What Is an Equity Research Report?

An equity research report is a business document coming from an equity research analyst to provide essential and critical information to help investors decide whether to buy, hold, or sell shares of a public institution. The equity research report also provides an overview of a particular business with the industry they function in, the management teams, the financial performance, target price, recommendations, valuation, investment thesis, and potential risks. It is essential to stress the significance of the equity research analyst in the production of the document. Equity research analysts specialize in multiple companies within an industry or location to develop accurate and high-level expertise of projects and recommendations. They also focus on small groups of stocks and stakeholders to be specialists in the area they evaluate and observe.

According to the available data on Glassdoor about equity research analysts, the national average salary of this occupation in the United States falls on 109,841 US dollars. Each business entity that deals with equity research provide analysts with different salaries. For example, on average, JP Morgan gives a salary of a little over 100 thousand US dollars a year. Meanwhile, Wellington Management provides a generous amount of over 168 thousand US dollars annually.

Types of Equity Research Reports

Since equity reports are necessary tools for selling or buying shares and stocks of a company, they must hold the information to guide investors in the decision-making process. Equity research reports target various markets and industries that equity research analysts have to construct a document that must cater to investor needs. Below are several types of equity research reports available to individuals who seek to sell or purchase stocks and assets from organizations.

Initiation report: From the name itself, initiation reports represent the first report that a brokerage firm covers for a particular company. The document describes the initial report that a brokerage firm has of a company for the first time. The initiation report is the foremost documentation of assets from a firm about an organization with precise details that can be 20 to 50 pages in length. The information within the report contains stock details, overall competition, industry dynamics, and others.Sector report: Many brokerage firms keep their eyes on various industries and sectors and create sector reports up to date. These reports can be taxing and helpful to clients at the same time. The sector report focuses on information about industry dynamics, competitor market analysis, government regulations, and essential business forecasts.Strategic or Economic report: The strategic or economic report contains detailed information about general macroeconomics, currency fluctuations, and goods and services commodities, among others. This type of report plays a significant role for portfolio management and managers in decision-making processes about the country-specific flow of funds. Research analysts also utilize the strategic report to incorporate and explain any substantial correlations between different sectors.Quarterly result report: A quarterly result report typically ranges between two to three pages, emphasizing critical updates about an organization. The reports are generally smaller compared to other types and include only essential information regarding quarterly or annual results.Flash report: A flash news report contains information that proves to be essential to different clients worth communicating. Flash reports can be in the form of an email newsletter, email update, or a pop-up alert. The document focuses on events that are relevant to various sectors, including management changes, acquisitions, mergers, deal announcements, regulatory changes, and others.

Components of an Equity Research Report

Different types of equity research reports contain varying details, and no standard format for industries and sectors is present when creating the document. However, there are common elements that are available on the equity research report to make it effective. The section below provides an overview of the fundamental elements and information that are essential to make the research report helpful and effective.

Basic information: The research report must contain basic information about the company, including its ticker symbol, the primary channel for its trade sharing process, the sector and industry where it functions, investment recommendations, present stock market price, market capitalization, and the target market stock price. Equity research analysts can also consider incorporating the liquidity and float of stocks. The stock liquidity is the degree to which an asset can be purchased or sold without a direct effect on its price. Stock float refers to the number of shares publicly owned by a company obtainable through the trading market. Stock float is also smaller than market capitalization and is a critical consideration for institutional investors to make purchasing decisions.Business description: This section of the equity research report contains detailed information about the organization, including its products and services. It must present a clear understanding of company economics, indicating essential fundamental drivers of income and expenses. Obtaining information for the business description comes from the business itself through regulatory filings and industry publications.Industry overview and competitive analysis: Another essential section of the equity research report contains the industry dynamics and competitive analysis. Annual reports include a discussion of the company’s competitive market, with a close group of similarly functioning organizations as the basis for competitive analysis. Porter’s Five Forces framework for industry analysis serves as a competent tool for the health and competitive capabilities of the industry.Investment summary: The investment summary section contains information about the company, including significant developments from recent years, earnings forecast, valuation summary, and an investment action plan. If the equity research analyst recommends the purchase or sale, there must be a clear and concise explanation for its misprice. Valuation: This section of the equity research report includes a comprehensive valuation analysis using conventional metrics and formulas. The equity valuation models can produce absolute or relative values. Absolute valuation produces the intrinsic value of an asset in the form of discounted cash flow models. A relative equity model estimates the stock value of a company through a stock comparison using various metrics, including price and sales, price and earnings, price and cash flow, and price and book value. Financial analysis: Financial analysis is a comprehensive analysis of the company’s historical financial performance and foreseeable future performance. The financial results of a company often encounter manipulation to represent organizations in the most favorable position. Equity research analysts must also consider financial realities and must include financial disclosures as an integral part of any assessment process to calculate the quality of earnings. Distortion of financial analysis stems from off-balance-sheet financing, income and reserve recognition, and depreciation policies. Analysts must be careful when utilizing past trends for future predictions, especially when assessing cyclical organizations. Consider including industry-specific financial ratios as part of the financial analysis.Environmental, social, and governance: This section of the equity research report includes information about company relationships with environmental, social, and governance factors. The environmental element shows how an organization works towards conservation efforts for natural resources. It includes information about climate change, carbon emissions, air and water pollution, waste management, and energy efficiency. The social aspect considers internal and external relationships. It comprises community relations, employee engagement, human rights, customer satisfaction, labor standards, gender, and diversity. Governance involves the benchmarks for industry operations that involve board composition, bribery and corruption policies, audit committee structure, leadership experience, succession planning, and executive compensation.

