5 Ideas for Creating New Analyst Coverage
Who doesn’t want new analyst coverage for their stock? As new coverage is generated, your stock becomes more visible, which, in turn, can potentially create more demand. When strategizing on which analysts make the most sense to cover your stock, there are several factors to consider. First and foremost, the main thing you should keep in mind is that getting the analysts you want to follow your stock is usually challenging and can typically take time, so set your expectations about new analyst coverage accordingly.
After having spent more than 20 years as a sell-side analyst, I understand the ins and outs of life as a Wall Street research analyst. Sell-side analysts have 60 to 80 hour work weeks. These analysts spend about 50 percent of their time building a franchise name for themselves (marketing to institutions, salesforce presentations, outbound calls); 30 percent of their time staying up-to-date on existing companies under coverage (attending medical meetings, doing due diligence); 15 percent of their time writing reports on coverage; and 5 percent identifying new ideas. Analysts are busy, which limits the number of hours they have to identify and pick up new companies.
It used to be that analysts had a single junior person on their team, maybe two, and would cover a range of 15 to 20 stocks. That model has changed. Now, senior analysts can have three, sometimes more, junior members supporting them with have 40 stocks under coverage. These junior analysts typically come with impressive credentials, including Ph.D., MBA, and MD degrees, so don’t underestimate the value they bring to the table.
Despite the time crunch, there are ways to improve your chances of getting attention from the analysts you would like to bring on board. Below are five ideas for creating new analyst coverage.
- Build relationships early. Getting to know analysts early is important for several reasons. Not only can you learn what their process and trigger points are for adding new names to their coverage lists, but analysts are also a great resource. They are well versed in industry news, have viewpoints on investors, and dig deep into the science. With this knowledge, analysts’ questions can help fine-tune your company’s message. Plus, analysts aren’t shy about sharing their feedback. By establishing your credibility with an analyst over time, he or she is typically more inclined to show interest. Investing time in picking up a company is as much about believing that the management team can execute as it is believing in the assets they own.
- Spend time with the analyst. Analysts are juggling multiple stocks, and it’s your job to make it easier. It will likely take several meetings before new analysts remember the key points of your story, so it’s important to follow-up and make sure all their questions are answered. If analysts need published scientific papers, send them. If analysts ask for names of KOLs (key opinion leaders), provide them. Often, an analyst will want to visit a company’s office to have the opportunity to meet with other members of the management team, arrange it. My experience has been that if analysts are asking for these things, then they are engaged, which is what you want, so find ways to keep the interaction going.
- Find the analysts who know your therapeutic space the best. There are two ways of thinking about analysts who cover competing companies. The first is that analysts can only pick one stock to recommend, so if they are aggressively pitching your competitor to the buy side, how could they possibly also be favorable on your stock? The second is that the analyst likes the therapeutic space in which you compete. They see it as being large, growing, and having enough room for several companies. When I was an analyst, I always liked to look at all the players in a therapeutic area and how they were positioned. While it can be hard as an analyst to balance why you would buy one stock over another, multiple factors such as valuation, news flow, and cash runway all affect that decision. In my view, it’s good for management to have a dialogue with the key analysts who cover your competition. You can engage in a meaningful discussion about what drives analyst and investor interest. If an analyst isn’t ready to launch on your stock immediately, he or she still might be interested at some point down the road. If an analyst follows your top competitor, it doesn’t mean you shouldn’t approach him or her — the reverse is actually true. It may be harder to get analysts to follow you when they’re already covering others in your space, but if they do agree to cover your stock, you’ll know that they understand your science well and what differentiates your company.
- Consider a more up-and-coming analyst. I can’t say it enough: An analyst’s time is valuable. Experienced junior analysts ready for prime time will begin to take on a few names of their own, often under the supervision of a senior analyst. Fostering relationships with junior analysts is a great way to get covered by someone who will dedicate a lot of time and attention to you and is really focused on getting the thesis right. This person is building their reputation, wants to do a good job, and is more likely to dig into the finer points to ensure crucial facts aren’t missed. I suggest giving junior analysts the time they need. An analyst in the midst of developing his or her coverage list can be well worth your time.
- Sometimes an analyst who recently changed firms has the capacity. As we all know, analysts tend to move around quite a bit, which can present opportunities. When analysts move, they need to relaunch at the new firm. While analysts will usually keep the same coverage list, there are times when they can’t. Maybe there is another analyst who covers the same stock or maybe their new firm has given a different mandate (small cap vs. mid cap, for example). Whatever the reason, the analyst could find themselves needing new names and good ideas, which can be a great opportunity for you to present the case for why covering your company makes sense.
Analysts play an important role when it comes to creating value for investors. Need help developing a strategy for generating analyst coverage? Reach out to start a conversation about how we can help.
Patti Bank is a Managing Director on Westwicke's life sciences team. She has extensive analytical experience, specifically within the pharmaceutical and specialty pharmaceutical sectors. She has a BA in neurobiology and economics from Rutgers University and an MBA from Drexel University.
Leave a Reply