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The Value of Equity Research

Equity research is an invaluable asset for anyone looking to stay up-to-date on market and industry trends. In this guide, you will learn about the type of information contained in equity research, the value it offers to corporate professionals, and how the most advanced teams are already leveraging the expertise of Wall Street’s top analysts to inform critical business decisions.

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Introduction.

Equity research, which forms a multi-billion dollar industry for investment banks, is produced by thousands of analysts worldwide to provide the market with valuable information on companies, industries, and market trends. Today, over 90% of equity research is consumed by fund managers, who have the Wall Street relationships to acquire it and the analyst resources to mine it for insights. For corporate strategy professionals who lack this access, however, equity research has historically been challenging to obtain and navigate.

To help corporations circumvent these challenges, AlphaSense has introduced Wall Street Insights, the first and only equity research collection purpose-built for the corporate user. Through the AlphaSense platform, any business making strategic plans or product decisions, conducting competitive analysis, evaluating M&A, or engaging in investor relations can now tap into the deep industry expertise of Wall Street’s top analysts.

What is Equity Research?

Equity research is developed by sell-side firms to help investors and hedge fund managers discover market opportunities and make informed investment decisions. Increasingly, this expert analysis has also been identified by forward-looking corporations as a highly valuable tool to inform strategic decision-making.

There are thousands of sell-side firms that employ expert analysts around the globe to write equity research for the market. The majority of firms producing equity research are hyper-focused and only have one or two analysts developing reports on a specific industry. However, larger firms, such as Morgan Stanley and Bank of America, collectively employ thousands of analysts to write reports on thousands of public companies–covering everything from TMT giants to niche products.

Equity research analysts are deep subject matter experts who are often former executives, industry veterans, or academics. These analysts conduct in-depth research and publish reports on corporations, industries, and macro trends, offering an expert lens into a subject.

Historically, over 90% of equity research was consumed by buy-side fund managers, who had the Wall Street relationships to acquire it and the analyst resources to mine it for insights. For buy-side professionals, equity research is a critical tool to inform sound investment decisions backed by expert insights.

Today, equity research is increasingly relied upon by corporate teams as a high-value source of information. These teams leverage equity research to make strategic business plans, conduct competitive analysis, evaluate mergers and acquisitions, and make product and marketing decisions. For corporations, the value of equity research lies in the detailed coverage of their company, their competitors, and how they are performing related to the marketplace they are within.

What is an Equity Research Report?

An equity research report is a document prepared by an equity research analyst that often provides insight on whether investors should buy, hold, or sell shares of a public company. In an equity research report, an analyst lays out their recommendation, target price, investment thesis, valuation, and risks.

There are multiple forms of equity research, including (but not limited to):

An update report that highlights the latest news, company announcements, earnings reports, Buy Sell Hold ratings, M&A activity, anything that impacts the value of the company.

A comprehensive company report that is compiled when an analyst or firm initiates their coverage of a stock. Initiation reports cover all of the divisions and products of a company in-depth to provide a baseline of what the company is and how it is performing. Initiation reports can be tens to hundreds of pages long, depending on the complexity of a company.

General industry updates that cover a group of similar companies within a sector. Industry-specific reports typically dive into additional factors such as loan growth, interest rates, interest income, net income, and regulatory capital.

A report compiled by research firms either daily or weekly. These reports can often be a great place to get more in-depth insight on commodities and also get market opinions from commodity analysts or traders who write the reports.

A quick 1-2 page report that comments on a news release from a company or other quick information

What is Included in a Typical Equity Research Report?

Research reports don’t need to follow a specific formula. Analysts at different investment banks have some latitude in determining the look and feel of their reports. But more often than not, research reports follow a certain protocol of what investors expect them to look like.

A typical equity research report includes in-depth industry research, management analysis, financial histories, trends, forecasting, valuations, and recommendations for investors. Sometimes called broker research reports or investment research reports, equity research reports are designed to provide a comprehensive snapshot that investors or corporate leaders can leverage to make informed decisions.

Here’s a quick overview of what a standard equity research report covers:

This section covers events, such as quarterly results, guidance, and general company updates.

Upgrades/Downgrades are positive or negative changes in an analyst’s outlook of a particular stock valuation. These updates are usually triggered by qualitative and quantitative analysis that contributes to an increase or decrease in the financial valuation of that security.

