Analyst relations

An analyst investigates a public company and creates an analysis of where he thinks the company’s stock price will go. Based on this recommendation, stockbrokers may suggest to their clients that they alter their positions in a company’s stock. Given the multiplier effect of an analyst’s opinion, it is important to understand what analysts do and how to deal with them.

If a company has attracted the attention of analysts, how do you deal with them? It is illegal to pass confidential information to analysts, as per Regulation FD, but there are some options available for making them feel more welcome, including:

  • Provide guidance. If the company is not already providing guidance, start doing so. Issuing estimates of future earnings reduces the workload of analysts, since they do not have to rely so much on their own models to derive earnings estimates. Also, if there is a sudden change in the company’s prospects, issue updated guidance soon thereafter, so that analysts can react to it and modify their own projections concerning the company.

  • Schedule earnings calls. Give analysts the opportunity to ask questions of management by scheduling earnings calls following the release of quarterly and annual results.

  • Allow direct meetings. If an analyst wants to meet with senior management or obtain a tour of the company facilities, by all means do so. These meetings give analysts excellent background information about the company, which they can use in their analyses. For example, they can estimate how many people work for the company by counting the cars in the parking lot, or back into its working capital requirements by estimating the amount of inventory in the warehouse. Management can also discuss their views of the industry as a whole, or of competitors, which gives analysts additional information about the competitive environment, as well as how the senior management team thinks.

  • Send filings and press releases. Whenever the company issues a filing to the SEC, or issues a press release or fact sheet, send a copy to the analyst. There should be a mailing list for all analysts covering the company, to track who should receive these materials.

If the company elects to allow meetings between analysts and employees, exercise care in determining which employees should meet with the analysts. The selected individuals should be briefed in advance on standard questions and answers, when to pass queries along to someone more qualified to answer them, and which types of information have not yet been released to the public, and therefore should not be discussed. Generally, it is easiest to restrict meetings with analysts to just a few people who are routinely briefed on company activities, and who know how to deal with analysts. This means the CEO and CFO should be prepared to talk to analysts on a regular basis.

When an analyst writes a research report about a company, he may send a copy to the company, asking for comments. If so, it is acceptable to fact-check the document and give feedback on any items that are demonstrably incorrect. However, do not re-write the report, since a litigation-minded investor could use a marked-up report version as evidence that the company is unduly influencing those analysts providing coverage. Further, do not question or otherwise comment upon the conclusions reached by an analyst, since doing so implies that the company is bringing pressure to bear upon the analyst to change his opinion.

In short, to make the analyst’s job easier, make sure that they receive all information that has been issued to the public, offer solidly achievable guidance, and give them ongoing access to the senior management team. By doing so, they will have a thorough understanding of the company’s operational and financial structure, and so should be able to arrive at their own estimates of company results that roughly coincide with what the company eventually reports.

Related Courses

Investor Relations Guidebook 
Public Company Accounting and Finance