New methods to measure financial analyst reports
When I wrote the chapter on measuring investor relations for my book "Measuring Public Relationships," the assumption was that the only metric that really mattered in the investor relations world was stock price. Everyone assumed that if IR was done right, then the stock price would reflect the quality of the effort.
Since then, the entire investment world has changed dramatically. The relationship between stock price and communications, one could argue, is far more tenuous.
Stock price today is influenced as much by what is being communicated in a Senate hearing on Capital Hill as anything communicated in a financial analyst's briefing in your board room. So, in this new environment, how do you measure the effectiveness of your investor relations program?
What are you trying to achieve?
As always in any communications program, it all starts with what you're trying to achieve. Increasingly, companies are looking at the specifics of what financial analysts are saying about their company and the competition as a way of determining if their communications are effective.
For IR professionals, the outputs are typically analysts days, briefings, and other outreach efforts to the financial analyst community. The outtakes and outcomes in this case are the same: The ultimate financial analyst report that recommends to buy, hold or sell the stock. And, while the exact wording of the recommendation may change from analyst to analyst, the fundamental thesis of the analyst reports can act as an outcome metric for IR.
Of great interest to the IR community are what specific themes or issues impact the analyst:
- To what extent is inventory, or time to market, or a battle over market share relevant to that ultimate thesis?
- Do the information and briefings that IR provide have any impact on that thesis?
- To what extent do the battles high up on your internal priority list spill over into the financial analyst community?
These and other questions can be answered via a detailed content analysis of financial analysts reports.
By analyzing the individual components of a financial analyst's reports, IR professionals can determine how effective they have been in getting key messages and concepts across to the analyst community. More importantly, they can look at prior results to determine what strategies and tactics might be more effective in the future, continuously improving their programs.
Content analysis of financial analyst reports
Start by dividing the information in the report into four categories:
- Analyst metadata—information about the research analyst(s) who produced the report.
- Report metadata—information about the analyst report in question.
- Concept metadata—information about specific concepts rated in this study (For example, the salience of Intel themes to the overall investment thesis.)
- Product metadata—information about what specific lines of business or products are mentioned in the report.
Now, get to work:
At the analyst level:
For IR, the analyst can be treated very much like you would a major media outlet. Record the name of the firm, the specific analyst authoring the report, and any other relevant information about the firm that is making the recommendations.
At the report level:
The report level can be seen as the equivalent of the "article" level in traditional media analysis. Analyze for tone, the relative importance and salience of a subject or theme to the conclusion the analyst draws, and where in the report (chart, graph, table or summary) the subject or theme is mentioned.
At the concept level:
Do a detailed search for key message content, looking not just at whether the message exists in the report, but whether the message is fully communicated, partially communicated or erroneously communicated. Then look again to see the degree to which the message is salient and/or important to the thesis and how prominently it was mentioned.
At the product level:
First look at what specific products or lines of business are mentioned. Then examine whether the analyst considers the product line, theme or battle a risk or a benefit to the company, further examining the extent to which that product, theme or battle is impacting the overall conclusion of the report.