Analyst Rating
An analyst rating is a recommendation from a research analyst on whether to buy, hold or sell a stock, based on their assessment of its expected performance.
Sell-side analysts at investment banks and brokerages cover specific companies and issue ratings. Common scales are buy, hold and sell, but firms use different labels, such as outperform, overweight, neutral, market perform, underperform or underweight. Ratings are usually paired with a price target.
Data providers combine ratings from many analysts into a consensus rating. Upgrades and downgrades by well-known analysts can move a stock's price on the day they are published.
Ratings should be interpreted with care. Historically, buy ratings have far outnumbered sell ratings, partly because of business relationships between banks and the companies they cover. Regulations such as FINRA Rule 2241 require disclosure of conflicts of interest and the distribution of a firm's ratings.
Ratings also reflect each firm's own benchmark and time horizon. Example: an overweight rating usually means the analyst expects the stock to do better than its sector or the market over the next 12 months, not that it will necessarily rise in absolute terms.