Black communities. Numerous studies have documented the positive effect that a sense of belonging in education has on academic retention: K–12 students and first-year college students who feel a sense of belonging among their peers are likelier to participate in classroom discussions, believe they will succeed in a subject area, and are more motivated. 5 Lynley H. Anderman, Tierra M. Freeman, and Jane M. Jensen, “Sense of belonging in college freshmen at the classroom and campus levels,” Journal of Experimental Education , 2010, Volume 75, Number 3. STEM programs that target schools with a high population of Black students are likely to help plug future talent gaps in tech.

A Pew Research survey published in April 2022 found that the percentage of Black adults who say “Black people have reached the highest levels of success” in a range of careers was highest for professional athletes and musicians, at more than double the rate of engineers and scientists, indicating that survey respondents don’t perceive STEM fields to be welcoming to Black talent (Exhibit 3). For students who may not have a role model in tech, community-focused approaches help increase exposure to both companies and role models.

Nonprofits have often led the charge in bringing greater STEM awareness to Black communities. One example is MITRE, an organization that provides tech expertise to the US government. MITRE gives its employees 40 paid hours of “civic duty” to participate in in-classroom and after-school programs at K–12 schools in Black and Hispanic communities; it also reimburses employees for expenses (like travel and parking) related to their participation in these programs. MITRE’s initiatives have exposed thousands of students and their parents to opportunities in STEM.

Even as companies encourage employees to participate in volunteer programs, they should be mindful to not add to Black employees’ workload or to make participation a requirement for promotion. They should encourage employees of all races—not just Black employees—to engage in racial-equity efforts.

Create stronger corporate HBCU partnerships

Historically Black colleges and universities (HBCUs) are a significant driver of economic mobility for Black people and produce many of the country’s Black technologists. Companies have been working with HBCUs to provide resources and create a talent pipeline  for STEM students for more than two decades. Boeing, IBM, and Netflix are just three of the many companies that have partnered with HBCUs.

Still, there’s room to improve the effectiveness of these partnerships.

The experience of one technology company might provide useful lessons. The company launched a lauded program that relied on volunteer employees to mentor HBCU students and teach courses but did not provide employees with incentives to participate. The program created internships for HBCU students, but there was no follow-through when the internships ended (and many of the HBCU interns did not go on to work at the company upon graduation). Also, the company partnered with only a small fraction of HBCUs across the country. Finally, while the company helped develop technology courses for HBCUs, it did not underwrite the costs of those programs or offer scholarships to students, some of whom took out additional student loans to participate in the program.

Organizations with money to invest in their future workforce can direct funds toward HBCU curriculum development, career offices, and faculty training. For instance, Harvard University runs a free data science pedagogy workshop for educators at HBCUs and other minority-serving institutions, to broaden the pipeline of future graduate students in the field. IBM is partnering with 13 HBCUs to build a new Quantum Center that gives students access to IBM quantum computers , as well as educational support and research opportunities. Ideally, businesses would be able to underwrite the cost of internships or related programs so that they are free or affordable for Black students.

Not all businesses will be able to afford national HBCU outreach or cost-subsidized internship programs, however. But even those with less cash on hand can better work with HBCUs and their students: those with internship programs can offer more professional development during internships to increase the chances a student is hired after graduation and expand partnerships beyond the universe of well-known HBCUs. They should also increase partnerships with non-HBCUs that have high Black and Hispanic student populations.

Expand opportunities for alternatively skilled talent

People without college degrees are likely to be overlooked by employers that still hire according to traditional standards. Of the 17 million Black workers in the United States, 65 percent developed their skills through alternative routes —meaning they have a high school diploma and may have military or workforce experience but do not have a bachelor’s degree. 6 “Spotlight on Black STARs: Insights for employers to access the skilled and diverse talent they’ve been missing,” Opportunity at Work, November 2, 2022. By this measure, jobs that require a bachelor’s degree are out of reach for most Black workers.

By removing the requirement for a bachelor’s degree, businesses immediately expand the applicant pool. Additionally, they can partner with platforms that help train “ready to learn” talent—people who have experience in other fields with transferable skills  but may require additional development—to find qualified candidates with nontraditional backgrounds.

Some businesses are already investing in such programs. Nasdaq and Oracle partner with Kura Labs, an online academy that offers free training and job placement for engineers in underserved communities. The organization says its efforts have resulted in $12 million in new wages in less than 18 months. Meanwhile, other companies including Pandora and Twitch have partnered with the platform OnRamp Technology, which works with more than 100 boot camps, online communities, and education and training providers. Three out of four people hired through OnRamp are people of color.

