At a time when making stock research truly independent is a top priority in the brokerage industry, Thomson First Call -- Wall Street's data clearinghouse -- is pushing analysts to stay with the flock.In the wake of Wall Street's $1.4 billion settlement with regulators, analysts are under renewed pressure to offer original, honest insight into companies they cover. That means, among other things, saying when true earnings are being obscured -- for instance, by the repeated use of "one-time" charges and gains. Under the exacting standards of a post-Enron world, failing to flag such abuses can bring on widespread scorn. So it's understandable that some Wall Streeters are frustrated with First Call. Several sell-side analysts say the firm has pressured them to change their earnings estimates, simply because their numbers didn't match their peers'. These analysts say when they stood firm, First Call threatened to pull their estimates from its all-important consensus survey -- and shove their research off the front pages of its Web site. Hit hardest by the rules are Wall Street's sell-siders, who have been feeling a bit touchy to begin with. Criticized from nearly all corners in recent years for everything from publicity-seeking to apparent conflicts of interest, analysts are more sensitive than ever to issues of independence -- even as they remain tethered to the likes of First Call to reach a wider audience. First Call's research chief, Chuck Hill, defends the practice of pushing for agreement, saying the firm's overriding goal is consistency. But critics say such heavy-handed tactics serve only to manufacture the appearance of consensus -- while squelching dissent that investors might be better off seeing. "I don't like it at all," Legg Mason analyst Timm Bechter says. "It's like being told to retie your shoes incorrectly."
William TellTake a recent example offered by Lehman Brothers' Steve Levy. Last month, telecom gearmaker Nortel ( NT) released earnings boasting a penny-per-share profit. Levy took exception, pointing out that the company used 4 cents of net income from discontinued businesses to offset the 3 cents of losses from continuing operations. The earnings-quality push that has swept Wall Street since the accounting scandals of 2001 and 2002 would seem to dictate that the 3-cent loss carry the day, since that's the result of Nortel's ongoing business. Yet, since the majority of Nortel analysts called the quarter a penny profit, First Call was soon on the horn with Levy telling him to change his number or he'd get bumped. While defending his practice of providing the Street with a single number, First Call's Hill says "there is no right answer on this stuff. What one person considers a nonrecurring item another will call recurring," referring to the typical gains and charges that may or may not be considered one-time events. Levy says that in order to keep his quarterly and yearly projections available on First Call, he eventually gave in and joined the profit consensus. Like Lehman's Levy, Legg Mason's Bechter says he once caved to First Call pressures. Last year, Bechter found himself in the minority on a Lucent ( LU) earnings call. Despite arguing unsuccessfully in his report that his peers were overlooking an element in their earnings calculation, he changed his estimate to stay in First Call's good graces. "I understand their need for apples-to-apples comparisons, but the problem comes when the majority isn't looking at it the right way," says Bechter. Regarding First Call's practice of not recognizing nonconforming estimates, Hill says analysts are free to publish and distribute their unique insights in their own reports. But analysts say it's a case of First Call's way or no way, if they want their differing estimates to reach First Call's broad audience.