Equity Research Report Overview For the equity research report, you will put yourself in the shoes of a stock analyst to study, examine, and value your chosen company before making a buy or sell...

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I'm not really sure about the number of pages because some of the assignment is part of the first assignment. This is why I need the same expert.


Equity Research Report Overview For the equity research report, you will put yourself in the shoes of a stock analyst to study, examine, and value your chosen company before making a buy or sell recommendation based on the current stock price. An equity research report is generally prepared by equity analysts in investment banking houses to provide information to investing clients, advisors, and other interested parties about the stock’s future potential and to recommend a purchase or sale of the stock. The analyst would recommend buying a stock if he estimates the value of a share to be greater than the price which you can buy it on the market. Similarly, he would make a sell recommendation if he values the company below its current market price. There is some evidence that analyst reports are positively biased, because of lack of incentives to produce negative reports. Of course, you can prepare your own unbiased report and use it for your own internal consumption at the time of investing. The idea is to find good bargains and avoid buying overvalued stocks. This is tough because securities usually trade at their fair price if markets are fairly informationally efficient. There are several different valuation techniques. The valuation principle you will use for to estimate the firm’s value is known as the discounted cash flow method, or “fundamental valuation.” You will do this by first forecasting the expected future cash flows and then discounting those cash flows back to present value. The discount rate is based on the riskiness of the forecasted free cash flows. After these cash flows are discounted back to present value, you adjust the estimated firm value for debt and preferred stock outstanding, and divide by the shares outstanding for your target stock price. The report will contain the following sections: Executive Summary Analyst Name and Company, Firm being analyzed: Name and Ticker Symbol, Price on report date, Forecast horizon, Recommendation (Buy, hold or sell; or strong buy etc.), Target forecasted price, Highlights, Summary of analysis Qualitative Analysis Company profile or business description, Industry overview, SWOT analysis, Management, Major owners, News, Summary of technical analysis and charts Financial Statements Analysis Ratio Analysis and Interpretation, Earnings Forecast, Growth forecast, Trends over time and versus competitors Risk and Pricing Risk factors, Computation of Required return or discount rate, Calculate Fair Price, Compare with market, Recommendation Appendix: Actual financial statements The report usually contains an executive summary page with the key recommendation. This recommendation should be based on very solid justification. Next, the report details the qualitative analysis of the firm’s business and the industry conditions. Following this, is a financial statement analysis section which numerically forecasts earnings and future dividends. Finally, you assess the risk factors to compute the appropriate rate at which to discount future cash flows to arrive at the fair price that should be paid for the stock. Any factual information and the actual financial statements should be included in the appendix. The report itself should contain the interpretation of these facts. Where to start There are many potential sources of data and information about the company which you will need to gather and review when you are preparing the report. Every listed firm is legally required to file its statements at the publicly-accessible SEC (Securities and Exchange Commission) EDGAR website. They will also have information on the company’s own investor relations webpage. Bloomberg, Reuters, and the Wall Street Journal are good, albeit expensive, media and data sources for latest news about the company. A nice free website which is an excellent source of qualitative and quantitative financial information is Yahoo Finance. Gather all of your hard data and source material (financials, economic outlooks, competitors’ financials, etc.) and be sure to include them – formatted neatly – into your report’s appendix. Qualitative Analysis It is important to analyze each piece of information in your report. Don’t just copy it into the report; you must interpret it. What is the meaning of each piece of information and how it will effect stock’s fair value, in your opinion? Your analysis will begin by using qualitative factors and analysis to determine the business outlook. In other words, how will fundamental information affect future cash flows in the numerator of the valuation equation? Think about how every piece of information will affect future sales or revenues (i.e. the top line of the income statement). Will the sales increase due to economic recovery and growth OR will the sales decline due to competition and other factors? Also think about how this information will affect the bottom line (i.e. EPS, free cash flows, or dividends). Will the costs rise due to inflation, or will the firm successfully control costs and increase profitability? Keep