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Mar 30, 2021

What to do when an analyst is out on the numbers

In this regular article, we ask IR professionals how they would respond to a specific operational issue. This time we asked people how they would respond if one of their covering analysts was out on the numbers – a question inspired by debate around what some see as the increasing sensationalizing of research

Ross Hawley, sustainability manager at Virgin Atlantic

Most IROs at some point in their job will have had analysts with significant outliers in terms of forecasts – whether on the upside or downside – and either can be equally challenging. The reasons can range from a modeling error to having a particular house stance on a technology, but there is no doubt that an aggressive view at either end attracts attention.

Where it becomes most challenging is where there is an active specialist salesperson telling this story to support a strong buy or sell case – as this gets investor attention, especially from ‘hot’ money. I once had significant outliers at both the top and bottom of the range at the same time when working for a FTSE 50 company, both looking to make a point.

How to respond? The first steps are to do the basics, irrespective of what the motivation is. Understand the rationale for the analyst’s view, and what the investment thesis is. Arm yourself with that knowledge, and calm any emotional C-suite looking to phone the head of broking at the research house. This will help diffuse the situation and also provide necessary context for coping with incoming calls from major shareholders concerned there is some news they have missed. Having your consensus on your website is also very helpful.

Successful targeted responses I have seen include a house analyst providing a measured counter-view; reviewing whether these figures fall outside your company-published consensus rules so as not to skew the average, especially if you have only a few covering analysts; and including a Q&A that addresses the issue inside your next IR newsletter.

Victoria Hyde-Dunn, head of IR at 8x8

Get a dialogue going with the analyst and examine his/her model. Once you have eliminated any numerical mistake, schedule time to speak. If the metric is material to your story, remind the analyst of the various factors you’ve taken into account.

If the analyst covers you in ‘name only’ – rarely calls or emails questions, doesn’t ask questions on earnings calls or publish research reports – that’s a tougher ask to motivate him/her to do real homework on your company.

But you want to be proactive: educate the analyst and figure out how to close the gap in his/her estimate while building positive engagement for the long term. You can also talk to the buy side to gauge its take on that analyst’s research and sphere of influence.

An analyst can become less relevant to the buy side if he or she is too negative for too long in your stock and stays with a personal thesis despite the numbers. In the end, though, business results speak for themselves and play out in your company’s valuation.

Lili Huang, vice president of IR in Europe, NagaCorp

The answer is: it depends! If you work for a large company with several covering analysts (for example, 20+), one outlier probably doesn’t make much difference – and having a broader range of estimates can be quite helpful sometimes.

For a small or mid-cap firm, that could be a challenge if you have just five or six analysts covering you.

But there is not much you can do with that specific analyst per se. Applying pressure may make things worse, but you can highlight that he or she is not in line with consensus and try to understand why such a position was taken by the analyst. To sidestep tackling the outlier directly, you could publish consensus on your website, with a clear explanation of how the numbers are derived. You can always refer to it if investors query the numbers.

This article appeared in the Spring 2021 issue of IR Magazine.

Garnet Roach

An award-winning journalist, Garnet Roach joined IR Magazine in October 2012, working on both the editorial and research sides of the publication. Prior to entering the world of investor relations, her freelance career covered a broad range of...