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Before making a buy, sell, or hold decision on a stock, investors often look to Wall Street analysts’ recommendations. Do media reports on rating changes made by these sell-side analysts (or brokerage-firm employees) often impact a stock’s value?
Let’s take a look what these Wall Street heavyweights had to say about the subject Medical Properties (MPW) Before we talk about the reliability of brokerage recommendation and how you can use them to your advantage
Medical Properties currently has a median brokerage recommendation (ABR), of 1.83. This is based on the actual recommendations. Twelve brokerage firms made the recommendations. A ratio of 1.83 between Buy and Strong Buy is approximated.
Six out of 12 recommendations that are derived the current ABR are Strong buys, while two are Buy. These two recommendations account for half of the total recommendations, and 16.7% respectively.
Brokerage Recommendation Trends for MPW
Check price target & stock forecast for Medical Properties here>>>
The ABR suggests that you buy Medical Properties. However, it is not a good idea to base your investment decisions solely on this information. Multiple studies have found that brokerage recommendations are not effective in helping investors pick stocks with the highest price growth potential.
You might be wondering why. Brokerage firms often have a strong positive bias in the rating of stocks they cover because of their vested interests. Research shows that brokerage firms give five “Strong Buy” recommendations for every “Strong Sell.”
This means that these institutions’ interests may not always align with retail investors. Therefore, they can only give a limited insight into the direction of a stock’s future price movements. This information can be used to validate your analysis, or to predict stock price movements using a proven tool.
Zacks Rank is our proprietary stock rating tool that has an impressive track record. It categorizes stocks in five groups. These range from Zacks Rank #1 to Zacks Rank #5 and are an effective indicator of a stock’s future price performance. The ABR could prove to be a reliable way to make a profit on an investment decision.
Zacks Rank should not be confused with ABR
Both Zacks Rank (ABR) and Zacks Rank (ABR) are shown in a range from 1-5. However, they are two different measures.
The ABR, which is calculated solely from brokerage recommendations, is often displayed with decimals (example: 1.28). The Zacks Rank on the other hand is a quantitative model that allows investors the ability to leverage the power and flexibility of earnings estimate revisions. It’s displayed in whole numbers from 1 through 5.
Brokerage firms employ analysts who are overly optimistic in their recommendations. These analysts’ ratings are often more favorable than the research they have done, which is why they mislead investors more often than they guide.
The earnings estimate revisions drive the Zacks Rank. Empirical research shows that near-term stock price movements correlate strongly with changes in earnings estimate revisions.
Additionally, Zacks Rank grades will be applied proportionately for all stocks for whom brokerage analysts provide current year earnings estimates. This means that the tool maintains a balanced among its five ranks.
When it comes to freshness, there is a crucial difference between Zacks Rank and the ABR. It is possible that the ABR is not up-to date if you look at it. Nevertheless, because brokerage analysts regularly revise earnings estimates to reflect changing business patterns, and their actions get reflected quickly in the Zacks Rank, it is always current in predicting future stock market prices.
Should You Invest In MPW?
The Zacks Consensus estimate for Medical Properties has been revised to $1.81 by looking at the earnings estimates revisions. It is now 0.1% lower than the previous month.
The growing pessimism of analysts regarding the company’s earnings prospects as evidenced by strong agreement among them in revising EPS estimations lower could be a valid reason for the stock’s plunge in the short term.
A Zacks Rank #4 (Sell), has been given to Medical Properties due to the size of the change in consensus estimate and three other factors that are related earnings estimates. You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here >>>>
It might be a good idea to use the Buy-equivalent ABR Medical Properties with a pinch of salt.
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Medical Properties Trust, Inc. (MPW) : Free Stock Analysis Report