About the research

The results of a new McKinsey Black Tech Talent Survey help illustrate where problems persist. In July 2022, McKinsey surveyed 82 Black professionals in the United States across entry-level, mid-level, and C-suite technology roles, both within and outside technology companies. The survey aimed to understand the impact of increasing Black representation in tech roles across industries and opportunities to elevate Black tech talent into executive roles. While the findings may not be definitive, they are directionally representative. This research builds upon previous “Race in the workplace” studies  as well as existing work from the McKinsey Institute for Black Economic Mobility , which seeks to provide independent research to offer guidance on how to improve racial inequities around the world.

But recruiting ready-to-learn talent helps improve representation only if a company also reexamines its interview processes. Résumés that indicate a candidate is Black—either because of the candidate’s name, school, or work history, for example—have been found to generate fewer interview requests than résumés reflecting characteristics of White candidates. 7 Marianne Bertrand and Sendhil Mullainathan, Are Emily and Greg more employable than Lakisha and Jamal? A field experiment on labor market discrimination , National Bureau of Economic Research, working paper, July 2003. In our survey of Black tech talent, respondents say their companies “do not do enough outreach” and “have not yet incorporated procedures like blind résumés” (stripping a résumé of any indicators of gender identity or race) to broaden talent pools (see sidebar, “About the research”).

Replace mentorship with sponsorship

Black tech professionals change companies every three and a half years on average, compared with every five or more years for their non-Black counterparts. This pattern continues over the course of a career: Black professionals with 21 years or more of tech experience have changed companies more than seven times on average, compared with six times for their non-Black peers. 8 Cecyl Hobbs, “Shaping the future of leadership for Black tech talent,” Russell Reynolds Associates, January 27, 2022. The higher attrition rate means Black talent is less likely to stay at a company long enough to be promoted.

In efforts to retain Black employees, some companies have created mentorship programs—but the programs aren’t always effective: across industries, only 13 percent of Black management-level employees and only 20 percent of Black entry-level employees strongly agree that their sponsors are effective at creating opportunities for them (Exhibit 4).

Mentorship programs may fail for a variety of reasons. A business may mandate mentor pairing for new hires, but often these relationships are transactional and lack the kind of connection that allows the relationship to last. (Employees who choose their mentees may do so according to familiar networks, like a shared school, or other factors that exclude Black employees.) Mentorship programs may also lack processes that guide mentors and mentees through the relationship and may only measure intangible or difficult-to-quantify metrics, like satisfaction in your mentor.

Ultimately, mentorship is not enough to keep Black tech employees from leaving companies. Sponsorship —the idea that senior leaders are tasked with creating apprenticeship and networking opportunities, as well as helping talent navigate transitions at work like a promotion—is more impactful. These relationships require both parties to create a development strategy with specific goals that are measurable.

Enabling Black leaders to thrive

When asked what they believe are the top three most important initiatives for advancing Black talent in tech, 83 percent of Black tech employees we surveyed said advancement opportunities were among the top three most important components of growth for Black tech talent, more than inclusion seminars or external advocacy and investment. More than a third said advancement opportunities were the most important factor. There are additional ways companies can support Black tech talent beyond advancement opportunities, particularly when it comes to fostering an inclusive workplace (Exhibit 5).

Even when Black employees in tech successfully complete corporate leadership and executive training programs, a promotion may remain elusive. This may happen for two reasons: an existing Black tech leader might be skilled in one area (for example, IT project management) but lack the skills required in another (for example, data science) to grow into a C-suite-level executive role. Upskilling these employees in tech’s fastest-growing areas is one way they can be supported.

Additionally, businesses that are too focused on training Black tech talent without adopting organizational change are setting those employees up for failure. Partnering with organizations that create leadership training programs for aspiring leaders as well as existing leaders creates two streams of parallel growth at a company. It’s also important that these organizations are specifically focused on elevating Black tech talent, as general executive leadership programs may overlook some of the nuances of the Black experience in technology that shape someone’s career journey.

The Information Technology Senior Management Forum (ITSMF), a charitable organization that counts Amazon Web Services and PepsiCo among its partners, serves as an example of how to do this successfully. ITSMF offers a leadership academy for future Black tech talent, in addition to a management academy tailored for existing executives. Businesses that partner with ITSMF also engage in unconscious bias or cultural intelligence workshops and cohost networking events for prospective executive talent. Up to 80 percent of ITSMF leadership academy graduates received promotions within 18 months of completing the program, according to the group.

