Equity Research Report Template

Quick Summary
1. Start with a quick summary of the company’s business and recent performance in addition to any major conclusions from the analysis. Include an investment recommendation.
2. Provide a more detailed overview of the company and industry, including important products, key performance drivers, major competitors, financial ratios, and corporate governance.
3. Communicate the results of the valuation model to justify the target price and include all key assumptions.
4. Name any potential risks associated with the investment and disclose all conflicts of interest.

Introduction
You are certain to collect a war chest of equity research report writing guides if you browse the internet for long enough. Their shortfall however is that they tend to be too general and abstract. This is probably for good reason. There isn’t one right way of formatting or structuring a report. This post is an attempt to be explicit about order and content. Be aware that this comes at the risk of being too prescriptive.

The first page is the most important page of the report. It might be the only thing a client reads. The report should not be more than 10 to 15 pages long (an average length of 2,000 words is commonly cited). Use headlines, headings, sub-headings, and margin comments to group and summarize ideas. The writing style should be clear, concise and to the point. When writing the report, keep in mind that the best equity analysts tell stories.

  • 1. Summary and Investment Conclusion
    • A. Company Summary
      • Description of Company: Start with a brief description of the company, a snapshot of the industry, and highlights of any competitive advantages.
      • Recent Developments: Give an update on the company’s performance (e.g. revenue by product) and any major developments (e.g. M&As, new products, restructurings)
      • Stock Data: List the current stock price, market capitalization, ticker symbol, primary exchange, 52-week price range, free float, etc. Include a stock and index price chart for performance comparison.
    • B. Investment Thesis
      • Recommendation: Recommend an investment course of action. This can be in the form of buy/sell/hold or outperform/underperform/neutral.
      • Explanation: Provide a clear and concise investment rationale for why the security is deemed mispriced. Answer what the market is currently not taking into account. Indicate what the catalyst will be to prompt the market to reprice the security to its perceived intrinsic value and the expected time frame for doing so. Make assertions here but leave the supporting arguments in the body of the report.
      • Valuation Summary: Give the fair value estimate of the company (i.e. target stock price). List all key assumptions, including revenue growth, earnings projections, competitive advantages, and rationale for length of explicit forecast period (e.g. to incorporate the decline of product X and the growth of product Y). Name any identifiable risks, such as how major competitors could disrupt firm’s growth.
      • Conclusions: Communicate major specific conclusions of the analysis. Cover any key investment positives (“bulls say”) and negatives (“bears say”). Let the reader easily understand your thesis and the drivers of it. Defend if effectively!
  • 2. Business Analysis
    • A. Company Overview
      • Company Detail: Present a detailed and clear understanding of the company’s economics and current situation. Include current sales, market size, market share, major shareholders, various brands, company strategy, future plans, company descriptions to the divisional level, protected access to technology or resources, operational and financial leverage, important assets or liabilities, etc.
      • Segments and Products: Highlight the relative important of segments, products, and/or geographical regions (e.g. by revenue percentages).
      • Key Drivers: Discuss the key drivers of revenues and expenses. These should be the variables that affect the company the most.
      • Management: Comment on how management has done leading the company. How long has CEO been with the company? Is there a succession plan in place? Did management transition company through technological changes successfully or through a different life cycle stage? Are managements’ interest aligned with the company (i.e. inside ownership)? How does executive compensation compare to other firms? Has the company missed out on any big opportunities? How effective has management been at allocating capital efficiently?
    • B. Industry Overview
      • Industry Context: Provide an overview of the industry dynamics. Note any factors that are common to all players in the industry, such as capacity levels, market size, pricing, regulatory limitations, performance during economic cycles, life cycle stage, elasticity of demand, supply constraints, speed of product innovation, new trends, and so on.
      • Competitive Analysis: Examine the health and competitive intensity of the industry. This is sometimes presented in the form of a Porter’s Five Forces framework or SWOT analysis. Describe how the company fits into the industry.
      • Market Players: List all the major players in the industry, including specific people, corporate entities, and private companies. Include distribution of market shares and comment on any trends. Note where peers operate and what’s going on in those localities. Highlight any new entrants, emerging names, and who’s in trouble and why.
    • C. Financial Analysis
      • Financial Performance: Present trends in the following categories. A detailed breakdown of ROE or ROIC can also be included. Provide a comparison to the industry and overall market. Employ industry-specific financial ratios when appropriate.
        • Growth: revenue, operating income, earnings, dividends, stock returns.
        • Profitability: ROE, ROA, fixed asset turnover, gross margin, operating margin, net margin, free cash flow-to-revenue.
        • Financial Health: current ratio, debt-to-equity, interest coverage.
        • Valuation Multiples: Price/Earnings, Forward P/E, Price/Cash Flow, Price/Free Cash Flow, Price/Book, Price/Sales, PEG ratio.
      • Financial Forecasts: Provide a detailed forecast of the company’s future performance. This is typically a sub-set of the variables covered above. Be sure to justify key assumptions and define which factors are most important to the company’s performance going forward.
    • D. Governance and Quality of Earnings: Review composition of the board to determine if it’s sufficiently independent. Identify any concerns regarding non-recurring events, off-balance sheet financing, income and reserve recognition, and depreciation policies. Auditor concerns are automatic red flags.
  • 3. Valuation Estimate: Communicate a clear and careful valuation analysis of the company to justify the price target. Include a description of the model(s) and key assumptions used. Readers should have sufficient information to replicate and critique the analysis. Any spreadsheets should go in an appendix where they can be referred to if necessary.
  • 4. Investment Risks: Alert readers to any risk factors to investing in the company. Risks can be related to the overall economy, industry developments, competing technologies, regulatory issues, political upheavals, or legal proceedings. They can also be operational or financial in nature. Include any uncertainty associated with the valuation inputs.
  • 5. Disclosures: Discuss any potential conflicts of interest faced by the analyst(s), including direct ownership.

Suggested Reading
CFA Institute. Equity Research Report Essentials.
WallStreetMojo. Equity Research Report Writing.
Susan B. Weiner’s Investment Writing blog.

Sample Reports
Microsoft (1/2011) by Morningstar
Oracle (12/2006) by AskAnalyst
J.P Morgan Chase (7/2010) by Morgan Stanley
Asian Paints (6/2011) by Angel Broking

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