The Rising Stars of Wall Street Research

In an industry beset by disruption, a number of sell-side analysts stand out as ones to watch. These are the All-America Research Team Rising Stars.

Illustration by Weld Williams

Illustration by Weld Williams

The sell-side is under pressure.

The disruptive forces of technology and regulation, combined with shifting buy-side behaviors and shrinking commissions, are changing what it takes to succeed as an equity research analyst. Simply maintaining the status quo is no longer an option.

“If you’re doing the same thing you’re doing today five years from now, you’re going to be irrelevant,” says Jared Shojaian, a senior analyst at Wolfe Research.

Other analysts interviewed by Institutional Investor point to the increasing use of data analytics and rapid evolution of the industries they cover as just a few of the ways their work differs from the generations of analysts who came before them.

“For those who can embrace change, this is an exciting time to be building a career in research,” says Tiffany Kanaga, vice president of equity research at Deutsche Bank.

Kanaga and Shojaian are among 113 up-and-coming analysts chosen by institutional investors as the Rising Stars of Wall Street research. These are analysts who have been publishing their research for less than three years in any region — and seem likely to earn a future spot on the All-America Research Team.

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For the second year in a row, Citi boasts the largest number of Rising Stars, with 19 analysts qualifying for the list. Following Citi are Bernstein and RBC, which tie for second with 12 Rising Stars apiece.

Unlike full-fledged members of the All-America Research Team, Rising Stars aren’t ranked in numeric order but are listed alphabetically by sector. The sectors featuring the most up-and-coming talent included biotechnology, chemicals, master limited partnerships, and brokers, asset managers, and exchanges.

In almost every sector, disruption keeps analysts on their toes as they try to keep track of fast-changing industries. Self-driving cars, artificial intelligence, and data analytics are only a sampling of the innovations transforming industries around the globe.

Below, five Rising Stars discuss the changes impacting the industries they cover – and how they’re adapting to disruption in their own industry.



Curry Baker: Media

Analyst, Guggenheim Securities

Best call you’ve ever made?

World Wrestling Entertainment (WWE) has been my best call since initiating on the company in January 2017. Our core thesis has been that WWE’s TV rights, particularly in the U.S., were undervalued substantially and poised for a material repricing. Even since the company announced its U.S. rights renewal this June (repriced at 3.6 times the average annual value of the prior deal), we remain positive on WWE’s ability to drive long-term growth through a number of organic initiatives.

Worst call you’ve ever made?

It’s difficult to identify a worst call. Being specific, I would say I was a little early on the pace of regulatory changes on the local TV broadcast front over the past year. However, local TV consolidation has picked up recently and we continue to expect further regulatory clarity by the end of the year.

How is the role of a stock analyst changing?

Research analysts need to be responsive to how buyside clients are evolving. At Guggenheim Securities, we try to go deeper (through primary research, competitive analysis, etc.) and understand the ecosystem companies operate in. We believe it is also increasingly important to curate the vast amount of information out there into a concise product that adds value for investors.

How is the industry you cover being disrupted?

The media ecosystem continues to evolve rapidly as consumption behaviors change, new digital entrants appear in the market, and scale becomes increasingly important. We use a few guiding principles when assessing media companies today: 1) Content is fuel while platforms are king, 2) the traditional bundle is the “sports tier,” and 3) Netflix has set the bar for consumer expectations.

If a client needed to know one thing about your area of coverage, what would you tell them?

The media sector is evolving rapidly with significant disruption underway. Multiple layers of content, platforms, relationships, and audiences make media one of the more complex industries to invest in during a time of tremendous transformation. The opportunity is that media consumption is growing in aggregate which means there are exciting opportunities for investors.



Judah Frommer: Food Retailers

Senior Equity Research Analyst, Credit Suisse

Best call you’ve ever made?

Initiating a stock rating of outperform for Five Below (FIVE) as our top pick in mid-April 2018. It represents a nearly un-Amazonable store model. Five Below offers a discretionary shopping experience, but has created a treasure hunt environment, making it exciting to shop in a store. We initiated it at 70 in April 2018, and it has doubled since then.

Worst call you’ve ever made?

Maintaining an underperform or sell rating for SuperValu (SVU) for fundamental reasons, despite recognizing the outsized risk of the company being acquired. As a stand-alone company, we didn’t believe in its future, but there was a risk someone might buy them and the stock would spike. United Natural Foods (UNFI) acquired it, and the stock spiked.

Biggest challenge facing the sell-side research industry?

The biggest challenge is differentiation. With thirty plus analysts covering many stocks, and investors’ access to unprecedented data in the form of intra-quarter channel-checks, finding a new or improved angle of analysis that will stand out is increasingly difficult.

How is the role of a stock analyst changing?

Analysts need to be hyper-aware of the potential for disruption. Technologies being tested by private companies can change a given industry overnight, requiring stock analysts to have current views on public and private players within their given sectors.

How is the industry you cover being disrupted?

It’s a tie between the advent of meaningful online grocery penetration and evolving consumer preference for private-label product. Grocery pick-up and delivery are becoming ticket-to-play for all channels of food retail – if you don’t have it you’re not part of the conversation – but it can bring meaningful margin destruction. At the same time, shelves stocked with national brand products are no longer enough to drive meaningful traffic; retailers must be able to differentiate their offering with private-label (and fresh) product that is healthy, tasty, and priced right.