Seizing these five opportunities—at the K–12 level, in higher education, with alternatively skilled talent, in sponsorship, and in leadership training—will help to close the Black tech talent gap. Many businesses today are undertaking resiliency measures to prepare for tough times ahead and help curb losses. It is during such times of economic uncertainty when it’s both easiest for businesses to cut critical investments in Black tech talent, and when it’s most important not to.

Jan Shelly Brown is a partner in McKinsey’s New Jersey office, where Chris Perkins is an associate partner; Matthew Finney is a consultant in the Bay Area office; and Mark McMillan is a senior partner in the Washington, DC, office.

The authors wish to thank Tanguy Catlin, Tiffany Chen, Rob Levin, Roger Roberts, and Sonia Shah for their contributions to this article.

This article was edited by Alexandra Mondalek, an editor in the New York office.

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Changing Partisan Coalitions in a Politically Divided Nation

2. partisanship by race, ethnicity and education, table of contents.

• What this report tells us – and what it doesn’t
• Partisans and partisan leaners in the U.S. electorate
• Party identification and ideology
• Education and partisanship
• Education, race and partisanship
• Partisanship by race and gender
• Partisanship across educational and gender groups by race and ethnicity
• Gender and partisanship
• Parents are more Republican than voters without children
• Partisanship among men and women within age groups
• Race, age and partisanship
• The partisanship of generational cohorts
• Religion, race and ethnicity, and partisanship
• Party identification among atheists, agnostics and ‘nothing in particular’
• Partisanship and religious service attendance
• Partisanship by income groups
• The relationship between income and partisanship differs by education
• Union members remain more Democratic than Republican
• Homeowners are more Republican than renters
• Partisanship of military veterans
• Demographic differences in partisanship by community type
• Race and ethnicity
• Age and the U.S. electorate
• Education by race and ethnicity
• Religious affiliation
• Ideological composition of voters
• Acknowledgments
• Overview of survey methodologies
• The 2023 American Trends Panel profile survey methodology
• Measuring party identification across survey modes
• Adjusting telephone survey trends
• Appendix B: Religious category definitions
• Appendix C: Age cohort definitions

As has long been the case, White voters are much more likely than those in other racial and ethnic groups to associate with the Republican Party. Hispanic and Asian voters tilt more Democratic. Black voters remain overwhelmingly Democratic.

However, there have been some shifts toward the GOP in most groups in recent years.

The Republican Party now holds a 15 percentage point advantage among White voters: 56% of non-Hispanic White voters identify with or lean toward the Republican Party, while 41% align with the Democratic Party.

• This double-digit lead for the GOP among White voters has held for more than a decade. The last time White voters were about equally split between the two parties was in 2008.

About six-in-ten Hispanic voters (61%) are Democrats or lean to the Democratic Party, while 35% are Republicans or Republican leaners.

• The Democratic Party’s edge among Hispanic voters over the last two years is somewhat narrower than it was in years prior.

Black voters continue to overwhelmingly associate with the Democratic Party, although the extent of the Democratic advantage among this group has fallen off over the last few years.

• Currently, 83% of Black voters are Democrats or lean Democratic, while 12% align with the GOP.
• As recently as 2020, the share associating with the Democratic Party was 5 percentage points higher. That somewhat larger edge in party affiliation had been in place for much of the last two decades.

About six-in-ten Asian voters (63%) align with the Democratic Party, while 36% are oriented toward the GOP.

• The balance of partisan association among Asian voters has changed little over the last few years.

The relationship between education and partisanship has shifted significantly since the early years of the 21st century.

• The Republican Party now holds a 6 percentage point advantage over the Democratic Party (51% to 45%) among voters who do not have a bachelor’s degree. Voters who do not have a four-year degree make up a 60% majority of all registered voters.
• By comparison, the Democratic Party has a 13-point advantage (55% vs. 42%) among those with a bachelor’s degree or more formal education.

This pattern is relatively recent. In fact, until about two decades ago the Republican Party fared better among college graduates and worse among those without a college degree.

In the last years of George W. Bush’s presidency and the first year of Barack Obama’s, Democrats had a double-digit advantage in affiliation over Republicans among voters without a college degree. For example, in 2007, 56% of voters without a degree were Democrats or leaned Democratic, while 42% were Republicans or GOP leaners. This group was narrowly divided between the two parties for most of the next 15 years, but in the last few years it has tilted more Republican.

