The New Rainmakers

NEW YORK — Drew Marcus, 34, is one of the hottest commodities on Wall Street these days.

His title is “research analyst,” meaning he digs through companies’ financial statements and business plans to come up with investment ideas for clients of his firm, Alex. Brown & Sons Inc. of Baltimore.

But what makes Marcus so valuable is not his number crunching--it’s his rainmaking.

Marcus is part of a growing cadre of analysts, some of whom are paid more than $1 million a year, who spend at least half their time enticing companies to sell shares of stock to the public for the first time.

Wall Street earned more than $2.6 billion selling these initial public offerings of stock last year. A record number of companies have taken advantage of booming stock prices, selling almost $50 billion in new shares to the public in 1996, according to Securities Data Corp.

Equity analysis used to be the closest thing to an ivory tower on Wall Street. Analysts stayed out of the deal flow and took pride in their independence. They churned out research on a company’s operations and earnings potential, always sifting for the overlooked investment prospect.

Analysts gather their information by talking to a company’s customers, suppliers and competitors; by participating in periodic company briefings, reading industry publications and company statements; and by paying regular visits to company offices. Analysts then deliver their opinion to investors in research reports and updates, personally phoning the firm’s biggest investment customers with in-depth analyses.

Today, analysts have a much higher profile and more responsibilities. They still talk to executives of the companies they follow and to their biggest investment clients, but many rely on assistants to handle the gathering of information. This frees analysts to take a more public role at their firms, such as visiting investment banking clients and giving interviews to the media.

Analysts are also in increasing demand within their own firms. They all--the merger advisors, the traders, the stockbrokers, the merchant bankers who invest the firms’ money--want the analysts’ advice.

That’s where new stock offerings come in. Competition for the deals is fierce because the business is so profitable for Wall Street--firms earn an average fee of 7.3% of the total value of shares sold, according to Securities Data.

With their extensive contacts, analysts often can spot up-and-coming companies that need more capital. They will either court them directly or accompany their firm’s investment bankers when the bankers make a pitch to handle a stock offering.

At the same time, companies that want to sell stock seek out the investment bankers with top-rated analysts who have the ear of professional money managers who buy lots of stock.

“This has been one of the best two- to three-year periods” for new stock issues, said Jeffrey M. Peek, senior vice president and director of Merrill Lynch & Co.’s global research and economics group. Peek said many of these companies “have never been here before. They look at the firms and say, ‘Who do I want to tell my story?’ And from Wall Street’s perspective . . . we have to ask: ‘Is this a real company? How do we price their securities?’ ”

Who can answer those questions? The research analyst. The average compensation for analysts has tripled in the last few years, recruiters said, with rainmakers being the most richly rewarded.

For their part, professional investors said they have never looked to Wall Street for unbiased investment advice. “There’s always a concern,” said Alan Sachtleben, chief equity investment officer at the Chicago-based mutual fund company Van Kampen American Capital. “If you know an analyst is probably involved in an underwriting, you take that into consideration.”

A recent study found that Wall Street analysts paint a much more optimistic picture about the long-term earnings potential of a company issuing new shares than reality bears out. Richard Sloan and Patricia Dechow at the University of Pennsylvania’s Wharton School and Amy Sweeney at Harvard Business School studied 7,169 analysts’ five-year forecasts for 1,179 new stock offerings between 1981 and 1990. They found that analysts forecast annualized earnings growth of 16.2% but that the companies averaged only a 5.7% return over five years.

The overblown forecasts are even worse for analysts who work at the Wall Street firm that sold the company’s stock. In those cases, analysts forecast growth of 23.3% but the companies averaged only 9.75%.

Many analysts deny that their stock-picking prowess is colored by their degree of involvement in a deal.

Marcus, Alex. Brown’s expert in the radio and billboard industries, is unapologetic about his involvement in financings. “I bring in a lot of deals. If they all go down, I’d probably lose my job,” he said. “My singular goal is to be a good stock picker, to make people money.”

Marcus said he’s very clear on where to draw the line between his involvement in deals and his attentiveness to investment clients.

“I’m not doing anybody any service by being wrong,” Marcus said.