DEFINITION of Squawk Box
A squawk box is an intercom speaker that a firm’s analysts will often use on brokers' trading desks. These can exist in investment banks, along with stock brokerages. A squawk box allows a firm's analysts and traders to communicate with the firm's brokers.
BREAKING DOWN Squawk Box
Firms use squawk boxes to inform their brokers about current analyst recommendations, market events, and information about block trades. This line of communication helps to keep brokers updated on important market factors and allows the firm to guide its brokers' trading.
While many other forms of communication have arisen as a result of technology, the squawk box is still a requisite in many investment banks and brokerages.
Squawk Box and Analyst Recommendations
Many listen to squawk boxes to understand current trends in analyst ratings. Traditionally analyst recommendations for securities range among "buy," "hold," and "sell." Buy suggested the security was undervalued and a good deal, while sell signified it was likely overvalued. Multiple terms now exist for each of the ratings (a "sell" can be a "strong sell," while a "buy" can be a "strong buy"), in addition to "underperform" and "outperform" ratings.
Analysts will research public financial statements, listen to company conference calls, and speak with managers directly, along with customers of a company, in order to deeply understand their inner workings and present status.
Analysts often use a discounted cash flows (DCF) model to support their qualitative analyses. A DCF is a valuation method, which relies on future free cash flow projections for a company. The analyst will discount these, using a required annual rate. A present value estimate is then used to evaluate the potential for investment. If the value the analyst arrives at through DCF analysis is higher than the current cost of the investment, the opportunity may be a good one.
Squawk Box and Block Trades
Another reason to listen to a squawk box is to get a pulse for current block trades. A block trade or block order is a submission for the sale or purchase of a large quantity of securities. Block trades can often occur between parties, often outside of the open markets, to lessen their impact on the security price. In general, 10,000 shares of stock, not including penny stocks, or $200,000 worth of bonds are considered a block trade. Understanding who is placing block trades or block orders can help a banking employee realize supply and demand for a new issue.