“For most lunchgoers, a 30-minute wait for a table is bad news. For Lynne Collier, it’s an opportunity,” writes Jeff Opdyke in today’s Wall Street Journal.

“Told she’d have to wait recently at a Chinese eatery called P.F. Chang’s, Ms. Collier, the restaurant analyst for Stephens Inc., a brokerage firm in Little Rock, Ark., sidled up to the bar. ‘So, how’s business?’ she asked.”

“The bartender had recently spent time in management training and told her the three-year-old restaurant still generated big volume, with weekly sales of $130,000. Dinner waits stretched past an hour. He offered, too, that Pei Wei Asian Diner, a new take-out chain from P.F. Chang’s China Bistro Inc. was faring well and soon would open in Dallas.”

“Later, over a plate of steamed bass, Ms. Collier says the chat ‘showed me the concept isn’t slowing and that Pei Wei could be a real catalyst for earnings growth.’ She would check on other restaurants in the publicly traded chain and weave the results into her research. A few weeks later, she initiated coverage of the company with a bullish ‘outperform’ rating.”

“Investors like to imagine that Wall Street analysts all operate this way: kicking tires, cruising grocery aisles and tasting the soup — digging for the information that reveals how well a business is really faring. As the 1990s unfolded, critics and regulators began noticing what former SEC Chairman Arthur Levitt once called “a web of dysfunctional relationships” between brokerage firms and corporate clients. As critics point out, many analysts chucked much of their detective work and began relying too much on guidance dished up in corporate news releases and regular conversations with company management. In too many cases, critics and regulators say, their financial assessments simply reflected management’s view.”

“But that may be changing. Regulation Fair Disclosure, the nearly year-old mandate by the Securities and Exchange Commission, requires companies to disseminate corporate data equally among analysts and investors. Now executives are getting stingy with information. To gain an edge on the competition, some analysts are hitting the streets again to dig up original research.”

“Daniel Davila, for example, who covers entertainment companies for Hibernia Southcoast Capital in New Orleans, has revived his routine of visiting Las Vegas monthly, chatting up cabbies, cocktail waitresses and pit bosses. ‘As I got more established, I pretty much just phoned in my research,’ he says. Now, he says, Reg FD ‘is sending us back to work.’ “

“And just in time. Analysts’ credibility is all but shot these days, in large part because research professionals pumped out a flood of bullish reports during the market’s final bender, then failed to counsel caution as stocks cracked. At the market’s peak, analysts affixed ‘buy’ ratings to nearly three-quarters of all reports. Even today, 65% of recommendations are bullish. The reason: Most analysts work for firms that derive the majority of their income from the investment-banking business, and the analysts are concerned about losing access to that business. It remains to be seen whether many of these analysts will dramatically change their ways.”