How To Write Equity Research Reports

Equity research reports pose a great significance when making purchasing and selling decisions. The purpose of creating the report is to supply information to make recommendations on whether investors buy, hold, or sell shares of a public company. Below is a helpful guide that you can use to create an equity research report for your company.

  • 1. Possess a Clear Understanding of the Company

    Equity research analysts are professionals in their line of work for developing investment rationales, risk assessments, drivers for optimal growth, cost analysis, and revenue drivers that lead to various investment opportunities that investment banks, institutions, and other clients that show interest in investing. The research report aims to provide accurate financial assessments and recommendations for decisions about purchasing, holding, or selling investments. Banking institutions use equity research reports for investment banking sales to their client list through timely and factual information.

  • 2. Know About Product and Service Profiles and Segments

    It is the responsibility of the equity research analyst to analyze a company’s product profile, including all its segments and brands. Product research assists businesses in understanding what consumers want and need to classify their expectations, incorporating them into future productions. The products and service profiles must indicate the current market sales, forecasted revenue, costs, market trends, market size, competitive analysis, and performance analysis in the local and global market.

  • 3. Understanding About the Consumer Market

    It takes a lot of research papers and processes for a company to produce a product that caters to all its clients. Revenue is a crucial factor in the growth, development, and success of an organization. At present, many consumers understand industry influences that allow them to be critical and give special attention to more than just the products or services an organization sells. To the current market, the production, post-production, and selling techniques matter equally with the purchased goods.

  • 4. Research and Development Capabilities

    When writing equity research reports, pay attention to the research and development equity in which companies innovate and introduce new products and services to the general public. After understanding the customer market and product profiles, research and development is the next step to any planning process. The main objective of this step is to create fresh commodities for the people that will add to brand growth and recognition of the organization.

  • 5. Familiarize Yourself with the Sector and Industry

    The analysts and researchers responsible for looking after the social market industry are professionals with curious traits with objectives to conduct and design research reports, collect relevant and useful information, and provide appropriate insights about various industries. Analysts do their duties and responsibilities to deliver informative reports that support private corporations and public institutions to make judgments derived from scientific evidence and data.

FAQs

What should an equity research report include?

To make an equity research report relevant to investors, it must contain precise information about an organization’s products and services, financial statements, organizational management, client market, plans, growth estimates, and risk factors.

Where can I find equity research reports?

There are various places where you can find equity research reports, including Thomson ONE, Mergent Online, Bloomberg, Morningstar Investment Research Center, among others.

Who uses equity research reports?

From a business standpoint, an equity research analyst produces reports for two types of investment firms: the buying side and the selling side. These institutions are the ones that use equity research reports to determine whether to buy, hold, or sell assets of a company.

From the many types of business reports present in various industries, equity research reports are one of the most influential and most delicate documents that organizations obtain. Its importance resides in the decision-making process of purchasing, holding, or selling assets according to industry and market trends, especially the company profile. Equity research analyst provides their services to multiple organizations and produces the relevant equity research reports depending on the company’s request and usage. If you are a starting equity research analyst, the sample equity research reports in this article will help you begin your journey. Download the samples available today!