Estimates are detailed projections of what a company will earn over the next several years. Valuations of those earnings estimates form price targets. The price target is based on assumptions about the asset’s future supply & demand and fundamentals.

Management Overview and Commentary helps potential investors understand the quality and makeup of a company’s management team. This section can also include a history of leadership within the company and their record with capital allocation, ESG, compensation, incentives, stock ownership. Plus, an overview of the company’s board of directors.

This section covers competitors, industry trends, and a company’s standing among its sector. Industry research includes everything from politics to economics, social trends, technological innovation, and more.

Historical Financial Results typically cover the history of a company’s stock, plus expectations based on the current market and events surrounding it. To determine if a company is at or above market expectations, Analysts must deeply understand the history of a specific industry and find patterns or trends to support their recommendations.

Based on the market analysis, historical financial results, etc., an analyst will run equity valuation models. In some cases, analysts will run more than one valuation model to determine the worth of company stock or asset.

Absolute valuation models : calculates a company’s or asset’s inherent value.

Relative equity valuation models : calculates a company’s or asset’s value relative to another company or asset. Relative valuations base their numbers on price/sales, price/earnings, price/cash flow.

An equity research analyst’s recommendation to buy, hold, or sell. The analyst also will have a target price that tells investors where they expect the stock to be in a year’s time.

What Does an Equity Research Analyst Do?

Equity research analysts exist on both the buy-side and the sell-side of the financial services market. Although these roles differ, both buy-side and sell-side analysts produce reports, projections, and recommendations for specific companies and stocks.

An equity research analyst specializes in a group of companies in a particular industry or country to develop high-level expertise and produce accurate projects and recommendations. Since ER analysts generally focus on a small set of stocks (5-20), they become specialists in those specific companies and industries that they evaluate or follow. These analysts monitor market data and news reports and speak to contacts within the companies/industries they study to update their research daily.

Analysts need to comprehend everything about their ‘coverage’ to give investment endorsements. Equity research analysts must be conversant with the business regulations and regime policies within the country to decide how it will affect the market environment and business in general. The more you understand the industries in detail, the easier it will be for you to decipher market dynamics.

One prevalent aspect of an equity research analyst’s job is building and maintaining valuable relationships with corporate leaders, clients, and peers. Equity research is largely about an analyst’s ability to service clients and provide insightful ideas that positively influence their investing strategy.

EQUITY RESEARCH ANALYSTS:

• Analyze stocks to help portfolio managers make better-informed investment decisions.
• Analyze a stock against market activity to predict a stock’s outlook.
• Develop investment models and provide trading strategies.
• Provide expertise on markets and industries based on their competitive analysis, business analysis, and market research.
• Use data to model and measure the financial risk associated with particular investment decisions.
• Understand the details of various markets to compare a company’s and sector’s stock

Buy-Side vs. Sell-Side Analysts

Although the roles of buy-side and sell-side analysts do overlap in some respects, the purpose of their research differs.

How Do Corporates Currently Access Equity Research?

If you were to Google “equity research reports,” you would not get access to equity research, earnings call transcripts or trade journals. You would, however, discover an unmanageable amount of noise to sift through.

Accessing equity research reports is highly dependent on relationships and entitlements, particularly for corporate teams. Unlike financial firms and investor relations teams, who can access equity research by procuring the right entitlements, corporate teams have a much harder time finding and purchasing high-quality equity research.

If you were to search online for equity research, for example, you would be presented with sub-par options such as:

Some websites allow you to search for research reports on companies or by firms. Some of the reports are free, but you must pay for most of them. Prices range from just $15 to thousands of dollars.

If you want just the bottom-line recommendations from analysts, many sites summarize the data. Nearly all the websites that provide stock quotes also compile analyst recommendations, however, you will only get the big picture and not any of the detailed analysis.

Some independent research providers sell their reports directly to investors. These reports typically include an overview of what a stock’s price could be, plus an analysis of the company’s earnings. These reports often cost less than $100 but can be more.

The majority of equity research is completely unsearchable, which is why AlphaSense’s Wall Street Insights is changing the game for corporations globally. Now, with WSI, corporations can leverage this high-quality research to augment their understanding of specific companies and industries; plus, AlphaSense’s corporate clients can now conduct more meaningful analysis and make more data-driven decisions.

