Analysts and Their AgendasMarf49 mentioned the topic of analysts and their agendas. I have always questioned the usefulness of any analyst's rating, especially when the analyst's name and ratings history are not disclosed.
I provided this feedback to TD several months ago. To my surprise when logging in to TD WebBroker this morning, a pop-up ad for their new Analyst Centre appeared. Perhaps others voiced the same concerns re: analyst ratings.
I haven't used this new feature yet, but I reviewed the info page (see below). It sounds like a step in the right direction, although it does still have some limitations w.r.t. full disclosure of analyst names, etc.. I hope to see that functionality added one day!
TD Analyst Centre Info Page About Analyst Centre
The Analyst Centre is a research feature in WebBroker where you can find more detailed information about analyst ratings and analyst rankings (e.g. performance vs. peers). The Analyst Centre helps investors focus on what matters to them by organizing analyst rating information.
Here are some top questions for a better understanding of this new feature.
Where can I find the Analyst Centre?
The Analyst Centre is located in the 'Research' section of WebBroker. Click on the 'Research' menu and look under the 'Markets' column to locate the Analyst Centre.
What is TipRanks and where does this information come from?
TipRanks is a company that evaluates public analyst ratings and ranks those same analysts based on the accuracy of their performance.
Analyst ratings and ranking information in the Analyst Centre is provided by TipRanks. TipRanks picks up all ratings made on Canadian and U.S. stocks that are published publicly online by reputable sources.
Neither TD Bank Financial Group or TD Direct Investing endorses or recommends the purchase or sale of any security.
What are analyst ratings?
Analyst ratings are issued by financial analysts who monitor and report on a particular company and its financial state. Analyst ratings are usually issued as either Buy, Hold or Sell but may adopt different terminology. Analyst ratings also typically come with a 12-month target price for the stock.
What is an overall rating and how does it differ from an analyst rating?
The overall rating of a stock represents the aggregation of all analyst ratings for the company. This may or may not represent a consensus rating. The overall rating attempts to represent the degree to which the combined analyst sentiment supports a particular rating.
To determine the overall rating of a stock, a score is assigned to an analyst's most recent rating based on the following scale:
Buy = 1
Hold = 3
Sell = 5
Next, the analysts' ratings scores are added up, then divided by the total number of analysts, which determines the overall rating score.
Overall rating scores are translated into the following:
Strong Buy = less than or equal to 1.5
Buy = over 1.5 up to 2.5
Hold = over 2.5 up to 3.5
Sell = over 3.5 up to 4.5
Strong Sell = over 4.5
Neither TD Bank Financial Group or TD Direct Investing endorses or recommends the purchase or sale of any security.
What are analyst rankings? (How are analysts ranked?)
Analyst rankings are depicted by the number of stars (up to five) next to the analyst's profile – more stars correspond to better performance. Analyst rankings are determined by TipRanks and are based on an analyst's relative performance against their peers for all ratings made since 2009. Rankings are determined by using a combination of three factors:
- The win-loss ratio of the analyst: directionally correct ratings compared to directionally incorrect ratings
- The average return of each ratings: a rating's return is based on the analyst's chosen target price
- Consistency of the analyst's performance over time: a large enough sample size is required, and the distribution of ratings returns are normalized as to not skew results
Here are some examples:
- If analyst A is covering 10 companies and has 5 wins, 5 losses, the win-loss ratio would be 1. If analyst B is covering 10 companies and has 6 wins, 4 losses, the win-loss ratio would be 1.5. As a result, analyst B would receive a higher ranking multiplier (1.5 compared to 1) for this factor than analyst A.
- On November 1, 2019 an analyst recommends ABC Corp. (currently priced at $10.00) as a "Buy" with a $20.00 price target in 12 months' time. Fast-forward to November 1, 2020 let's say ABC Corp. trades at $15.00. In this example, the return would be 50%. If this analyst is covering five companies with returns of +4%, +10%, +12%, +50%, -15%, the average return would be +12.2%. When compared to their peers, analysts receive a higher ranking multiplier for higher average returns.
Are there any other areas where Analyst Centre information appears?
Yes, analyst information has been updated on your WebBroker Home Page and can be viewed by selecting the 'Ratings' icon in the 'Events' section.
For individual stocks, expanded quotes display the distribution of buy/hold/sell ratings for a particular company. The 'Stock Overview' page in the Research section of WebBroker also contains an 'Analysts' tab with additional details of the analysts currently covering the stock.
Can I read the full analyst reports associated with the ratings in the Analyst Centre?
Currently, no. The full analyst reports are not available via WebBroker at this time, but they may be publicly available through other means.
Can I sign up for alerts based on changes to the Analyst Centre?
Currently, no. At this time, alerts are not integrated with content the Analyst Centre. However, this is being considered for a future release.
Can I search specifically for an analyst's name or stock symbol so that I can see the results in a more focused manner?
Currently, no. The Analyst Centre does not have searchability at this time. However, this is being considered for a future release.