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.

Table 4-1. Numeric values for analysts’ buy/sell ratings.
CategoryNumeric Value
Strong Buy1
Buy2
Hold3
Sell4
Strong Sell5

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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