Real-Time Research : Real-Time research is available to eligible users (based on an entitlement) immediately upon publication by the broker. Financial Services users with entitlements are the primary consumers of real-time research, while some Corporate professionals are also eligible. Payment for real-time research is made directly from clients to brokers through trading commissions or hard dollar agreements.

Aftermarket Research : Aftermarket research is a collection of many of the same documents as the real-time collection, but it is available after a zero to fifteen-day delay. Investment bankers, consultants, and corporate users are the primary consumers of Aftermarket research.

What is Wall Street Insights?

Wall Street Insights is the first and only equity research collection purpose-built for the corporate market, providing corporations unprecedented access to a deep pool of equity research reports from thousands of expert analysts.

Through partnerships with Morgan Stanley, Bank of America, Barclays, Bernstein, Bernstein Autonomous, Cowen, Deutsche Bank, Evercore ISI, HSBC, and others, corporate professionals can now access the world’s most revered equity research, indexed and searchable in the AlphaSense platform.

From macro market trends and industry analyses to company deep-dives, the Wall Street Insights content collection provides corporate professionals with a 360-degree view of every market. With the valuable expertise of thousands of analysts on your side, corporate teams can quickly compare insights, validate internal assumptions, and generate new ideas to guide critical business decisions and strategies.

In terms of search and accessibility, Wall Street Insights is the first of its kind. Not only does AlphaSense offer hard-to-find equity research reports, but we also provide a robust and seamless search experience.

What Research Do You Get Access to with WSI?

Get access to the world’s leading equity research with Wall Street Insights. Download the e-book to learn more about equity research from Morgan Stanley, Barclays, Bernstein, Deutsche Bank, and more.

“We are delighted to partner with AlphaSense to expand access to Morgan Stanley’s global research platform,” says Simon Bound, Global Head of Research at Morgan Stanley. We have over 600 publishing analysts covering companies, industries, commodities, and macroeconomic developments across more than 50 countries. Morgan Stanley will bring corporates a unique perspective from our best in class analysts, a global platform, and a collaborative culture that enables us to unravel the most complex market and industry trends.”

How Can Companies Leverage Equity Research?

Discover how the world’s most innovative companies leverage Wall Street Insights to make critical business decisions every day. Download the e-book to read real case studies from a Corporate Development team and a Corporate Strategy team.

“AlphaSense’s corporate users are typically Corporate Strategy, Corporate Development, and Investor Relations professionals. Today, thousands of enterprises rely on equity research to power data-driven decision making. These teams leverage equity research reports to:”

• Create investment ideas
• Monitor peers in real-time (and discover what equity research is being produced about them)
• Model and evaluate companies (for M&A or general benchmarking)
• Dive deep into customers, partners, and prospects
• Get up-to-speed quickly on specific industry trends
• Prepare for earnings season

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Equity Research

Investment banking, key differences, special considerations, the bottom line.

• Career Advice

Equity Research vs. Investment Banking: What's the Difference?

Equity Research vs. Investment Banking: An Overview

Investment banking may no longer be the undisputed first choice for the best and brightest. Instead of streaming into investment banking , many top graduates are now opting for careers in management consulting, technology, or launching their own startups. While the allure of investment banking may have dimmed, due to long hours and a stressful work environment, the industry still attracts many workers. Equity research is also another destination for prospective financial employees.

Equity research is sometimes viewed as the unglamorous, lower-paid cousin of investment banking. The reality, though, differs from this widely held perception. In order to help you formulate your own opinion, here's a head-to-head comparison of equity research (sell-side research that is conducted by the research departments of broker-dealers) and investment banking in 10 key areas.

Key Takeaways

• A career in finance can take many paths, including investment banking and equity research.
• Investment bankers work on M&A deals and issue new securities to the market.
• Equity researchers conduct thorough analysis and research of companies and their share price to issue investment recommendations.
• Each role has different responsibilities and hours, which will suit prospective candidates differently.
• The pay for investment bankers is a bit higher in the early career stage, especially when bonuses are included, and this gap further widens over the course of a career.

Equity researchers analyze stocks to help portfolio managers make better-informed investment decisions. Equity researchers employ problem-solving skills, data interpretation, and various other tools to understand and predict a given security’s behavioral outlook.

This often involves quantitatively analyzing a stock’s statistical data in relation to recent market activity. Finally, equity researchers may be tasked with developing investment models and screening tools that identify trading strategies that help  manage portfolio risk .

