Updated from March 24 with additional information.
Shares of Snap (SNAP) - Get Snap, Inc. Class A Report have been off to a rocky start since the young social media made its blockbuster public debut earlier this month, initially surging 44% on its first day of trading, but later falling as much as 7% from its initial offering price.
The stock has staged a comeback on Monday, however, as the 26 banks who were underwriters of its initial public offering are no longer bound by the 25-day quiet period put in place by the Securities and Exchange Commission. As part of the quiet period, underwriting banks aren't allowed to publish research on the stock and Snap employees are barred from speaking to the press until 25 days after a stock's initial public offering.
By Monday morning, more than half of the 26 underwriting banks released research on Snap, with 10 firms starting coverage with a Buy rating and five giving Snap a Neutral rating. That gives Snap a total of 12 Buy ratings, nine Neutral ratings and six Sell ratings from Wall Street.
The moves sent Snap shares up 4.8% to close at $23.83 on Monday.
The lead underwriters on Snap's IPO, Morgan Stanley (MS) - Get Morgan Stanley (MS) Report and Goldman Sachs (GS) - Get Goldman Sachs Group, Inc. (GS) Report, each gave Snap a Buy rating, along with $27 and $28 price targets, respectively. Other underwriters including JPMorgan (JPM) - Get JPMorgan Chase & Co. (JPM) Report, Credit Suisse, Deutsche Bank and Jefferies also initiated coverage of the stock on Monday.
Underwriting banks tend to take a more bullish stance in their analyst reports for several reasons. For one, they've typically had more face time with the company's management team than the banks and investment firms who weren't underwriters.
The firms may have greater clarity into Snap management's vision for the company, but the research probably won't include groundbreaking information, said Loup Ventures analyst Doug Clinton.
"Snap is so well-covered right now that the added voice of the analysts who participated on the deal probably won't add a ton of incremental info on the name for investors," Clinton added.
Most of the analysts who publish research following the quiet period typically initiate coverage with a Buy or Neutral rating, said Zain Hoda, CEO of data analytics firm Alpha Hat. Hoda analyzed more than 35 tech IPOs since 2010 (including Facebook (FB) - Get Facebook, Inc. Class A Report , Twitter (TWTR) - Get Twitter, Inc. Report and Twilio (TWLO) - Get Twilio, Inc. Class A Report ) to see how a stock performs once the quiet period expires.
Hoda found that when an analyst gives a Buy rating, there's a "huge increase" in the stock price, but when an analyst starts coverage with a Neutral rating, the stock goes down. He added that he's never found a case of an underwriting bank initiating with a Sell rating.
"If it's Neutral, underwriters didn't find any reason to be positive about the stock," Hoda explained. "That means there must be some weakness in the stock."
Of the 36 companies surveyed, Hoda said 23 of them were given Neutral ratings. Consequently, about 79% of the Neutral rated companies saw their stock prices decline in the days following that initiation. Prior to Monday's slew of bullish ratings, Snap had two Buy ratings, four Neutral ratings and six Sell ratings.
Snap had more Sell ratings than any other company that Alpha Hat surveyed "even after their quiet period expired," the firm wrote in a blog post.
Hoda cautioned that while there may be a "big run up" in a company's stock ahead of the expiration of their quiet period, it's likely that the stock could come back down afterwards.
"There's a lot more opportunity for the stock to disappoint once the event has actually occurred," Hoda said. "A lot of the [ratings] have already been priced in at that point."