Consensus Ratings
Firms such as Thomson Financial, Zacks, and Reuters compile the analysts’ individual buy/sell ratings into a consensus figure. They do that by first assigning each brokerage’s individual ratings into one of five categories: strong buy, buy, hold, sell, and strong sell. They assign each category a numerical weight as shown in Table 4-1.
Category | Numeric Value |
---|---|
Strong Buy | 1 |
Buy | 2 |
Hold | 3 |
Sell | 4 |
Strong Sell | 5 |
The compiler tabulates and averages the individual analyst’s ratings. For instance, if three analysts all rate a stock strong buy, the total equates to 3, and the average (total divided by number or ratings) is 1. The consensus rating for a stock with one strong buy (1) and one ...
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