Equity researchers are responsible for identifying patterns with current market price changes and using this information to create algorithms that identify profitable stock investment opportunities. The equity researcher should be able to understand the idiosyncratic differences between various international markets in order to cross-compare domestic and foreign stocks.

The low end of the salary range is $52,000, while the high end sits at $147,000. The average salary is over 93,000 as of 2024. Private equity firms and other financial services companies are the chief employers of equity researchers. The majority of these jobs are based in New York City, although firms are increasingly offering positions in major metropolitan hubs like Chicago, Boston, and San Francisco.

Investment banking is a specific division of banking related to the raising of capital for other companies, governments, and other entities. Investment banks underwrite new debt and equity securities for all types of corporations; aid in the sale of securities; and help to facilitate  mergers and acquisitions , reorganizations, and broker trades for both institutions and private investors.

Investment banks also provide guidance to issuers regarding the issue and placement of stock. Investment banking positions can include elements of consulting, banking, capital market analysis,  research , trading, and much more. Each requires a specific skills to be developed.

A degree in finance, economics, accounting, or mathematics is a good start for an investment banking career. However, most investment banking jobs focus their recruiting on elite universities.

Those interested in investment banking should strongly consider pursuing a  Master of Business Administration  (MBA) or other professional qualifications.

Great people skills are a huge positive in any investment banking position. Even dedicated research analysts spend a lot of time working as part of a team or consulting with clients. Some positions require more of a sales touch than others, but comfort in a professional social environment is key. Other important skills include communication skills (explaining concepts to clients or other departments) and a high degree of initiative.

1. Work-Life Balance

Equity research is the clear winner here. Although 12-hour days on weekdays are the norm for equity research associates and analysts, there are at least phases of relative calm. The busiest times include initiating coverage on a sector or specific stock, and earnings season when corporate earnings reports have to be analyzed rapidly.

The hours in investment banking are almost always brutal, with 60-80 hours per week being a baseline for investment banking analysts (the lowest on the totem pole). During busy times, work weeks can be up to 100 hours or more.

There has been a growing backlash against the atrocious hours demanded by investment banking analysts. In response, Goldman Sachs has enacted a rule guaranteeing that bankers will not have to work between 9 p.m. Friday and 9 a.m. on Sunday. These restrictions may do little to change the "work hard, play hard" culture of investment banking.

The most common complaint of those who have quit investment banking is that the total lack of work-life balance leads to burnout. That complaint is seldom heard from those employed in equity research.

Major financial jobs tend to be concentrated in major financial hubs such as New York, Chicago, London, and Hong Kong. This is no different for equity research analysts and especially investment bankers, many of whom are paid to relocate to their firm's home city.

2. Visibility

Equity research is the winner in this area as well. Associates and junior analysts often receive recognition for their work by being named on research reports that are distributed to a firm's sales force, clients, and media outlets.

Since senior analysts are recognized experts on the companies they cover in a sector, they are sought after by the media for comments on these companies after they report earnings or announce a material development.

Investment bankers, on the other hand, toil in relative obscurity at the junior level; however, their visibility increases significantly as they climb the investment banking ladder, especially if they are part of a team that works on large, prestigious deals.

3. Advancement

Investment banking wins in this area. There is a clear path with defined time frames for career progression in investment banking. This begins with the analyst position (two to three years), then transitions to an associate position (three-plus years), after which one is in line to become a vice president and eventually director or managing director.

The career path in equity research is less clearly defined but generally goes as follows—associate, analyst, senior analyst, and, finally, vice president or director of research. Within the firm, however, investment bankers probably have better prospects for reaching the very top, since they are deal makers and manage relationships with the firm's biggest clients.

Research analysts, on the other hand, might be viewed as number crunchers who do not have the same ability to bring in big business.

4. Job Functions

Investment banking probably wins here as well, albeit only over the longer term. Equity research associates start off by doing a lot of financial modeling and analysis under the supervision of the analyst who is responsible for the coverage of a specific sector or group of companies.

Also, associates also communicate to a limited extent with buy-side clients, top management of the companies under coverage, and the firm's traders and salespeople. Over time, their responsibilities evolve to less financial modeling and a greater degree of report writing and formulating investment opinions and theses; however, there isn't a great deal of variability in the job functions of associates and analysts. What varies is the relative time spent on these functions.

