What to Look for in an Analyst Report

Much of the worthwhile information in an analyst report isn’t in the rating but in the insights about the company, management, and industry. Many investors who read Wall Street analyst reports tend to concentrate on the analyst’s rating. These investors want to know instantly whether the stock is rated a buy, hold, or sell. Savvy investors often skip past the analyst’s rating on a stock.

Pay the most attention to these portions of the report:

  • Industry comparisons: Many Wall Street analysts are assigned to cover companies in a specific industry. As a result, these analysts spend time going to industry conferences, meeting with employees, customers, and suppliers to build deep knowledge of industry trends. Industry information is one of the top things you should look for. Pay special attention to any signs that one company is taking market share from other competitors.

  • Channel checks: The better industry analysts take the time to see how much of the product that companies are shipping is actually making it into the hands of customers. The process of tracking the flow of goods from the company to warehouses to resellers and retailers and ultimately to consumers is called a channel check.

    If you get the feeling the company is shipping product that’s just stacking up on retailers’ shelves, that’s a bad sign. A pileup of product might indicate the company is trying to boost its earnings in the short term and might suffer later as the glut of products is sold off.

  • Price-target justification: Analysts often use a variety of stock valuation techniques to put a price target on a stock. A price target is the analyst’s best guess at how much the stock might be worth in the future, usually one year from now. The most interesting part of the price target is often analysts’ explanation of how they arrived at the number.

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