Analysts' Reports - It's a Matter of Understanding Context

Analysts' reports can be useful but it is important to take into consideration the writers' motives. Chris Umiastowski, a contributor to the Globe and Mail, has some interesting observations. He notes that reports can be useful in presenting investment theses and sources of data as leads for further research on the part of DIY investors. He also notes:

So, should you bother to read analyst reports or think about the details of these reports as written about in the financial media? Yes and no. I think you should completely throw away any target price and recommendation information, and toss out any discussion that doesn’t pertain to the long-term performance of the business. Leave that to the pros who chase this kind of unimportant information. Spend your time looking at the more interesting discussions that actually matter to the long-term performance of a business.

http://www.theglobeandmail.com/globe-investor/investment-ideas/strategy-lab/growth-investing/what-to-read-and-what-to-ignore-in-analyst-reports/article16353898/

... price targets are often met with skepticism. Some investors see them mainly as marketing tools for brokerages that want to drum up interest in a stock. Indeed, research has shown that price targets tell you little about where a company’s share price is actually heading.

http://www.theglobeandmail.com/globe-investor/investor-education/the-hit-and-miss-world-of-price-targets/article15093603/

Sometimes, when investigating an investment theme, I will review analysts' reports in an effort to learn more about the theme and potential targets for the Gun Port. I also visit discussion sites such as Stockhouse in order to take the pulse of the investment community. (You can find discussion sites by using the term, “stock discussion boards” in Google.) While there is a lot of drivel, you can sometimes unearth some real gems: thoughtful commentary from people well versed in the industry, useful tidbits from people who may surface details about company management and practices which investor relations staff would prefer to be well hidden, and so on.   

The bottom line: Learn all you can about a company before committing yourself to a financial relationship.  Here are some sources of company-specific information I consider as part of the dating process:

• company documents: annual reports, news releases, investor presentations
• summaries of company information as found on sites such as Yahoo Finance
• discussion boards
• trade publications
• Google searches of company managers and directors
• details re personnel e.g. Glassdoor, job advertisements
• analysts' reports (note that I generally read them, if at all, in the latter part of my investigations as a check to see if I missed anything)

In my opinion, analysts are at heart, sophisticated but generally overworked shills.  They follow boilerplate templates and are limited in what they can say by institutional constraints and the conventions of their trade.  This said, there is some value in what they might have to say, as noted so well by Mr. Umiastowski.