Investment bankers, on the other hand, spend the first few years of their careers immersed in financial modeling, comparative analysis, and preparing presentations and pitchbooks . But as they climb the ladder, they get the opportunity to work on exciting deals such as mergers and acquisitions or initial public offerings.

Research analysts only get this opportunity occasionally, when they are brought "over the wall" (the "wall" refers to the mandatory separation between investment banking and research) to assist on a specific deal involving a company that they know inside out.

5. Education and Designations

A bachelor's degree is a must for any aspiring equity research analyst or investment banking associate. Common areas of study include economics, accounting, finance, engineering, computer science, mathematics, or even physics. While it is possible to get hired with just a bachelor's degree, further qualifications can be used to get hired. They are also great for furthering one's career.

The difference between an equity researcher and an investment banker is determined by what post-graduate credentials are usually obtained. Most equity researchers earn a Chartered Financial Analyst (CFA) designation and most investment bankers get a Master of Business Administration (MBA) degree.

The CFA, widely regarded as the gold standard for security analysis, has become almost mandatory for anyone wishing to pursue a career in equity research. But while the CFA can be completed at a fraction of the cost of an MBA program, it is an arduous program that needs a great deal of commitment over many years. Being a self-study program, the CFA does not provide an instant professional network as an MBA class does.

The MBA curriculum, by virtue of being more business-oriented and less investment-oriented than the CFA, makes it more suitable for the investment banking profession; however, the competition to get into the best business schools—which is where most Wall Street firms hire their associates—is intense. Many aspiring investment bankers enter into some other financial field, perhaps working as analysts or advisors, and work toward their MBA.

Investment Bankers are required to pass the FINRA Series 79 Investment Banking Representative Exam.

6. Skill Sets

Both jobs require a great deal of analytical and mathematical/technical skills, but this especially applies to equity research analysts. These analysts need to be able to perform complex calculations, run predictive models, and prepare financial statements with quick turnarounds.

As noted earlier, financial modeling and in-depth analysis are common to both investment bankers and research analysts in the earlier stages of their careers. Later on, the skill sets diverge, with investment bankers required to be adept at closing deals, handling large transactions, and managing client relationships.

Research analysts, on the other hand, need to be effective at both verbal and written communication and have the ability to make balanced decisions based on rigorous analysis and due diligence .

7. External Opportunities

Successful research analysts and investment bankers generally have no shortage of external opportunities because of their experience, knowledge, and skills. Research analysts are likely to gravitate toward the buy-side (i.e., money managers, hedge funds, and pension funds), while seasoned investment bankers usually join private equity or venture capital firms.

8. Barriers to Entry

Both investment banking and equity research are difficult areas to get into, but barriers to entry may be slightly lower for equity research. Investment banking tends to draw more applications, due to prestige and higher pay.

9. Conflicts of Interest

Although investment bankers and research analysts both have to steer clear of conflicts of interest , this is a bigger issue in equity research than in investment banking. This was highlighted by the U.S. Securities and Exchange Commission's (SEC)  enforcement actions against 10 leading Wall Street firms in 2003, relating to analyst conflicts during the telecom/dot-com boom and bust of the late 1990s and early 2000s.

Under the settlement, the firms paid disgorgement and civil penalties totaling $875 million, among the highest ever imposed in civil securities enforcement actions. The 10 firms also had to agree to undertake a host of structural reforms designed to completely separate their research and investment banking arms.

10. Compensation

Both investment banking and equity research are well-paid professions, but over time, investment banking is a much more lucrative career choice.

Investment bankers are famous for their high pay and large signing bonuses. According to the online finance community "Wall Street Oasis," summer interns earn the equivalent on a pro-rata basis of around $77,000, plus a signing bonus of around $6,000 . First-year analysts earn an average salary of $80,239 in 2024, plus bonuses, according to PayScale.

Total compensation will vary greatly depending on job location, company, and the employee's performance review.

The real moneymakers, however, are investment banking associates, who earn between $150,000 and $200,000, with a 50% to 100% bonus. It is not unusual for total compensation for a senior vice president or managing director to exceed $400,000 annually.

The average equity research analyst earns over $93,000 in annual compensation in 2024, according to PayScale, plus a bonus. While it's higher than investment banking analysts starting out, this profession doesn't typically see the same magnitude of bonuses or salary growth as the career progresses. Research analysts indirectly generate revenues through sales and trading activities that are based on their recommendations.

