Relevance of Analyst Estimate

I have the "privilege" of receiving an analyst note from one of the biggest Wall Street firm in the world every morning. As a curiosity, I began making observation to see what benefit this "research report" brings. Because time and resource constraint I focused my analysis on Google (GOOG). The below are key notes from the report and price data after the fact.

07/18/08 - Maintain Overweight-V, DCF is $675, shares trading at 13x C2009E EBITDA, like shares at these levels

Share price was $481.32, traded as high as $510.15 & low of $381 after)

10/03/09 - Base case DCF valuation is $460 while downside case DCF valuation is $390

(Share price was $386.91, traded as high as $444.32 & low of $257.44 after)

07/17/09 - Base case DCF to $525 from $505

(Share price was $430.25 then traded as high as $535.32 & low of $427.29 after)

10/16/09 - Increasing base case DCF to $625 from $525 (Share price is $550)

Table below has the raw data

Date	Price	High	Low	Estimate		% from High	% from Low	% From Estimate
7/18/2008	481.32	510.15	381.00	675		6%	-21%	40%
10/3/2009	386.91	444.32	257.44	390-460		15%	-33%	19%
7/17/2009	430.25	535.32	427.29	525		24%	-1%	22%
10/16/2009	550.00			625				14%

I understand that 2008 and 2009 was just an awful year for everyone but following an analyst advice from the top Wall Street firm didn't help at all. This analyst remain "Overweight" the stock the whole time it was declining. The most conservative price this firm placed on Google was $390 while it is obvious now that it was a good call, how can they justified the price tag of $257? Surely the dislocation of the market caused a severe declined, what is the analyst if he can't protect the investor from such dislocation.

The trend for analysts' estimate appear to be escalating upward. Estimates are constantly pushed to the upper limit while lowering estimates come after a catastrophic market event. I'm not single out one firm or tagging all analyst estimate as bogus but simply pointing the fact as I see it. There are many sources of information out there. As an investor, it is your responsibility to take that information and see if they fit into your strategy or thesis. Please use free or paid information wisely. This include the information you received here on my blog.

Art

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