The term sell-side analyst refers to an individual that evaluates the future earnings and investment quality of companies on behalf of a brokerage firm. Sell-side analysts will normally specialize in following the companies in a specific industry.
Also known as equities research analysts, sell-side analysts generate periodic research reports for the clients of their brokerage firm. These research reports will highlight recent company news, and their possible impacts on future earnings and growth. The report will also include an analysis of competitors, the cost of raw materials, and key suppliers.
The sell-side analyst's report will use proprietary models to develop an estimate of future earnings, a sum-of-the-parts price per share target, as well as a narrative about the stock's near term performance expectations. The information provided in the sell-side analyst's report is developed through interviews with suppliers, competitors, as well as the company's management team.
Ultimately, a sell-side analyst's value is the trading revenue they bring to their brokerage firm. They can do this if their services are deemed valuable by buy-side clients and institutional investors. As part of their report, they will assign recommendations to stock such as Sell, Buy, or Hold.
Sell-side analysts have a number of noteworthy conflicts of interest that can affect their independence or objectivity. For example, the companies the analyst covers may hire their brokerage firm to underwrite new security offerings. Unfavorable research reports will hurt their firm's chances of being selected to participate in these offerings.
The analyst may also have ownership interest in the company appearing in their report. Analysts are required to disclose certain conflicts of interest under the rules set forth by both the New York Stock Exchange (NYSE) and the Financial Industry Regulatory Authority (FINRA).