The reputation of a firm's research department may be a significant factor in swaying a company's decision when selecting an underwriter when it has to raise capital. But even though the investment firm may make a substantial amount through underwriting fees and commissions, research analysts are prohibited from being compensated directly or indirectly from investment banking revenues.

Instead, research analysts are compensated over and above their salaries from a bonus pool. These periodic bonuses are determined by a number of factors including trading activity based on the analysts' recommendations, the success of such recommendations, the profitability of the firm, and its capital markets division and buy-side rankings.

Nonetheless, due to larger bonuses, entry-level investment bankers may receive total compensation that is higher than their research counterparts, and this gap may widen markedly over time.­

Is Equity Research the Same As Investment Banking?

No, equity research is not the same as investment banking. Both jobs have similarities but clear distinctions in overall purpose. Equity researchers evaluate companies with the goal of making investment recommendations. They analyze a company in all aspects, from its financials to its competition to its industry outlook, and its share price, to determine how the company might perform in the future and how its share price might move. Investment bankers also analyze companies in a similar fashion, but their goal is to determine whether a company is suitable for a merger or acquisition.

What Skills Do You Need for an Equity Research Job?

The skills required for an equity research job include an understanding of finance, economics, and accounting. An equity researcher must be able to analyze a company's financial statement. Equity researchers should also know financial modeling, Excel, and valuation methods. In addition to the quantitative skills required, equity researchers should be able to write well as they will be writing investment recommendations based on their quantitative analysis.

How Many Hours Does an Equity Research Associate Work?

An equity research associate typically works 55 to 60 hours per week, which can increase to 70 to 80 hours per week during earnings releases. Typically, equity researchers do not need to work weekends. The hours for an equity research associate or analyst are often less than that of an investment banker, who often has to work weekends.

Overall, if one has to make a choice between embarking on a career in equity research versus one in investment banking, factors such as work-life balance , visibility, and barriers to entry favor equity research. On the other hand, factors like prospects for advancement, job functions, and compensation tilt the scales in favor of investment banking. Ultimately, however, the choice comes down to your own skill set, personality, education, and ability to manage work pressures and conflicts of interest.

Payscale. " Average Equity Analyst Salary ."

Mergers and Inquisitions. " The Equity Research Associate: Remnant of a Dying Industry, or the Hero That Gotham Deserves ."

Career Principles. " Investment Banking Hours: The 100-Hour Work Week ."

Forbes. " After Complaints of ‘100-Hour’ Workweeks, Goldman Sachs Is Allowing Bankers To Take Off on Saturdays ."

FINRA. " Series 79 – Investment Banking Representative Exam ."

U.S. Securities & Exchange Commission. " Ten of Nation's Top Investment Firms Settle Enforcement Actions Involving Conflicts of Interest Between Research and Investment Banking ."

Wall Street Oasis. " What Is a Summer Analyst (SA)? "

PayScale. " Average Investment Banking Analyst Salary ."

Wall Street Oasis. " Investment Banker Salary & Compensation, Average Bonus in Banking ."

PayScale. " Average Equity Analyst Salary ."

U.S. Securities and Exchange Commission. " Commission Approves Rules To Address Analyst Conflicts; SEC Also Requires Edgar Filings by Foreign Issuers ."

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An Ultimate Guide to Equity Research

We have all heard the adage that information is power - this could not ring more true than it does with financial planning, investments, and M&A.

With this idea in mind, the function of equity research is to provide high-level information and analysis of a company (or sector) so that other companies can in turn use this information to guide investments and investment banking M&A transactions. 

This work is completed by professionals on both the buy-side and the sell-side .

Specifically, on the sell-side, the equity research division is comprised of analysts and investment bankers, while on the buy-side it is usually a division of senior analysts that work directly for the company.

They study small groups of stocks (about ten - give or take) within a specific industry, becoming experts in their domain, and produce formal reports to communicate their findings, namely whether clients should buy, sell, or hold stocks.

In this article we, at DealRoom, will explore investment banking vs. equity research as well as equity research buy-side vs. sell-side. We provide software solutions for deal management for all of them and have some interesting insights to share with you.

Let's start with equity research definition.

What is equity research?

Equity research, often referred to as ‘securities research’, is the process through which investment bankers and other investment firms like asset managers and investment funds invest equities and decide on whether they’re attractive investments.

