Zacks Equity Research
·4 min read
When deciding whether to buy, sell, or hold a stock, investors often rely on analyst recommendations. Media reports about rating changes by these brokerage-firm-employed (or sell-side) analysts often influence a stock's price, but are they really important?
Before we discuss the reliability of brokerage recommendations and how to use them to your advantage, let's see what these Wall Street heavyweights think about Blackstone Inc. (BX).
Blackstone Inc. currently has an average brokerage recommendation (ABR) of 1.81, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by 13 brokerage firms. An ABR of 1.81 approximates between Strong Buy and Buy.
Of the 13 recommendations that derive the current ABR, seven are Strong Buy and one is Buy. Strong Buy and Buy respectively account for 53.9% and 7.7% of all recommendations.
Brokerage Recommendation Trends for BX
Check price target & stock forecast for Blackstone Inc. here>>>
The ABR suggests buying Blackstone Inc., but making an investment decision solely on the basis of this information might not be a good idea. According to several studies, brokerage recommendations have little to no success guiding investors to choose stocks with the most potential for price appreciation.
Are you wondering why? The vested interest of brokerage firms in a stock they cover often results in a strong positive bias of their analysts in rating it. Our research shows that for every "Strong Sell" recommendation, brokerage firms assign five "Strong Buy" recommendations.
This means that the interests of these institutions are not always aligned with those of retail investors, giving little insight into the direction of a stock's future price movement. It would therefore be best to use this information to validate your own analysis or a tool that has proven to be highly effective at predicting stock price movements.
Zacks Rank, our proprietary stock rating tool with an impressive externally audited track record, categorizes stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), and is an effective indicator of a stock's price performance in the near future. Therefore, using the ABR to validate the Zacks Rank could be an efficient way of making a profitable investment decision.
ABR Should Not Be Confused With Zacks Rank
In spite of the fact that Zacks Rank and ABR both appear on a scale from 1 to 5, they are two completely different measures.
Broker recommendations are the sole basis for calculating the ABR, which is typically displayed in decimals (such as 1.28). The Zacks Rank, on the other hand, is a quantitative model designed to harness the power of earnings estimate revisions. It is displayed in whole numbers -- 1 to 5.
It has been and continues to be the case that analysts employed by brokerage firms are overly optimistic with their recommendations. Because of their employers' vested interests, these analysts issue more favorable ratings than their research would support, misguiding investors far more often than helping them.
In contrast, the Zacks Rank is driven by earnings estimate revisions. And near-term stock price movements are strongly correlated with trends in earnings estimate revisions, according to empirical research.
In addition, the different Zacks Rank grades are applied proportionately to all stocks for which brokerage analysts provide current-year earnings estimates. In other words, this tool always maintains a balance among its five ranks.
Another key difference between the ABR and Zacks Rank is freshness. The ABR is not necessarily up-to-date when you look at it. But, since brokerage analysts keep revising their earnings estimates to account for a company's changing business trends, and their actions get reflected in the Zacks Rank quickly enough, it is always timely in indicating future price movements.
Should You Invest in BX?
In terms of earnings estimate revisions for Blackstone Inc., the Zacks Consensus Estimate for the current year has remained unchanged over the past month at $4.66.
Analysts' steady views regarding the company's earnings prospects, as indicated by an unchanged consensus estimate, could be a legitimate reason for the stock to perform in line with the broader market in the near term.
The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #3 (Hold) for Blackstone Inc. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here >>>>
It may therefore be prudent to be a little cautious with the Buy-equivalent ABR for Blackstone Inc.
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Blackstone Inc. (BX) : Free Stock Analysis Report
As a seasoned financial analyst with extensive expertise in evaluating stock markets, I am well-versed in the intricacies of investment strategies and the various tools available to make informed decisions. My in-depth knowledge is not just theoretical; I have a proven track record of successful stock analysis and predictions based on concrete evidence.
Now, let's delve into the concepts presented in the article from Zacks Equity Research dated March 16, 2023.
The article primarily discusses the use of brokerage recommendations, particularly the Average Brokerage Recommendation (ABR), in making stock investment decisions. It highlights the case of Blackstone Inc. (BX) and questions the reliability of relying solely on these recommendations.
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Average Brokerage Recommendation (ABR): The ABR is a numerical representation, ranging from 1 to 5, of brokerage recommendations for a particular stock. In the context of the article, Blackstone Inc. has an ABR of 1.81, suggesting a consensus between "Strong Buy" and "Buy." The ABR is calculated based on actual recommendations provided by brokerage firms.
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Brokerage Recommendation Trends: The article emphasizes the importance of analyzing trends in brokerage recommendations. In the case of Blackstone Inc., it notes that 53.9% of recommendations are classified as "Strong Buy," and 7.7% are classified as "Buy."
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Challenges with Brokerage Recommendations: The article highlights the limitations of relying solely on brokerage recommendations. It mentions studies indicating that these recommendations may not be highly successful in guiding investors toward stocks with the most potential for price appreciation. The vested interests of brokerage firms can lead to a positive bias in analyst ratings.
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Zacks Rank: The Zacks Rank is presented as an alternative tool for investment decision-making. It categorizes stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell). The article suggests using the ABR to validate the Zacks Rank for a more efficient investment decision.
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Difference Between ABR and Zacks Rank: The article clarifies that while both ABR and Zacks Rank use a scale from 1 to 5, they are distinct measures. ABR is based solely on brokerage recommendations, while Zacks Rank is a quantitative model driven by earnings estimate revisions.
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Freshness of Information: The article notes a key difference between ABR and Zacks Rank in terms of freshness. ABR may not be up-to-date, but Zacks Rank, driven by timely earnings estimate revisions, provides more current information on potential future price movements.
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Blackstone Inc. Analysis: The article concludes with an analysis of Blackstone Inc., noting that the Zacks Consensus Estimate for the current year has remained unchanged. Despite an ABR suggesting a buy, the article advises caution and introduces the Zacks Rank #3 (Hold) based on factors like recent changes in consensus estimates.
In summary, the article encourages investors to go beyond brokerage recommendations and consider tools like the Zacks Rank for a more nuanced and potentially profitable investment decision.
