The literature that examines target prices issued by equity research analysts is vast, and the role of the analytical process and valuation model used to determine target prices has received growing attention by scholars. However, the specific evidence that indicates how professional analysts value banks is scant at best. Due to their peculiar nature, banks are usually valued using approaches that may differ significantly from those applied to non-financial companies. By investigating a unique sample of equity studies that cover the Italian listed companies (2005-2011), we determined the approaches that are used and their relative performance in providing accurate valuations and target prices. Fundamental valuation models appear to perform significantly better than relative valuation approaches.
How Do Analysts Value Italian Banks? An Empirical Analysis
GIANFRATE, GIANFRANCO;VINCENZI, ROBERTO
2014
Abstract
The literature that examines target prices issued by equity research analysts is vast, and the role of the analytical process and valuation model used to determine target prices has received growing attention by scholars. However, the specific evidence that indicates how professional analysts value banks is scant at best. Due to their peculiar nature, banks are usually valued using approaches that may differ significantly from those applied to non-financial companies. By investigating a unique sample of equity studies that cover the Italian listed companies (2005-2011), we determined the approaches that are used and their relative performance in providing accurate valuations and target prices. Fundamental valuation models appear to perform significantly better than relative valuation approaches.
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