The people responsible for this process - equity analysts - typically produce 3-6 page documents outlining the prospects for the equity in question in the context of the business, its management, and the wider industry and economic picture.

The bigger the investment bank or investment firm, the more reports that they’ll tend to churn out, and the more detailed the analysis included will be.

Examples of the kind of analysis would include:

• Commentary on how the macroeconomic picture is likely to affect the company
• Operational changes or investments that are likely to affect the company’s performance
• Reviews of the company’s financial statements and explanations of movements therein
• Projections on where the company’s revenues (and share price) are headed.
• Recommendations on whether to buy, hold, or sell the company’s equity.

How is equity analysis conducted?

In a word, research.

And lots of it, both primary (talking with the company’s investment relations team) and secondary (reading industry reports, etc.).

The equity analyst, usually part of a team, looks at scenarios that the company could face, and how that will affect the company’s financials, and by extension, its fundamental valuation.

The aim is to gain a more informed picture of the company’s prospects in the coming period.

Usually this research is conducted on an ongoing basis.

Companies employ investment relations teams to speak with equity analysts on an ongoing basis, and the annual report is always the subject of an investor call, where the CEO answers questions from senior equity analysts from high profile investment banks.

Piecing all of the information together, allows the equity analyst to generate a valuation, which can then be compared with the company’s share price, enabling them to make a statement on whether investors should buy, sell, or hold the equity in question.

What is equity research report

Whether a report is a buy or sell- side equity research report, it is prepared by an analyst and usually include the following:

• An industry research overview, including trends and news related to competing companies
• Company overview, specifically any new information as well as quarterly results
• Investment thesis, which is the analyst explaining why he/she thinks the stock will or will not perform well; the share target price is also included here - many consider this the most important piece of the report
• A forecast of the company’s income, cashflow, and valuation produced from a financial model
• Risks associated with stock

Difference between equity research and investment banking

Equity research sell-side is related to investment banking, though it often does not get the same amount of attention.

The research analysts relay information to the investment banks’ sales-forces and executives.

We will discuss additional differences between these two areas in the career section below. 

Roles in equity research

1. sell-side analysts.

The sell-side’s mission is to sell opportunities and/or assets , therefore, the analysts on the sell-side are usually investment bankers trained to study capital markets in the interest of providing investment recommendations to the buy-side (also known as institutional investors) or to the investment bank itself.

For example, the buy-side might use the research to decide whether to buy a specific stock or company.

The sell-side researchers must possess robust research skills and have the ability to produce valuation models and research reports.

Additionally, they must be experts in financial modeling and analysis as their work influences a company’s value and is made public.

Sell-side analysts will also spend time using a finance data room to complete due diligence with the buyer.

2. Buy-side analysts

The buy-side is comprised of asset managers, hedge funds, and institutional investors; its goal is to expand its opportunities, increase its assets, and raise capital .

With this in mind, buy-side equity researchers and analysts study and build financial research on companies.

More specifically, they examine and analyze companies to ensure that risks are limited and future investments stay true to their institution’s overall strategy and mission.

Consequently, it is critical that they track current news and trends in order to craft strong financial models.

Here we should note that buy-side equity research reports differ from sell-side equity research in that they are not for public consumption.

Finally, additional skills buy-side equity researchers should possess include the ability to analyze risks, the ability to produce high quality reports in a timely fashion, the ability to identify and track new business opportunities, and the ability to effectively communicate. 

The most famous equity research firms

The following are some top ranked equity research firms:

• Merrill Lynch Bank of America
• Morgan Stanley
• Wells Fargo Securities
• Guggenheim Securities
• Washington Analysis
• Zelman & Associates
• Wolfe Research
• Deutsche Bank
• Goldman, Sachs & Co
• BGC Partners 
• BMO Capital Markets Corp.
• Sberbank CIB

Things to consider when hiring an equity research firm

Here we must return to the notion of information being powerful and valuable.

Equity research can allow companies to gain capital and entice new buyers and/or investors.

Equity research firms can also help companies generate new ideas and identify potential red flags.

When you are looking to hire an equity research firm to address these needs or others, the following are top considerations:

• The background, training, and skills of the research analysts
• The quality of the firm’s research reports
• The analyst’s ability to understand the type of information that is relevant to you as the client

How to get into equity research

Equity research is an excellent entry point for people from a non-finance or economics background to enter the world of investments.

