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CFA® Level I · Equities · free lesson
Equity Analyst Research Reports
Equity research reaches investors through written reports, from a broker's initiation of coverage to an internal memo for a portfolio manager to a short seller's public attack on a company. This module explains what a complete company research report contains, how sell-side, buy-side and activist short-seller research differ in purpose and incentives, and why analysts using the same valuation model can reach very different values.
What you will learn
1. Describe the elements that a detailed company research report, such as an initiation of coverage, should contain.
- Lead with the recommendation, target price, horizon, expected return and core thesis.
- Cover the business, the industry and competitive position, financial forecasts and valuation.
- State key risks, catalysts and scenario-based sensitivity of the target price.
- Include governance, ESG and full disclosure of ratings and conflicts of interest.
- Recommendation, target price, forecasts and valuation must be internally consistent.
2. Compare sell-side, buy-side and activist short-seller research in terms of purpose, audience, incentives and the conclusions they reach.
- Sell-side: published ratings and target prices for clients; conflicts with banking and access to management.
- Buy-side: internal, unpublished research focused on position decisions and portfolio fit.
- Activist short sellers publish negative research after shorting and profit if the price falls.
- Evaluate short reports on their evidence while recognizing the author's incentive.
- Regulation (research-banking separation, conflict disclosure, research unbundling) addresses sell-side conflicts.
3. Explain why analysts using the same valuation model can reach different value estimates because of their assumptions about revenue, profitability, investment and financing.
- Same model, different values: the gap comes from revenue, profitability, investment and financing assumptions.
- Growth without matching reinvestment overstates free cash flow and value.
- Value is very sensitive to WACC and terminal growth through 1 / (WACC - g).
- Leverage magnifies differences in firm value when translated into equity value per share.
- Use sensitivity tables to show which assumptions drive the difference.
Module at a glance
- A complete report covers thesis, rating, target price, business, industry, forecasts, valuation, risks, governance and disclosures.
- Expected total return = (target price - price + dividends) / price; the rating must be consistent with it.
- Sell-side research is published for clients and faces banking and access conflicts.
- Buy-side research is internal and framed around portfolio positioning.
- Activist short sellers profit from price falls; judge their reports on the evidence.
- Different values from the same model come from revenue, margin, reinvestment and financing assumptions.
- WACC and terminal growth usually drive the biggest differences; show sensitivity.
This free module has 3 lessons, 11 practice questions with full explanations.