If a client needed to know one thing about your area of coverage, what would you tell them?

We refer to food retail as the last bastion of retail given its low penetration of online sales and convenience-based nature. With annual sales within the U.S. market approaching $1 trillion, it makes sense that online upstarts and incumbents would focus on building better grocery mousetraps. But delivering fresh food is difficult and expensive, particularly in a country as large and spread out as the U.S. The next five years will test brick and mortar retailers’ ability to withstand necessary online grocery investments, but those that can project long-term staying power should be rewarded with market share ceded by those that will fail. In short, Americans will be buying their groceries predominantly in stores for a long time.



Tiffany Kanaga: Retailing/Department Stores & Specialty Softlines

Vice President, Equity Research, Deutsche Bank

Best call you’ve ever made?

I’ll highlight our sell ratings on Abercrombie & Fitch (ANF). We’ve done proprietary analysis around the brand’s health, leading to our differentiated view. The stock has been under pressure lately. It’s been rewarding to see our thesis begin to play out.

Worst call you’ve ever made?

We’ve had a challenging call on Hanesbrands (HBI). It’s an example of when a surprise negative event overshadows the company’s overall execution. But it’s been a learning experience and navigating tough calls makes me a better analyst as I go forward.

Biggest challenge facing the sell-side research industry?

It’s a very dynamic time in the industry with a lot of change happening, which creates opportunities. For those who can embrace change, this is an exciting time to be building a career in research.

How is the role of a stock analyst changing?

As an analyst, there’s a process finding your voice and your niche. I strive to look at the world and stocks differently to add something new to the conversation. That’s where the value lies that I can bring to clients.

How is the industry you cover being disrupted?

The retail industry is working hard to follow the consumer where they want to shop, which is increasingly online. It’s been a highly disrupted shift, exacerbated by consumer dollars increasingly flowing to other uses like health care and rent. However, retail will figure it out and there will certainly be winners, who successfully navigate to the other side of these changes.



Praful Mehta: Alternative Energy

Lead Analyst, Power and Renewables Sector, Citi

Best call you’ve ever made?

In the alternative space, my best call was renewable alternative energy firm NRG Yield – now Clearway Energy (CWEN). I recommended a buy, and the company got sold to Global Infrastructure Partners, which helped realize that price. So that’s why the buy rating worked. When I put the buy in, it was selling at the $12 range, and now it’s in the $20 range.

Worst call you’ve ever made?

In the alternative energy space, we haven’t covered that many companies. In this particular category, I don’t have any ones that failed.

Biggest challenge facing the sell-side research industry?

Producing differeniatied research in a crowded market, where the market is shrinking.

How is the role of a stock analyst changing?

Much less of reporting and much deeper thought, analysis, and leveraging the full breadth of a large platform that we have at Citigroup.

How is the industry you cover being disrupted?

Renewables and alternative energy continue to get cheaper and more competitive, relative to thermal generation. This unlocks huge opportunities for alternative energy companies, but is a challenge for the traditional coal and nuclear generators.

If a client needed to know one thing about your area of coverage, what would you tell them?

I see a huge opportunity of investment and growth in alternative energy in the horizon of the next five to ten years. Not just because they’re getting cheaper, but the customer demand is increasingly moving to alternative and renewable energy, so both demand and supply are lining up very well to unlock this opportunity.



Jared Shojaian: Leisure

Director and Senior Analyst, Wolfe Research

Best call you’ve ever made?

My most vivid memory from last year occurred when I upgraded Marriott International (MAR) to outperform. The stock has done really well since that period of time; it’s up 30 percent since then. This is a really high quality company. When that stock went down for reasons that I think are transient, you needed to take advantage of that situation. Furthermore, the passing of the tax reform provided additional potential to that call.

Worst call you’ve ever made?

A call that hasn’t worked out for me over the last 12 months was I was bullish on Caesars Entertainment Corp. (CZR). There were several reasons for that. It’s a recovery story because a year ago the company was in bankruptcy. Since then, it has been cutting costs and improving margins through cost reduction and new revenue initiatives. I figured there would be investor excitement but instead it’s been a lot of investor skepticism and lack of interest. I recommended it at around $12, and it’s now $10. This is a humbling career.

Biggest challenge facing the sell-side research industry?

I think the biggest challenge is you have new regulations with MiFID II (this year’s update to the Markets in Financial Instruments Directive). The buyside is reducing the broker list and how they do business. And commissions are coming down across the board in this industry.

How is the role of a stock analyst changing?

We have a saying that if you’re doing the same thing you’re doing today five years from now, you’re going to be irrelevant. The world is changing, including both the way you look at data and how data is created. You have a lot more resources at your disposal to utilize.

How is the industry you cover being disrupted?

I cover cruise lines, Vegas gaming, Macau gaming, and lodging. Each industry has its own unique risk. In the cruise line industry, there’s always something uncontrollable like terrorism or fuel spikes. With lodging, it’s pricing transparency and new industry disrupters, like online travel agencies and short-term rentals. With gaming, it’s on the regulatory front, especially in Macau, because you’re at the mercy of two governments, both China and Macau.

If a client needed to know one thing about your area of coverage, what would you tell them?

I’m fortunate in the coverage I have. The industry that I cover, which is travel, has secular benefits because you have an aging population of growing retirees who have time and money to spend on travel. You also have a theme that more consumers are buying experiences, not goods.

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