I Love Equity Analysts

Research reports by investment banking are by far my favorite source of background research on companies and industries.  Thomson Research (formerly Investext) is the standard-bearer in this area, and I’ve made voracious use of it when I’ve had (highly expensive) access.  Finding a good “initiating coverage” report makes my day, for better or worse.

What makes them so good?

First, they’re much more in-depth than typical market research reports (DataMonitor, I’m looking at you).  When reading market research reports, I get the impression the analysts are filling out a template as quickly as possible.  The inevitable SWOT section tends to be extremely generic, to the point of uselessness.  Equity analysts, in contrast, do their homework.  They do channel and customer checks, even with difficult to reach constituencies like medical specialists.  They attend (and even organize) industry conferences.  They typically cover multiple leading companies in an industry segment and draw relevant comparisons between them. Continue reading I Love Equity Analysts

The New Paradigm of Investor Relations

If you’re like me, you think of investor relations as a fairly staid field. As far as I can tell from the outside, IR is usually responsible for getting the annual reports and SEC filings written (with a healthy dose of accounting and legal input), managing earnings conference calls, and perhaps helping deal with the occasional company crisis. But of course it doesn’t have to be that way. In theory, investor relations should be educating investors on their company and industry, protecting the company’s access to capital. The communication channel should also flow the other way, keeping management apprised of potential risks to the company.

The wrong way

Probably 95% of investor relations departments don’t have this kind of mandate. To pick on a recent example, let’s consider Strabag, one of Europe’s leading construction companies. The firm recently shut down its communications Twitter account because no one was tweeting them. Of course, the company didn’t use the account for anything except for relaying analyst ratings and the status of its order backlog – not exactly captivating.

Strabag Twitter account

Strabag made a variety of mistakes. All marketing, but especially social marketing, is a content-driven activity. If you don’t have interesting things to say, no one will listen. You don’t have to be in a sexy business to come up with meaningful content (look at Zappo’s in shoe retailing), but you do have to think about what your audience wants to hear. Strabag could have engaged in a dialog with analysts, better understanding their information needs and perceptions of the company. A primer for investors unfamiliar with the construction market would have been even better. I won’t belabor all the usual social media points beyond that.

Tactically, Twitter is an awful channel for arbitrary data points (output is up 6%!) lacking context. Even order backlog is probably interesting to investors and equity analysts, but it should at least link back to a chart and spreadsheet showing the trend over time, comparisons with competitors, and implications. There’s no reason for online communications to mimic the dry facts of a stock ticker. Help people draw conclusions!

The right way

In contrast, I was blown away by the exchange between Reed Hastings from Netflix and a hedge fund short seller on Seeking Alpha (brilliant site, by the way). The hedge fund manager lays out his concerns about Netflix’s valuation, new competition, the costs and quality of licensed streaming content, and a few other reasons for his short position. Hastings addresses them all openly and dismantles most of them. Finally, the short seller posts again to say that he’s covered his position and why. For a business geek like me, their dueling analyses are such fun to read, and they do an excellent job of illuminating the company’s strategy, the industry landscape, and possible risks and upsides. I probably could have read Netflix’s entire 10-K filing and come away with much less understanding of their business than after reading those posts. It’s also brilliant investor relations, and Hastings and his team eliminated a potential stock performance issue, thus allowing them to stay focused on the core business. Now, this kind of response requires that your company actually have a very well thought-out strategy and evidence to back it up. Most firms probably couldn’t hack it, but it is something to aspire to.

Expand your mandate

Various corporate functions have been transformed from rote work to strategic assets over the last few decades. Human resources used to be about job postings and benefits management. Now, ideally, it’s about selecting, recruiting, and retaining the best possible talent. Traditionally, purchasing was probably one of the dullest jobs imaginable (no offense). However, in the context of strategic sourcing, the job is more about partnering with suppliers, understanding their impact on product quality and strategy, and forecasting the evolution of your industry value chain than just about issuing purchase orders.

The same thing needs to happen with investor relations. Investors are critical stakeholders in public companies, and we’ve seen various examples of firms crippled by short sellers over the last few years. Investor relations should be a strategic communication channel to cultivate a supportive investor base and to funnel market information back to management. It’s time to go beyond conference calls and financial filings.

Why Is Good Business Information So Scarce?

I recently came across this O’Reilly post about CrunchBase, the open database of information on startup companies, asking whether CrunchBase will remain free in the long term.  While the post itself is interesting, the part that puzzles me is why there is so little business-oriented information freely available out there.  Data as a service has been generating a lot of excitement recently, and I think it’s well warranted.  However, the only prominent sources of open business information are the SEC’s Edgar database, LinkedIn, and CrunchBase.  After that, the field gets very thin.  Considering how much effort companies put into business intelligence and competitive intelligence, it seems like there should be a great profit motive for someone to provide a deeper business information layer.  So I don’t really understand why we’re in this situation, but it does seem like a big opportunity. Continue reading Why Is Good Business Information So Scarce?

What Can HCA Tell Us About the Healthcare Sector?

When HCA Inc. was acquired in 2006 by a private equity consortium including Bain Capital, KKR, and Merrill Lynch (now of course Bank of America), it was the biggest leveraged buyout in history.  For that reason, the announcement a couple of weeks ago that HCA was pricing its IPO at around $3.7 billion piqued my interest.  The company is the largest private healthcare provider in the US, providing 4-5% of all hospital services with 156 hospitals, not to mention 97 freestanding surgical centers.  Just because of HCA’s sheer size and influence on management practices, it is an interesting company to analyze a bit more closely to understand trends in the US healthcare sector. Continue reading What Can HCA Tell Us About the Healthcare Sector?

Can Better Analysis Improve Healthcare?

For decades, our understanding of the relationship between healthcare spending, pricing, and health outcomes has been limited to the crude level of epidemiological studies.  Most of those results suggested that offering better healthcare didn’t improve outcomes, a depressing conclusion.  However, everyone seems to be talking about how we’re now in the era of “big data.”  Interest in deeper analysis of healthcare data, and more sophisticated responses to the results of that analysis, seems to be spiking.  Here are a few examples of budding healthcare innovation that have received attention in just in the last few weeks:

  • U.S. tries open-source model for health data systems
    • The government and a variety of big companies are working to quickly develop a standard for sharing healthcare information among different providers.  The early version basically appears to be encrypted email.  It sounds ridiculously simple, but maybe getting a basic standard in place and seeing what healthcare users need to help them do their jobs is a better approach than spending years in standard-setting only to realize the specification doesn’t really meet people’s needs.

Continue reading Can Better Analysis Improve Healthcare?