Equity Research

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Equity research professionals are responsible for producing analysis, recommendations, and reports on potential investment opportunities for investment banks, institutions, and/or their clients. Typically, the Equity Research Division is a team of analysts and associates at an investment bank (sell side), an institution (buy side), or an independent organization.

The main purpose of equity research is to provide investors with detailed financial analysis and recommendations on whether to buy, hold, or sell a particular investment. Banks often use equity research as a way of “supporting” their clients, by providing relevant, high-quality information and analysis.¹

What Do Equity Researchers Do?

Firstly, “Equity” refers to a percentage of a company. So “Equity Researchers” do research on companies to gain insight on whether that company is a good one or not. Furthermore, the main task in equity research is providing investment insights to clients, sometimes through reports. These reports range from quick updates (aka “flash reports”) to in-depth, “initiating coverage” reports. Essentially, the job of an equity research associate or analyst is to constantly be analyzing companies and publishing your findings in a clear and concise manner.

Working in equity research is not too different from being a finance-focused university student. There are lots of “assignments” or “papers” due with fairly regular deadlines, such as when a company releases quarterly results (aka an update on how the company is doing and their forward-looking goals) or announces something note-worthy.²

The main components of an equity research report typically include:

Industry research (competitors, trends, etc.)
Overview on Company’s Management and additional commentary/insights
Historical financial results
Forecasting Expected Future Results
Valuation (aka how much you think the company is worth)
Recommendations (on whether to buy, sell, or hold stock in the company) ³

Industry Research

This section outlines trends in the relevant industry for the company you are analyzing. This includes new areas of innovation, information on competitors, political/economic influences that may affect the company’s results, etc.

Additional Commentary And Insights

Here the researchers will provide insights to the company that are less tangible but still very important, such as an overview on the company’s Management. Equity researchers tend to have access to management, and can ask them questions via public conference calls and other occasions. It can be useful to an investor to get a bit of an inside look and opinion on who is running a company and how they are doing/what their vision is going forward.⁴

Historical Financial Results

Equity research is largely responsible for analyzing past financial results of a company and creating financial models to predict how they will perform in the future. Additionally, they must compare a company’s actual results to their predictions, once the time comes, and adjust their forward-looking view on the company as necessary.

Forecasting Expected Future Results

This is similar to the historical results section, but is more forward looking. Based on financial models, the equity research team must attempt to predict future results and defend their thesis with data, mathematical insights, and logical, business-based reasoning. This is important for investors who wish to develop a forward-looking opinion on a company since the only way to guess what will happen in the future is to attempt to make sense of what has happened already.

Valuation of the company

This section is where the equity research team puts a number on how much they think the company is worth. They make necessary assumptions and use various financial models and influential factors to put a price-tag on the entire company.

Recommendations

All of the prior sections lead up to this one. The equity researchers take all necessary information into account and give a recommendation on whether they believe it is a good investment or not. Additionally, they summarize why or why not they believe what they do. Usually these recommendations come in the following formats/language:

Buy = Overweight = Long (aka it’s a good opportunity and you should invest)
Hold = Market Weight = Neutral (aka the opportunity is fine, but not necessarily good or bad at its current price)
Sell = Underweight = Short (aka the opportunity is not good, and if you are already invested you should sell what you own)⁵

Equity Research Real-Life Analogy:

What is the point of Equity Researchers giving reports and/or insights on companies? One way to think of it is through this analogy:

When deciding what to wear for the day, I can turn on the television and watch the weatherman give their daily report. Ultimately they give their weather prediction for the day. That report might end up being inaccurate, but it is their thoughts, based on their expertise. While not everybody chooses to use (or needs to use) the weather report to help them make a decision, it can be very useful for many people!

Typical Equity Research Hierarchy:

This can vary from company to company, but a typical team hierarchy can be seen in the diagram from wallstreetmojo below:

What types of Equity Research Jobs are out there?

Most financial institutions that invest in stocks/equities have some form of equity research. The most common types of companies that have equity research positions are:

Investment Banks (aka Goldman Sachs, Morgan Stanley, Bank of America, etc.)
Hedge Funds
Private Equity
Proprietary Trading Firms
Financial/Equity Research Companies

What types of skills are necessary to be successful in Equity Research?

Analytical Thinking
Able to work well with numbers and data
Organization Skills
Communication Skills
Curiosity
Business-Acumen
Relevant Industry Interest
Writing Skills

What are some challenges of working in Equity Research?

Very competitive to develop accurate opinions on companies/industries
Research Reports can be more political than you think, since analysts are giving an opinion on a company (not always fact)
Can be stressful and difficult completing things within time constraints
Your opinions are often made very public, so you need to be okay dealing with criticism and backlash to your reports

What are some benefits of working in Equity Research?

Get to work with very smart people
Learn a lot about companies and industries
Your name is often attached to reports you publish, which is good for building a name/brand for yourself
Build a network with clients, your team, and sometimes companies that you analyze
Good Compensation
Hours not as bad as some other finance jobs
A lot of exit opportunities (in the investing world)

Typical Salary?

Salary tends to be mostly a base salary (especially early on) and is similar to the Investment Banking base salary (if you work at a bank). This has a wide range depending on your experience, and where you work, but typically is between ~$62k-$140k for total compensation, according to glassdoor.

Entry-level, if you work at a big bank, you can expect a base salary to be around $70k-$85k.

Should I go into Equity Research?

If you want exposure to analyzing companies and industries, and want to create reports and investment-related theses, you should consider a career in Equity Research. Equity research is a great way to learn a lot about the investment research process, and because you’ll have this experience, you will have a lot of exit opportunities in an investment-related field. Some typical. examples are: hedge funds, trading firms, banks, financial research companies, etc.

Relevant Discussion Forums

Want To Further Discuss Equity Research?

Related Careers:

Financial Analyst

Investment Banking

Quantitative Research (Quant)

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