From the abstract of a new paper by UCLA’s Ben Lourie (our emphasis):
The purpose of this study is to examine the extent to which analysts who go to work for firms they have been covering, henceforth referred to as “revolving-door analysts,” alter their behavior in favor of the covered firms during their last year of employment. Based on a sample of 299 revolving-door analysts collected over the period from 1999 to 2014, I find that in the year prior to their employment by covered firms, these analysts issued higher target prices and more optimistic recommendations for their would-be employing firms relative to other analysts covering these firms. This relative optimism is much higher in the year prior to their move than in previous years, indicating a marked change in the revolving-door analysts’ behavior just prior to being hired. During this same period, relative to other analysts, revolving-door analysts become more pessimistic about other firm’s prospects, underscoring just how positively they view the companies that eventually hire them.
We are beasts of the calendar. January nurtures dreams and good intentions, while October is the month that slaps you round the face and demands you get a grip before the year is out.
US stock analysts are no exception, as can be seen by this chart from Morgan Stanley that is startling in how completely it fits our preconception about the cycle of hope and experience: Read more
Citi declared a few weeks ago it had three equity analysts focused solely on Apple, which generated a bit of intrigue and also some ridicule (some traders thought it was “just a marketing ploy” by Citi, according to CNBC). Those analysts came out with a ‘buy’ recommendation, though with a target price of $675, below consensus.
But now in the depths of December, Citi’s Glen Yeung, Walter Pritchard and Jim Suva have cut the rating to ‘neutral’ and the target price to $575. Investors in Hon Hai Precision (aka Apple’s biggest supplier, Foxconn) did not like it one bit:
From the New York Times, a Gretchen Morgenson report into an apparently widespread practice of Wall Street analysts giving private equity clients and hedge funds a heads up into their thinking, via the hedgies’ monthly or quarterly “questionnaires”:
The funds say they ask only for public information, but in at least four cases, documents from Barclays Global Investors, now a unit of BlackRock, state the goal is to receive nonpublic information. Two documents state that the surveys allow for front-running analyst recommendations.
Sighted in the Long Room — one almighty visualisation of UBS analysts: