On Oct. 30, Lehman Brothers (LEH) hammered home concerns about slowing telecom spending by releasing reports from six analysts, and the combined call's reverberations reached from tiny Teligent (TGNT) all the way up to giant Cisco (CSCO) - Get Report.
For the past six months or so, Lehman has gained market-moving punch by coordinating calls from analysts across related sectors. The strategy, combined with some prescient calls on slipping tech and telecom stocks, has given the firm the "hot hand" among U.S. rivals, according to one corporate investment chief. Several of Lehman's recent calls -- coordinated or otherwise -- have been bearish, crystallizing investors' concerns about some important tech stocks as the market has weakened and making the firm's research something investors are watching more closely.
Lehman's streak began in early summer, when e-commerce analyst Holly Becker issued a tough report on
and convertible securities research director Ravi Suria put out a critical report on
. Since early July, Yahoo!'s shares have fallen 48%, and after a range-bound summer, Amazon's shares are off 20% since early September.
All Together Now
The research coordination effort, which other firms do but Lehman is honing, isn't a club to hammer away at hot stocks or sectors. It's more a result of the firm "thinking through how we can differentiate ourselves," says Joseph Amato, Lehman's director of global equity research, who adds that the skeptical nature has merely been a reflection of the current market. "A number of
the calls have been somewhat bearish, but we don't want to have the reputation as a firm that comes out only with bearish calls."
Wall Street analysts have long been attacked for being too positive about the companies they cover, with skeptics pointing to cozy relationships between the securities firms seeking underwriting business from the issuers.
"The Street has been heavily criticized because the level of research has slipped," says Chuck Hill, director of research at
First Call/Thomson Financial
. "The average quality of sell-side research has deteriorated. Lehman has always done some good research."
Morgan Stanley Dean Witter
Credit Suisse First Boston
, Lehman doesn't rely on a huge equity underwriting business. In the third quarter, the firm ranked seventh among underwriters of U.S. initial public offerings, according to
"The commission business is our bread and butter," Amato says, pointing to the firm's institutional sales and trading operation.
Lehman has attacked the coordination concept by expanding the product manager job beyond department head Jon Duskin. It brought in professionals for each sector, transforming the position from its traditional role of merely wrangling analysts for morning meetings with the sales force to one involving serious coordination. Other Street firms do similar things. A
spokeswoman says the firm has been coordinating analysts' calls for years.
But Lehman's approach is enabling the firm to stand out these days. Steve Hash, Lehman's U.S. equity research director, seems to think it's working, too. "The cross-coverage is important. Without it -- left alone -- who would've taken the lead to pull
Monday's telecom call together?"
Amato and Hash say the system works especially well in technology. "There's a certain tech daisy chain effect where if, for instance, PC demand is slow, there's an impact on chipmakers, chip equipment makers and others," Amato says.
Oct. 30 was the ideal example of the kind of impact it can produce. Based on a Nortel
warning of slowdown in telecom equipment spending by its customers, Lehman's team converged to evaluate the broader effects.
The Whole Gang
The firm put forth its coordinated conference call, which included
-ranked network equipment analyst
Tim Luke, telecom equipment analyst Steven Levy, telecom analyst Blake Bath and competitive local exchange carrier analyst Danny Zito. "It was a long call," Amato says.
Last week's call was just the most recent impact report for Lehman.
Becker, the e-commerce analyst, has hit Yahoo! -- and more recently, Amazon -- winning kudos from investors on both counts. In Yahoo's case, she voiced concerns over its advertising revenue. "Becker did a good job of getting into something that made people question what was going on," says Hill at First Call.
Suria, the convertible securities analyst, won the hearts and wallets of investors with a critical call on Amazon in June. Relying on the type of analysis more akin to fixed-income research, he focused on the company's potential cash flow and debt problems. As a result, he's become something of a household name to investors.
"He should be running a hedge fund," says one executive at a New York fund of funds outfit. "His work is the perfect example of the type of primary research that managers need to do."