in mind that sales often have patterns such as seasonality, trends, business cycles, growth through innovation. So when you are projecting the future sales all these trends and patterns should be helpful in making a more accurate forecast. First, try to forecast how the overall economy will perform in the forecasting period. If the economy grows most firms are likely to share the fruits of that growth. If the economy will be in recession than most firms will experience declining sales. There are some exceptions such as Walmart or inferior good manufacturers, which may do well in recession. Take this into account when you are analyzing the GDP growth rate, which is usually forecasted by economists and should help you to predict the firm’s growth. Now determine the stage of the industry’s life cycle. Industries in the pioneering stage may have losses in their initial years – Amazon had huge losses in the initial years after the website was launched – but then these firms can earn high profit margins as the product is established. To determine how qualitative factors will affect your firm’s top and bottom lines, you’ll need to use your own opinions, research and creativity. This may include relevant news articles, technical analysis/charting, a SWOT (Strengths, Weaknesses, Opportunities, Threats) matrix, and knowing the major shareholders and managers of the firm. The possibilities are endless, but for your report, you’ll ultimately need to forecast revenues and expenses, so you’ll need to justify them with your analysis. To analyze management and ownership of the firm you need to ask yourself: Who is running the firm that you are analyzing? What is their background, skill set, and experience? How are they paid? Cash compensation may leave managers unmotivated, options may lead managers to take on too much risk, bonus compensation may lead to earnings manipulation. Therefore, the best practice firms tend to use cash plus restricted stock unit compensation for their managers. Most importantly, try to examine management’s track record of allocating capital. i.e. how does management makes use of profits once they have been earned? This is important because poor allocation of your profits can destroy great business, regardless of how much profit you make. If you making dumb investments with that profit, it won’t help you much in the long‐run. Quantitative Analysis Financial Statement Analysis is done to assess the financial health of a firm. Within this section, you will compute and interpret various types of ratios, and highlight any changes in these ratios over time and any major differences in ratios across the firm and its competitors. The next goal is to project the firm’s EPS in the next year. The best places to start are current and historic financial statements, (We already have this data!) and use your qualitative and ratio analysis to determine why revenue, expenses, earnings and cash flows are moving up and down each year. For projecting future expenses, it is useful to common size the historic and current statements as % of sales and then use the ratios for forecasting next year’s expenses, being sure to factor in our qualitative analysis. Now to get the earnings per share we divide the net income by the number of shares outstanding. A short cut to find the number of shares outstanding is to divide the Market capitalization by price. But be mindful that firms can add more shares in future through equity offerings, and (more commonly) the exercise of stock options by its executives. If so, then you should increase the number of shares outstanding for the future. Historic Data Common Size Average & Adjust Forecast 2009 2008 2009 2008 2010 Sales or Revenues $14.6 Billion 13.5 8% growth 9.9% Growth 8.95% adjust down to 6.5%; recession $15.5 Billion Various Expenses (% of sale) $12.5 Billion 11.3 86% of sales 84% of sales 85% adjust down to 83%; cost cutting measures $12.9 Billion Net Income $2.1 Billion $2.2 Billion $2.6 Billion EPS 1.94 1.97 2.32 Risk Analysis and Pricing Next you’ll analyze the risk of the firm to estimate an appropriate discount rate. The discount rate should increase as the firm’s cash flows gets riskier. Some people just use a “common sense” rate of required return. Others rely on sophisticated mathematical modeling to determine the risk premium (the additional return in order to compensate investors for uncertainty about the stock’s future performance) on the stock. To do this, you will require the risk free rate plus a risk premium. The proponents of the advanced mathematical models claim that only systematic risk (and not idiosyncratic risk) is rewarded in the stock market. This type of risk is caused by macro factors such as changes in interest rates, GDP growth, supply shocks, financial crisis. Therefore, to measure systematic risk, we estimate the covariance of the stock returns with the market portfolio. This covariance is called beta (β). Beta estimates a stock’s systematic risk. Unsystematic risk is not rewarded because you can easily reduce or eliminate it by holding well diversified portfolios. The Capital Asset Pricing Model provides a framework for computing the required return from the stock. Essentially, discount rate that you will put into the dominator of the valuation equation would be the required return according to the CAPM. This required return is: ?(??) = ?? + ??[?(??) −
Answered 11 days AfterJul 12, 2021

