Want More Analysts? Be Careful What You Wish For
Few will deny that analyst research still plays a key role in any investor relations strategy. And every time one of us sees a stock getting a healthy bump in the markets following an analyst upgrade or initiation, we can easily be tempted to believe that analysts wield an enormous amount of influence over a company’s valuation and success.
Should you make expanding research coverage your top IR priority? Have you found yourself pre-occupied with making the cut with analysts and adding more research coverage to your ranks?
However, before you potentially find yourself off course with a misguided plan, let’s consider a few perspectives.
You Still Hold the Keys to the Castle
Though we’ve emphasized this before, it bears mentioning again: The most highly valued “asset” that research analysts provide to their buy-side clients is not a stock rating or a price target. It’s you. While there may be many highly rated analysts who have botched their models or have an unremarkable track record on stock calls, you will be hard pressed to find a top-rated analyst who doesn’t focus on corporate access.
Bottom line: When considering any plans to pursue additional research coverage, make sure to ask yourself why you want more analysts. There are many good reasons, and quite a few hard-working analysts whose attention (and hopefully, support) you should feel proud to have. But a trophy chest of Buy ratings and bullish price targets alone isn’t going to give investors what they want. A quality institutional investor will be less convinced by 10 analysts bombarding them with models than by a single company executive who shows up with the story the fund can get behind.
An Inactive Analyst Can Be Worse Than No Analyst
While it is natural to draw ire from negative analysts, “bullish” analysts who have given your stock very little attention or focus can potentially be even more damaging to your IR efforts. And today, there seem to be more analysts at risk of earning the “inactive” label than ever.
With more than 100 newly listed healthcare stocks making their public debuts during the past two years alone, the number of analysts — especially in the biopharma space — today who have reached or surpassed their coverage capacity is considerable.
While you may have a full set of Buy ratings among your analysts, there is little value in that if most of them are not engaging with you and investors about your stock outside of quarterly earnings updates (and in some cases, not even then).
And while it would be bad enough if an analyst was not providing much visibility for you, these analysts may also be producing problematic content for investors. They may be mistake prone. Perhaps their models are not reflecting a business change appropriately and are distorting your consensus projections. There are few things more frustrating than to see a sound guidance strategy derailed by an inattentive analyst.
You Can’t Break Up With Your Analysts
Perhaps you’ve already managed to increase your coverage from three analysts to eight over the past couple years, only to find that keeping some of them engaged is proving difficult. Unless the analysts themselves decide to drop coverage, there is no easy way out of the situation. A company cannot simply “drop” a sell-side analyst.
While sell-side analyst outreach and relationship building should be a pillar in nearly any IR plan, trying to convert all of your analyst relationships into new research coverage may not be the best priority for you right now.
Need help focusing your sell-side outreach efforts? Have you added a number of new analysts only to find the level of attention a bit wanting? Let us help you manage a sell-side strategy that can get your focus back on your execution and messaging — not just your analysts’.
ICR Westwicke is the largest healthcare focused investor relations firm in the country. We provide customized investor relations programs and independent capital markets advice to small and mid-cap healthcare companies.
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