NEW YORK (
) -- Sell-side analysts on Wall Street still have a terrible reputation.
You would think that after Jack Grubman's stock-touting at
10 years ago and all the efforts to erect "Chinese walls" between research and investment banking, that things would be better today. But, deep down, we all know they're not.
Here's one example that made me scratch my head at what's going on in the minds of Wall Street analysts.
I am short
Research In Motion
. Therefore, I listen to the company's earnings calls because I find the Q&A section of those calls the only time I can hear the unfiltered views of the co-CEO, Jim Balsillie.
Most of the time in public, Balsillie reads from prepared remarks. The Q&A is the only time I hear him think on his feet and articulate his company's strategy. (You know my position, so you know what I think of his performance at these moments.)
RIM is a fairly big company with more than 50 analysts covering it, according to Yahoo! Finance. Yet I've noticed that RIM always limits the length of its earnings calls to one hour. The call start at 5 p.m., and RIM reminds everyone that the call will end at 6 p.m. Sometimes this leaves 40 minutes for Q&A and sometimes this leaves only 15 minutes -- it all depends on how long prepared remarks are.
What has surprised me about the Q&A session is that, despite the 50-plus analysts covering the company, the same people keep getting called upon to ask questions during this short window.
My first thought was that the fix must be in. I assumed Balsillie was going back to his buddies to give them access. These buddies -- I assumed -- had large price targets on the stock. I assumed the more critical analysts weren't getting called upon.
So I decided to test my hypotheses.
I went back and reviewed all RIM earnings calls transcripts of the past five and a half years, writing down the names of the analysts who were called on in the Q&A session.
It turns out my hunch was right: The same people keep asking most of the questions. In fact, of the 50-plus analysts covering RIM at the moment, four have asked 40% of the questions on these calls over the past five and a half years.
Those four are:
Maynard Um of UBS, who asked questions in 82% of the calls
Jeff Kvaal of Barclays/Lehman, who participated in 77% of the calls
Mike Abramsky of RBC capital markets, who asked questions in 73% of the calls
Gus Papageorgiou of Scotia Capital, who participated in 64% of the calls
My belief that these analysts had higher price targets for RIM compared with others was also correct. These four have an average current price target of $91.50. The average price target of every other analyst who has asked the company a question in the last five and a half years on an earnings call is $71 -- or 22% lower.
However, it is wrong to conclude that all four of these most popular analysts are "boosters" of the stock. Maynard Um, who has asked the most questions of anyone, has a $61 price target on the company. Jeff Kvaal has a more bullish $85 target.
The two Toronto-based analysts in the top four are huge RIM fans, though. Abramsky has a $90 target on Rimm, while Papageorgiou is the most bullish analyst on the Street, with a $130 target.
I spoke to Papageorgiou last week and asked him whether he thought there was a Canadian or American bias towards Rimm. He said he puts no stock in that idea.
I asked him why so few analysts asked so many questions on these calls. He didn't think this was because the company was steering the questions to them. He thought these were four who had been covering the company for a long time and simply queued up to ask questions.
He might be right, Um's low price target appears supportive of his explanation. Nevertheless, I think it is fair to point out that Abramsky and Papageorgiou often ask questions that are really just compliments.
But that explanation is rather damning to the rest of the analysts covering the company.
Consider that, of the more than 52 analysts covering RIM, 48% have never asked a question during the period I examined. What are they doing?
It would be nice if all analysts asked critical but fair questions during Q&A sessions. It would be nicer if all analysts asked questions. Is that too much to ask?
At the time of publication, Eric Jackson was short RIM.
Eric Jackson is founder and Managing Member of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd. In January 2007, Jackson started the world's first Internet-based campaign to increase shareholder value at Yahoo!, leading to a change in CEOs in 2007. He also spoke out in favor of Yahoo!'s accepting Microsoft's buyout offer in 2008. Global Proxy Watch named Jackson as one of its 10 "Stars" who positively influenced international corporate governance and shareowner value in 2007.
Prior to founding Ironfire Capital, Jackson was President and CEO of Jackson Leadership Systems, Inc., a leadership, strategy, and governance consulting firm. He completed his Ph.D. in the Management Department at the Columbia University Graduate School of Business in New York, with a specialization in Strategic Management and Corporate Governance, and holds a B.A. from McGill University.
He was previously Vice President of Strategy and Business Development at VoiceGenie Technologies, a software firm now owned by Alcatel-Lucent. In 2004, Jackson founded the Young Patrons' Circle at the Royal Ontario Museum in Toronto, which is now the second-largest social and philanthropic group of its kind in North America, raising $500,000 annually for the museum. You can follow Jackson on Twitter at www.twitter.com/ericjackson or @ericjackson.
You can contact Eric by emailing him at firstname.lastname@example.org.