Overview
For the equity research report, you will put yourself in the shoes of a stock analyst to study,
examine, and value your chosen company before making a buy or sell recommendation based on
the current stock price.
An equity research report is generally prepared by equity analysts in investment banking houses
to provide information to investing clients, advisors, and other interested parties about the stock’s
future potential and to recommend a purchase or sale of the stock.
The analyst would recommend buying a stock if he estimates the value of a share to be greater
than the price which you can buy it on the market. Similarly, he would make a sell recommendation
if he values the company below its current market price. There is some evidence that analyst
reports are positively biased, because of lack of incentives to produce negative reports. Of course,
you can prepare your own unbiased report and use it for your own internal consumption at the time
of investing. The idea is to find good bargains and avoid buying overvalued stocks. This is tough
because securities usually trade at their fair price if markets are fairly informationally efficient.
There are several different valuation techniques. The valuation principle you will use for to
estimate the firm’s value is known as the discounted cash flow method, or “fundamental
valuation.” You will do this by first forecasting the expected future cash flows and then discounting
those cash flows back to present value. The discount rate is based on the riskiness of the forecasted
free cash flows. After these cash flows are discounted back to present value, you adjust the
estimated firm value for debt and preferred stock outstanding, and divide by the shares outstanding
for your target stock price.
The report will contain the following sections:
Executive Summary Analyst Name and Company, Firm being analyzed: Name and
Ticker Symbol, Price on report date, Forecast horizon,
Recommendation (Buy, hold or sell; or strong buy etc.), Target
forecasted price, Highlights, Summary of analysis
Qualitative Analysis Company profile or business description, Industry overview, SWOT
analysis, Management, Major owners, News, Summary of technical
analysis and charts
Financial Statements
Analysis
Ratio Analysis and Interpretation, Earnings Forecast, Growth
forecast, Trends over time and versus competitors
Risk and Pricing Risk factors, Computation of Required return or discount rate,
Calculate Fair Price, Compare with market, Recommendation
Appendix: Actual financial statements
The report usually contains an executive summary page with the key recommendation. This
recommendation should be based on very solid justification. Next, the report details the qualitative
analysis of the firm’s business and the industry conditions. Following this, is a financial statement
analysis section which numerically forecasts earnings and future dividends. Finally, you assess the
risk factors to compute the appropriate rate at which to discount future cash flows to arrive at the
fair price that should be paid for the stock. Any factual information and the actual financial
statements should be included in the appendix. The report itself should contain the interpretation
of these facts.
Also attaching the example reports and am attaching the Ratio Analysis Report which was worked on FEDEX CORP, please go through each document and start the assignment. Let me know if you have any questions
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