The ability to research, write well, and generate solid conclusions - arguably more the strengths of a good liberal arts major than an accounting graduate - are extremely important skills for the equity analyst.

A short course on valuations or corporate finance can allow them to quickly fill the gaps in quantitative areas where they’re lacking.

Whether you’re from a finance or economics background or not, the best way to get into equity research is by proving your ability.

Although the blue chip investment banks rarely if ever stray from the summer internship - junior analyst route, smaller investment firms will be happy to receive a well-written equity report which shows strong valuation and reasoning skills.

Use SeekingAlpha.com to see what some of the best equity research reports out there look like. And be better.

Tips here include:

• If you can find a stock that is highly undervalued or overvalued and your take on the stock goes against the grain, go for it. Investment firms will be more interested in something that changes their mindset than “Apple’s revenue is going to grow 10%, not 8%...”
• Use plenty of charts and tables that reinforce your argument. An article of 1,000-2,000 words should have at least five informative charts and tables. FYI - a stock chart of the company is not particularly informative for an equity research report, unless you’re using it to make an argument about how the stock has performed against its peers.
• Don’t be afraid to go more detailed than you think is required. Ultimately, your aim is to show the investment firm that you know financial metrics, how they work, and the story they’re telling about a company. But if you are adding it, it has to be correct (there’s a good chance SeekingAlpha’s editors won’t be long in telling you if they’re not!).

Repeat these steps and hone your equity research and valuation skills.

After two or three, you should already have something to send to senior research analysts at investment firms, and begin the conversation about how you can join their ranks.

Careers in equity research vs. investment banking

Careers in capital markets tend to fall into the two categories of investment banking and equity research.

Equity researchers must be strong research paper writers since they communicate critical information through reports, as well as skilled financial analysts.

The abilities to stay organized and work in a timely manner are also essential - in many regards, equity research can be seen as a highly structured career.

This does not mean, however, contrary to the stereotypes of analysts vs. investment bankers, that equity researchers and analysts do not need to possess strong social and oral communication skills.

In fact, the best equity research analysts meet with clients and help facilitate meetings; therefore, they must be able to communicate effectively both on paper and in person.

Oftentimes, on larger teams, the senior team members spend more time meeting with clients and companies, while the junior team members tend to spend more time working on financial models.

There is a general consensus in the industry that financial analysts tend to face lower levels of stress and work fewer hours than investment bankers.

On average, financial analysts are recorded as working 12 hour days , while investment bankers are usually reported as working 16 hour days .

For example, during due diligence , investment bankers may spend 50 plus hours a week solely inside the finance data room. 

‍ Read also

How to find the right data room for investment banking.

Of course, buy-side or sell-side equity research analysts do deal with stress, as one does in any job, but reports show the job is generally less stressful than the constant high stress endured by investment bankers.

Generally, the most stressful time for equity researchers is during earnings season.

Additionally, M&A deals will certainly create longer hours and higher stress for these individuals. 

To pursue a career as a research analyst, one must have at least a bachelor’s degree, although MBAs are often preferred.

To truly progress in this career, one should earn the Chartered Financial Analyst certification (CFA), which requires at least three years experience in the field. 

Difference between equity research and private equity

Another two industries that often get confused is equity research and private equity . ‍

The difference is that equity research consists of finding the valuation of the listed companies on stock exchanges, while private equity is researching and analysing the private companies and interpreting the results.

An equity research analyst would speak with firm’s traders and brokers for discussing and sharing investment recommendations for clients.

Where as a private equity analyst uses financial modeling techniques and a private equity software and CRM to research and analyse private companies.

Just like with banking, private equity analysts also use a private equity due diligence checklist template to work with their clients and collect information during diligence.

While equity research produces valuable information, we would be remiss not to acknowledge that the industry has faced some criticism in recent years, which has led to reports of a decline in industry practitioners.

‍ However there are some sources that predict the number of jobs in this career will actually increase faster than other careers in the next few years.

Whatever the number of practicing equity researchers, it is important to note that one should not rely solely on equity reports when making major decisions as analysts can both make mistakes and exaggerate or compose information in ways that benefit their customers and/or the market.

For instance, the sell-side might work to frame its subject in a favorable light to potential buyers.

While one should be aware of these trends and potential red flags, equity research is still a substantial part of our business world, specifically M&A. 

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