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What Makes Analysts Say “Buy”? all Street analysts’ recommendations can move markets. But even though leaders of public companies spend significant amounts of time interacting with this constituency, there’s little information about how analysts arrive at their recommendations. What factors most influence their thinking? We set out to answer that question through a global study of analyst forecasts and stock performance over two consecutive years in the mid-2000s. We surveyed nearly 1,000 analysts in Asia, Europe, Latin America, and the U.S., asking them to rate almost 1,000 large companies on 12 factors,

FINANCE by Boris Groysberg, Paul Healy, Nitin Nohria, and George Serafeim

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using a scale of one to five, and to forecast revenue growth, earnings growth, and gross margin on the basis of those ratings. We also estimated how important each factor was to their ultimate recommendations. The strongest determinant of a buy or sell recommendation, we learned, is projected industry growth, followed by the quality of the top management team. Analysts in different regions often weighed factors quite differently, though. For example, having a clear, well-communicated strategy was of “very high” importance to analysts in Europe but of “low” importance to those in other regions. One of the most

FACTORS THAT DRIVE BUY RECOMMENDATIONS
CLEAR, WELL-COMMUNICATED STRATEGY ABILITY TO EXECUTE STRATEGY GOVERNANCE STRENGTH QUALITY OF TOP MANAGEMENT INNOVATIVENESS LOW-PRICE STRATEGY SUPERIOR PRODUCTS OR SERVICES STRATEGY BALANCE SHEET STRENGTH CULTURE HIGH PERFORMANCE COMPENSATION PROJECTED INDUSTRY GROWTH INDUSTRY COMPETITIVENESS

IMPORTANCE TO ANALYSTS
LOW MODERATE HIGH VERY HIGH

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