Merrill Lynch Global Research announced today a new system of equity
ratings, which is designed to provide clients with enhanced transparency
into analysts’ views, greater differentiation
among the equity ratings within a sector, and closer alignment between
rating distributions and historical stock performance. The new equity
ratings structure, to launch June 2, 2008, is unique in that it provides
clients with an absolute return system with a relative twist.
“The investment performance of our
institutional and individual investors is always paramount,”
said Candace Browning, president of Merrill Lynch Global
Research. “The basis of the new equity rating
system is to reinforce our ongoing drive to encourage Merrill Lynch
analysts to adopt the perspective and mindset of top-performing
investors.”
In the new system, “Buy”
stocks are expected to have a total return of at least 10 percent and
are the most attractive stocks in a coverage cluster*. “Neutral”
stock prices are expected to remain flat or increase, but be less
attractive than Buy-rated stocks. “Underperform”
stocks are a) expected to have either a negative total return; or b)
have a positive total return but be the least attractive stocks in a
coverage cluster. Merrill Lynch Research defines “coverage
cluster” as a group of stocks covered by a
single analyst or two or more analysts sharing a common industry,
sector, region or other classification(s).
The new system also introduces dispersion guidelines that limit the
number of the stocks in each investment rating category: Buy-rated
stocks may not exceed 70 percent, Neutral-rated stocks may not exceed 30
percent and Underperform stocks must be at least 20 percent of each
coverage cluster.
A ratings table, which will be on all Merrill Lynch Equity Research
reports, is provided below:
“The rationale behind the introduction of
rating dispersion requirements is compelling. By introducing
distribution guidelines, we can be certain that our analysts’
distributions correlate more closely with historical return statistics,”
said Browning. “I am confident that the new
Merrill Lynch equity rating system will enhance our ability to provide
incremental alpha-generating investment returns to our clients.”
Merrill Lynch is also requiring an investment thesis, providing the
rationale behind the analyst’s
recommendation, and a price objective target for every stock under
coverage to maximize the transparency and support the analytical and
intellectual basis of analysts’ convictions
and recommendations. In addition, Merrill Lynch analysts will continue
to provide clients with volatility risk ratings and dividend ratings.
Merrill Lynch is one of the world's leading wealth management, capital
markets and advisory companies, with offices in 40 countries and
territories and total client assets of almost $2 trillion. As an
investment bank, it is a leading global trader and underwriter of
securities and derivatives across a broad range of asset classes and
serves as a strategic advisor to corporations, governments, institutions
and individuals worldwide. Merrill Lynch owns approximately half of
BlackRock, one of the world's largest publicly traded investment
management companies, with more than $1 trillion in assets under
management. For more information on Merrill Lynch, please visit www.ml.com.
