DEFINITION of 'Security Analyst'

A security analyst is a financial professional who studies various industries and companies, provides research and valuation reports, and makes buy, sell, and/or hold recommendations.

BREAKING DOWN 'Security Analyst'

Security analysts follow the performance of one or more stocks, sectors, industries, or economies in the market. Futures contracts are not securities because their performance is not dependent on the management or activities of an outside or third party. Options on these contracts are, however, considered securities since performance is dependent on the activities of a third party.

A security analyst runs fundamental and/or technical analysis on securities in the market in order to help retail and institutional investors make investment decisions. Fundamental analysis relies on the fundamental business factors such as financial statements, and technical analysis focuses on price trends and momentum. The evaluations run by a security analyst determines whether s/he puts out a buy, sell, or hold recommendation in the financial markets. Clients and third parties usually pay for access to these reports.

The analysis done on securities involves gathering and interpreting financial data. The data is retrieved from a number of sources, including financial statements made publicly available on EDGAR (Electronic Data Gathering, Analysis, and Retrieval) database online, financial publications, information-sharing with financial researchers and other analysts, etc. By building financial models on the data, a security analyst can better understand the financial health and profitability prospects of a company or sector.

Depending on the reason for the analysis, an analyst may be tasked with making earnings estimates for a company's future earnings per share (EPS). By placing estimates on the earnings of a firm for certain periods (quarterly, annually, etc.), analysts can then use cash flow analysis to approximate the fair value for a company, which in turn will give a target share price. Security analysts' earnings estimates are often aggregated to create a consensus estimate, which is used as a benchmark against which the company's actual performance is evaluated. An earnings surprise typically occurs when a company misses the consensus estimate either by earning more than expected or less.

Securities analysts work for investment banks, private equity firms, venture capital firms, hedge funds, and research companies. They are involved in corporate events, such as mergers and acquisitions (M&A), corporate restructuring, bankruptcy, and other organizational moves that can impact the financial value of a firm.

Security analysts are apt with spreadsheets and numbers and should be able to effectively explain the results of their analysis to clients, management, and peers in the industry. Many analysts have undergraduate degrees in the area of finance and take on additional certifications post-graduation (e.g. CFA) to increase their knowledge of the capital markets.

  1. Fundamental Analysis

    Fundamental analysis is the method of analyzing a security to ...
  2. Research Analyst

    A research analyst is a person who prepares investigative reports ...
  3. Analyst Expectation

    An analyst expectation is a report indicating how a particular ...
  4. Financial Statement Analysis

    Financial statement analysis is the process of analyzing a company's ...
  5. Consensus Estimate

    A consensus estimate is a figure based on the combined estimates ...
  6. Universe of Securities

    A universe of securities generally refers to a set of securities ...
Related Articles
  1. Financial Advisor

    Career advice: Financial analyst versus research analyst

    Read an in-depth comparison between a career as a financial analyst and a career as a research analyst, including advice on which one to choose.
  2. Personal Finance

    Sizing Up a Career as a Ratings Analyst

    This ratings analyst field is lucrative, but do you have what it takes to score this job?
  3. Personal Finance

    A career as financial analyst or business analyst?

    Understand the key distinctions between a financial analyst and a business analyst, including starting pay and job outlook.
  4. Investing

    Stock analysts say a lot, but should you listen?

    If you want to find out which analysts are worth following, you shouldn't take their word for it.
  5. Personal Finance

    Financial Data Analyst: Job Description & Average Salary

    Learn about the average salary for a financial data analyst position and the skills, education and experience employers require of candidates.
  6. Personal Finance

    Career advice: Financial analyst versus equity analyst

    Understand the subtle distinctions between financial analysts and equity analysts, and learn the pros and cons of each career.
  7. Personal Finance

    Career advice: Financial analyst versus data analyst

    Learn the distinctions between financial analysts and data analysts, and determine which career is right for you based on your skill set and interests.
  8. Personal Finance

    Financial Analyst: Career Path & Qualifications

    Read about what it takes to become a financial analyst in a corporation or securities firm, and learn how far you can rise in the profession.
  9. Investing

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  1. Is it better to use fundamental analysis, technical analysis or quantitative analysis ...

    Understand the difference between fundamental, technical and quantitative analysis, and how each measurement helps investors ... Read Answer >>
  2. What is the difference between fundamental and technical analysis?

    Fundamental analysis and technical analysis, the major schools of thought when it comes to approaching the markets, are at ... Read Answer >>
  3. How do marketable securities impact a company's financial statements?

    Understand how the various components of the financial statements are impacted by investments in marketable securities owned ... Read Answer >>
  4. What is the best method of analysis for forex trading?

    Learn more about the types of forex analysis used by currency traders such as charting tools, economic indicators and/or ... Read Answer >>
Hot Definitions
  1. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  2. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  3. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  4. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  5. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  6. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
Trading Center