The 3-month cycle in investment banking research

by Derek Loosvelt | March 10, 2009

Many research analysts comment that there's not a typical day, nor even a typical week in research. On the equity side, the workload is highly cyclical. Everything revolves around earnings reports, which come out quarterly during earnings season. The importance of the earnings figures to the stock analyst cannot be stressed enough, and once a quarter, when companies report their earnings data, the job often gets a little crazy.

On the fixed income side, the workflow depends entirely on the product. A high yield or high grade corporate bond research analyst may have some ups and downs in the workload based on the earnings season, but earnings reports are not nearly as critical as they are to equity analysts. We will cover a typical day in debt research in abbreviated form at end of this chapter. First we'll take a look at a three-month period for an equity research analyst.

While we will focus on the analyst himself, keep in mind that the research associate will also perform many of the same tasks, helping the analyst in any way possible.

March

On March 1, four weeks prior to the end of the quarter (March 31), the analyst begins to look at the financial models relating to the companies under coverage. He is worried about his stocks' earnings per share numbers, which will be reported approximately two to four weeks after the quarter's end. If the estimated EPS numbers stray too far from the actual reported EPS when it comes out, the analyst will find himself dealing with many angry investors and salespeople, at the very least.

To finetune his earnings estimates, the analyst begins calling the companies that he covers, testing assumptions, refining certain predictions, and generally trying to grasp exactly where the company and industry stand. Details make the difference, and the analyst discusses with the company CFO gross margin estimates, revenue predictions, and even tax issues, to arrive at an acceptable EPS figure. Conversations such as these can become excruciatingly detailed.

April

The quarter has ended, and in early April the research analyst enters the quiet period. During this time companies are restricted from discussing their upcoming earnings release, as this may constitute sensitive inside information. The calm before the storm, the quiet period (in this case, early April) finds many analysts calling other contacts in the industry to discuss broader trends and recent developments in the field.

Once companies begin reporting earnings (which starts mid-month), the analyst scrambles to quickly digest the information and issue one-page update reports. The deluge of company earnings releases causes long and hectic days for the analyst, who must deal with a barrage of phone calls and the demand for written reports from salespeople and institutional investors. Within two weeks after the earnings release, the analyst will typically publish another three-page report on his companies, often with new ratings, new analysis and revised earnings estimates for the next few quarters.

May

In early May, the analyst finishes writing update reports and is afforded a little breathing room. While earnings season involves putting out fires left and right, the end of the reporting period means the analyst can relax and get back to working on long-term projects. These might include industry pieces, initiation reports or other long-term projects. Banks with large corporate finance businesses may encourage their research analysts and associates to spend time working with investment bankers, developing leads, advising them who to target, and performing a variety of other research tasks.

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