College graduates moved in the opposite direction, becoming more Democratic over this same period.

• Since 2017, the gap in partisanship between college graduates and those without a degree has been wider than at any previous point in Pew Research Center surveys dating back to the 1990s.

Voters with postgraduate degrees are even more Democratic than those with bachelor’s degrees. About six-in-ten registered voters who have a postgraduate degree (61%) identify with or lean toward the Democratic Party, while 37% associate with the Republican Party. Voters with a bachelor’s degree but no graduate degree are more closely divided: 51% Democratic, 46% Republican.

Voters with a high school degree or less education and those who have attended some college but do not have a bachelor’s degree both tilt Republican by similar margins.

White voters are far more polarized along educational lines than are Hispanic and Black voters.

White voters by education

By nearly two-to-one (63% vs. 33%), White voters without a bachelor’s degree associate with the Republican Party.

The GOP’s advantage among this group has remained relatively steady over the last several years but reflects a major shift since 2009. This group is now substantially more Republican-oriented than at any prior point in the last three decades.

Today, White voters with a bachelor’s degree are closely divided between associating with the Democratic Party (51%) and the Republican Party (47%). Prior to 2005, this group had a clear Republican orientation.

Hispanic voters by education

In contrast, there are no meaningful differences in the partisan leanings of Hispanic voters with and without bachelor’s degrees. Democrats hold a clear advantage in affiliation among both groups of Hispanic voters, although the share of Hispanics (both those with and without bachelor’s degrees) who align with the Democratic Party has edged lower in recent years.

Black voters by education

Black voters both with (79%) and without college degrees (85%) remain overwhelmingly Democratic in their partisan affinity.

Black college graduates are somewhat less closely aligned with the Democratic Party now than they were for most of the prior three decades (for most of this period, 85% or more of Black college graduate voters affiliated with the Democratic Party).

Asian voters by education

Two-thirds of Asian voters with a college degree align with the Democratic Party; 31% associate with the Republican Party. The partisan balance among Asian voters with a college degree has remained largely the same over our last two decades of surveys. (Asian American voters without a college degree are a smaller group, and sample sizes do not allow for reporting trends among this group.)

Visit the chapter on partisanship by gender, sexual orientation and marital and parental status for discussion of overall trends among men and women.

Six-in-ten White men who are registered voters identify as Republicans or lean Republican, as do 53% of White women voters.

The balance of partisanship among White women voters has tilted toward the GOP in recent years, but it was more divided in 2017 and 2018.

Among Hispanic voters, about six-in-ten men (61%) and women (60%) associate with the Democrats. Hispanic women voters have become somewhat less Democratic in recent years (down from 74% in 2016).

About eight-in-ten Black voters – both women (84%) and men (81%) – are Democrats or Democratic leaners.

About six-in-ten men (61%) and women (64%) among Asian voters identify as Democrats or lean toward the Democratic Party. (There is insufficient sample to show longer-term trends among Asian voters by gender.)

Among White voters, there are wide differences in partisanship by gender, by educational attainment – and by the combination of these.

• Among White voters without a college degree, 64% of men and 62% of women say they identify as or lean toward the Republican Party (about a third of each associate with the Democrats).
• White men with a college degree also tilt Republican among voters, though to a lesser extent (53% are Republicans or lean Republican, 45% are Democrats or lean Democratic).
• In contrast, White women with a college degree are more Democratic than Republican by 15 percentage points (42% Republican or Republican leaning, 57% Democrat or lean Democrat).

Among Black and Hispanic voters, there are only modest differences in partisanship across the combination of gender and education. In both groups, there are no significant differences between men with and without college degrees, or between their women counterparts. (Because Asian American voters without a college degree are a small group, sample sizes do not allow comparing college and non-college Asian men and women.)

This dynamic has changed over time, as college-educated White men and women have grown more Democratic and those with less formal education have grown more Republican.

As recently as 15 years ago, there were sizable gender gaps in partisanship among both college and non-college White voters. In both cases, men were substantially more likely than women to associate with the Republican Party.

But, at that time, there was not a substantial difference in the partisanship of college and non-college White voters – for either women or men.

Today, there is no gender gap in partisanship among non-college White voters, while there is a gender gap among college graduate White voters. The difference in partisanship between White women voters who have a college degree and those who do not, in particular, is quite large.

By contrast, there is little variation in the partisanship of Black and Hispanic voters by these characteristics, and the relationship has varied less over time.

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