As analysts are the most important information intermediaries in capital markets, initiation of coverage by them creates value for companies.
It is to be borne in mind that that the lack of consistency in information creates inefficiencies that might result in misinterpretation of stocks (over- or under-valued). Thus, initiation of coverage by analysts offers critical information on a stock which is of great value to investors.
Coverage initiation on a stock by analyst(s) usually depicts increased investor inclination. Investors, on their part, often assume that there is something in the stock that has attracted analyst attention. In other words, they believe that the company coming under the radar definitely has some value which can be tapped into.
Obviously, stocks are not arbitrarily chosen to cover. New coverage on a stock usually reflects an encouraging future envisioned by the analyst(s). At times, increased investor focus on a stock motivates analysts to take a closer look at it.
However, we have noticed that the average change in broker recommendation is preferred over a single recommendation change.