Answer To: Equity Research Report Overview For the equity research report, you will put yourself in the shoes...

Shakeel answered on Jul 24 2021
143 Votes
Equity report
On
Executive Summary
    Analyst Name
    Company            Amazon Inc
    Price on report date        $3,656 on 24th July 2021
    Forecast horizon        5 years
    Recommendation        Sell
    Targeted forecasted price    $97.91
    Highlights
· A renowned name in e-commerce Industry that is leader in online shopping platform.
· Amazon also provides cloud computing, video streaming facility, electronic version of millions of books, online games and low end products like USB cables.
· As per Forbes 2020 Most valuable brand list, Amazon stands at 4th position after Microsoft with brand revenue of $265.50 Billion    
· Amazon provides its services in to almost all of the major countries in Central Asia, Europe, America and South Asia.
Summary of Analysis
· In the last one year, the 52-week low price is $2,871 and the 52 week high price is $3773. Therefore one-year price range of $902 is observed.
· Consistent profitability, liquidity, efficiency and insolvency position over past four years. Profitability is the major factor in determining the ROE
· Trend analysis shows 30% g
rowth in sales and 90% growth in Income Y-o-Y.
· Almost 25% of total risks to Amazon is related to ‘Finance & Corporate’ and ‘Legal & Regulatory’. 17% of risks are related to ‘production’ followed by 13% to ‘Tech & Innovation’ and ‘Ability to sell’ each and 8% to ‘Macro & Politics’
· Cost of equity is calculated at 20.98%.
· One stage FCFE model yields the fair price of Amazon at $97.91
Qualitative Analysis
Section 1: Company’s profile
Amazon.com, Inc. is US based online shopping company from the e-commerce industry. A long varieties of products like apparels, electric and electronic products, home appliances, tools and engineering instruments etc are sold on its website. Apart from it, Amazon also provides video streaming facility, cloud computing, online games and books in electronic. Amazon was established in 1994 by Jeff Bezos. According to statista (2020), Amazon is world’s largest company by revenue and 2nd largest private company in US in providing employment. Amazon stands as 4th most valuable brand in the world with brand value of $265.50 billion after Microsoft. In almost 184 countries, Amazon provides its services including Europe, America, South Asia and Central Asia. Company has huge network of transportation to transit the goods both domestically and internationally. There are almost 40 subsidiaries operated under the brand of Amazon. Some of the prominent subsidiaries are Amazon prime, Goodreads, Amazon Maritime, Annapurna, Junglee, Navigators, Audible.com etc. Amazon has been operating in very competitive market where continuous advancement in technology and frequent change in consumers’ taste have always pose a big threat to the players. However, Amazon has always faced the challenges diligently and performed better than its competitors.
The key statistics of Amazon Inc as one Dec 2020 is given in table 1 below–
Table 1: Key Statistics
    Market Cap
    1.65 Trillion
    Enterprise value
    1.66 Trillion
    Trailing P/E
    126.72
    Price to book ratio
    22.40
    Net profit margin
    4.10%
    Return on Assets
    4.65%
    Return on Equity
    20.79%
    Revenue
    321.78 Billion
    Net Income
    13.18 Billion
    EPS
    26.04
    Total cash
    71.39 Billion
    Total Debt
    91.40 Billion
    Debt Equity ratio
    123.97
    Beta
    1.33
    Shares Outstanding
    500.89 Million
    Dividend payout ratio
    0.00%
Source: finance.yahoo.com
Section 2: Industry overview
Due to diversified nature of business, the competition to the Amazon is from various Industries such as book, music, video, business services, entertainment, marketing and advertisement, online printing services, commercial printing, copy centres and retailing. Retail Industry is highly competitive industry and some of the major competitors of Amazon are Wal-Mart, EBay and Barnes & Noble.
The competitors of Amazon pose the threat to Amazon in different ways. For example, Wal-Mart is popularized as one-stop shop and in the same way, Amazon through Amazon.com provides all the consumers needs at one online place. Both companies offer variety of products to the customers at lowest available price. Apart from stores, Wal-Mart has its own website where such products are available that are generally not available at stores. On the other hand, Amazon provides almost all kinds of products at its online store. In terms of traffic density, Amazon attracts very large volume of customers every year. In an estimate, approx. 65 million customers visit the amazon.com every year.
EBay is another competitor of Amazon that provides online shopping experience and consumer can order and get the products at their door step. However, Amazon has competitive advantage over the EBay in terms of single point payment system. It means, the third party sellers don’t need to maintain their separate account but Amazon handle all the payments. Hence, it becomes easier for the customers to pay or refund back directly from the Amazon rather than to go to seller.
