Sell-Side Analysts’ Valuation Model Choice : A Case Study

This study investigates the valuation model choices of sell-side analysts, an area largely over-looked by the prior literature. Specifically, we focus on the drivers that influence the choice of the primary valuation model that analysts use to derive a target price. The research was conducted as a multiple case study by drawing on interviews with sell-side analysts and their valuation reports of a major energy sector firm. We find that valuation target–specific aspects such as lack of peer comparability, lack of history, and extreme uncertainty about forecasting cash flows can play a dominant role in valuation model choices. Our research contributes to the equity valuation literature by providing a more nuanced picture of the drivers influencing the model choices of sell-side analysts, and specifically, it brings forth the need to pay sufficient a"ention to valuation target–specific factors as the choice drivers.