(EC 362), SEMESTER II 2021

Equity Analysis Project

Due Date: Friday 30th April 2021. It is worth 30% of marks for the EC362 module. Please submit your project via the assessment link under “Equity Analysis Project” tab on Blackboard.

The report should not exceed 20 pages, excluding charts and tables.


Assume, as of February 2021, that you are employed as an equity analyst within an Irish investment management firm. Your team manages a large-cap North American equity portfolio and the lead fund manager has asked you to select a candidate stock for inclusion in the portfolio. The brief is to select one stock listed on a US stock exchange that will outperform a relevant key US stock market index (S&P500 or NASDAQ) over a two-year horizon.

Required: Prepare an equity analysis report on any US listed large-cap stock. You may wish to look at potential candidates from:

(a) NASDAQ 100 or

(b) S&P500 (listed by market cap)

Project Structure:

1.    Investment Summary (first page): Write the key investment thesis, share price chart, and key financial information. List the main reasons for the overall recommendation. You might also wish to list some of the key investment risks facing the company

2.   Company Overview:

?   Summarise business operations & financial position using both the company’s website (Investor Relations) and any other relevant sources (e.g. Google Finance, Reuters Finance, NASDAQ, Bloomberg, Morningstar etc.)

?   Investor Relations – use data, charts, etc. from presentations and Annual Reports

?   Look at sales/revenue growth (‘top line’); profitability/earnings (‘bottom line’); sources of growth and competitive advantage; and current financial / trading position.

?   Segmental analysis – by geographical region or division

?   Company’s future strategy, brands, innovation, etc.  Remember investing is future oriented

?   Concentrate on key trends, e.g. changes in profit margins, EPS and other key metrics.

?   Discuss any relevant ESG issues relevant for both the company and the industry in which it operates. Discuss the company’s leadership and ownership structures.

3.   ‘Top-Down’ Analysis

?   Short overview of relevant macroeconomic environment

?   Overview of some key ‘megatrends’ that might affect company

Note: OECD, Quandl, FRED, IMF, etc. could be very useful for charts, tables, and economic forecasts. Investment management firms also publish macroeconomic reports.

4.   Industry Analysis and Competitive Positioning

?   Explain key factors affecting sector (you can bring in a wide range of sources, e.g. consumer websites or investment bank research on new technologies or key trends).

?   Discuss macroeconomic outlook for relevant economies in which the firm operates

?   Strategic analysis: Porter’s 5 Forces, SWOT analysis, PESTEL etc.

?   Relevant Industry reports (e.g. Consumer Brands, Airlines) – look for emerging trends.

?   Choose ONE rival firm or peer in the same industry. You can use sites such as Reuters, Finviz, or Morningstar to compare the firm that you analyse to peers in the same sector in terms of profitability, sales growth, valuation etc. Analyse the key differences between

the firms in terms of revenue and profitability and recent stock market performance. Use Reuters or similar to list and compare the company’s financial ratios to industry averages.

5.   Fundamental and technical valuations:

?   Analyse at least 3 financial ratios (e.g. profit margins; return on investment; total asset return) [Depending on your accounting proficiency, perform as much financial statement analysis as you can!]

?   Apply at least 3 valuation metrics (e.g. P/E; P/B; dividend yield) to perform relative valuation analysis between your chosen firm to the relevant stock market index and rival firm(s). Explain the metrics and analyse what they suggest about the valuation of the company.

?   Using StockCharts or any other website, pick at least 3

technical indicators. Explain the indicators and analyse what they suggest about the short- term future direction of the share price. Examine whether the technical indicators have been a good indicator in the past 12 months.

?   You should put the key financial statements in an Appendix.

6.   News and Investment Risks

?   Analyse at least 2 significant news events associated with the company (e.g. use Google Finance’s interactive chart, Reuters or other news sites) to examine whether there was any evidence of significant abnormal returns around the news.

?   Summarise at least 4 investment risks facing the firm, including a visual risk matrix.

Discuss any mitigating factors relevant to these risks.

NB: Using material from other sources

•     You can copy across tables and/or graphs from the various websites (label and source these, however). However, DO NOT merely cut and paste the text word for word from the Investor Relations and other web pages. Summarise the issues in your own words!

•   As each student’s project should be unique, any plagiarism from another student will be easily spotted and marks will be deducted accordingly.

NB: Please submit your report in Word or PDF on Blackboard.

Examples: You might also find the examples of previous winners of the CFA Institute Research Challenge useful, as well as all of the examples of past student and professional equity reports.

New for 2021: The best TWO reports will be acknowledged by adding the stocks concerned to the NUI Galway Student Managed Fund portfolio at the end of Semester 2.

NB: Over the next number of weeks, a number of guest speakers from investment banks, fund managers, and other financial institutions will give you their advice on how to approach this project.