Barnes and Noble is US’s largest bookseller with 1,355 bookstores across 50 states. Apart from physical bookstores, company has also online book store called barnesandnobel.com. In an estimate, around 1 million book titles are available with Barnes and Nobles. Company has also collection of music, videos, entertainment retail, publishing and internet retail. Despite of low product and service portfolio, Barnes and Nobles poses a big challenge to the Amazon in book, music and media segment. Retail Industry is highly competitive industry and new technologies and expenditure pattern of consumers have made the retail industry more competitive and challenging. However, a good growth has also been observed in the industry in past couple of years.
Section 3: SWOT Analysis
Strength
Brand Name – Amazon is world’s reputed brand that has presence in most of the developed and developing countries. Its brand reflects quality, best pricing and prompt service and therefore, the brand value is one the biggest strength of Amazon.
Customer centric – Amazon has always been taken care of customers’ value and therefore, the Amazon is regarded as the best customer centric company in retail sector.
Cost leadership – By the strategic alliances with different companies, Amazon has best differentiated itself to deliver the best service at lowest cost. Low inventory replenishment time and strong value chain make the Amazon a leader in cost management.
Efficient delivery network – Amazon has a vast and efficient delivery network that immensely helps to serve the customer on time. Amazon fulfilment centres with strategic partners make the delivery cost free at some geographical locations.
Weaknesses
High leverage position – Amazon has always been high leverage ratio. It means, the the total liabilities against the total assets have always been more than 70% which makes the company difficult to properly manage the working capital and raising the fund through debt.
Loss of competitive advantages – Amazon has started its journey as an online book stor and then expanded to several items from electric & electronics to home décor to general utilities. Thus, Amazon has lost its competitive advantage over other competitors and therefore, the profit margin gets lower with time.
Cases of compromise with quality – There are few instances when the product and services of products are either proved to be fake o lower quality. Even the cases of fake ratings and reviews on the products have also been explored in past. Such activities have diminished the brand of Amazon.
Opportunities
New markets – Amazon has strong presence in developed countries and has expanded well in developing countries of Asia. However, a lot of developed markets are still untouched where Amazon can expand its business. market of African countries are another big opportunity for the Amazon.
Physical stores – Amazon provide its services and delivers the goods through online platform or mobile app, although there is no exclusive physical stores are available right now and hence, it’s a good opportunity for Amazon to expand there.
Threat
Large number of competitors - The competitiveness of retail industry is very high. Wal-Mart, Boots Plc, Netflix are some of the major market players that provide high quality online service at cheaper cost. They pose a big threat to the amazon where the switching cost of customer is very low.
Cybercrime – The cases of data theft and cybercrime are on rampage and therefore, it is a big challenge to the Amazon to protect the data of millions of customers on their personal information and card information
Government regulation – Since Amazon has been rapidly expanding its services to new markets and therefore, the different government regulations at different countries for FDI and online services make the situation tougher for Amazon to penetrate new markets.
Section 4: Management
Executive leaders
· Jeffrey P. Bezos – Founder and executive chair of Amazon
· Andy Jassy – President and Chief Executive Officer
· Brian T. Olsavsky – Senior Vice President and Chief Financial officer
· David H. Clark – Chief Executive Officer, Worldwide consumer
· Shelly L. Reynolds – Vice President, Worldwide controller
· Adam P. Selipsky – Chief Executive Officer, Amazon Web Services
· David A. Zapolsky – Senior Vice President, General Counsel and Secretary
Major owners and compensation
Following table shows the compensation structure of major owners of Amazon –
     Name and Position Title
    Cash
    Equity
    Others
    Total compensation
    Jeffrey P. Bezos
    $81,840
    $0
    $16,00,000
    $16,81,840
    Chief Executive Officer, Director
    
    
    
    
    
    
    
    
    
    Andrew R. Jassy
    $1,75,000
    $3,56,39,068
    $34,381
    $3,58,48,449
    CEO, Amazon Web services
    
    
    
    
    
    
    
    
    
    Brian T. Olsavsky
    $1,60,000
    $1,70,10,985
    $3,200
    $1,71,74,185
    SVP and Chief Financial officer
    
    
    
    
    
    
    
    
    
    David A. Zapolsky
    $1,60,000
    $1,70,10,985
    $3,200
    $1,71,74,185
    SVP, General Counsel and Secretary
    
    
    
    
    
    
    
    
    
    David H. Clark
    $1,60,000
    $4,61,21,888
    $6,783
    $4,62,88,671
    CEO, Worldwide Consumer
    
    
    
    
Source: http://1.salary.com
Leadership Background
Jeffrey P. Bezos
He is executive chairman and founder of Amazon Inc. He established the Amazon in 1994 as a most customer centric company in online retail industry and with the presence in 190 countries worldwide, the Amazon has become the most reputed business and the Bezos has become the world’s richest person on earth. In 2000, Bezos founded the Blue origin, an aerospace manufacturer company and then, in 2013, he purchased “The...
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