Sell-side analysts overwhelmingly are absorbed in one industry or sector.
They know the industry’s history, the current situation, the dynamics and the players, and they know it all in-depth because they live and breathe their coverage universe every hour of every day. To be the expert, and more im- portantly, to get paid, analysts not only must know their sectors well, they also have to know them better than anyone else.
A day in the life of the analyst is spent delving into the intricacies of a company and an industry, which means due diligence, analysis and spread- sheets, conferences, traveling, talking to CEOs, touring factories and kicking the tires, listening to employees talk about the latest innovations or develop- ment, dialing for discourse with investors, reading the trades, observing the consumer marketplace, spotting trends, fielding calls from institutional salespeople and traders, inputting numbers into valuation models, deciding on buy, hold, or sell recommendations, and writing them into a readable, compelling report that says something useful and incremental. Pressure and stress are just a few of the occupational hazards, because millions of dollars are on the line with every stock pick. Therefore, if an analyst seems impa- tient or abrupt, it’s par for the course.
The relationship in a sell-side firm between the analyst and the institu- tional sales force is tenuous because the salesperson’s reputation and ulti- mate success depends on the information he or she receives from the analyst.
This situation creates a climate with the potential for the analyst to be hero one day and a dog the next. A bad pick can alienate the analyst internally (not to mention externally with the buy-side), dramatically affect his or her compensation, and possibly jeopardize his or her career. That said, the ana-
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lyst needs to be right and is counting on management and investor relations to be straight-forward and consistent.
Therefore, a thorough understanding of the analyst’s day-to-day duties is needed after targeting, but before the approach. Management must un- derstand the leap of faith an analyst is taking when picking up a stock and how anything but honest communication can destroy the fragile process.
The same goes for the buy-side. IR and management may only have one chance to attract the attention of a portfolio manager, and when they do, they better act as they understand that person’s job and understand what he or she has to deliver to shareholders. That increases the odds of ownership, positions the company to diversify its analyst base, and makes the most of IR expenditures.
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CHAPTER 18
Integrating with PR
A
fter making the decision on guidance, gathering the target list of analysts and portfolio managers, and understanding how best to approach them given the understanding of their mindset, IR should coordinate the attack with PR to ensure that the communications function is uniform. Doing so can help companies avoid costly mistakes in its communications efforts.In many cases traditional IR lacks the capital markets expertise to be ef- fective. An integrated IR and PR effort maximizes the time and money spent on corporate communications, and generally speaking, lessens the risk pro- file of the company. Both must work under the same story boards, lockstep in strategy, and deliver the same message to all constituencies.
The PR component of corporate communications must touch many constituencies, the media, employees, and the trade, in a parallel process with IR where both help and neither hinders the other. Unless the PR pro- fessionals understand the overall objectives of a CEO and board, which is to increase long-term shareholder value, they can certainly inject risk into the equation.
Accurate and favorable coverage in the media helps both public and pri- vate companies validate their investment thesis, build their brand, attract and retain talented employees, and build reputation capital with other key stakeholders, including customers and communities. PR can also boost the equity value of the company if it contributes to the perceived value of the equation. Because it can be so important, then, PR and IR efforts must work in a seamless fashion to ensure consistent delivery of key messages, which re- quires fully refining the story, preparing executives to carry that message to the media, and a proactive outreach program to generate interest in the form of media exposure and press placements.
Media and The Street can feed off each other in a very effective one-two punch. If a company has done its work with Wall Street and then wants to go out to the public with information, through the media, they have the an-
alyst’s favorable research (as long as guidance was conservative) on which to build. In fact, research reports and analyst recommendations are reliable third-party sources for reporters. Therefore, if done properly, the media can be an effective source for the capital markets, generating broader awareness and attracting potential investors and new analysts. PR and IR as an integrated communications approach offers checks and balances to make sure that each is helping the other to put the message forward as effectively as possible.