Analyst Forecasts

Behavioural scientists have shown repeatedly that experts in every field are poor forecasters, being inaccurate, over confident and slow to change their opinion. Research Analysts in the financial markets are no exception. Studies by GMO have shown that analyst forecasts tend to lag reality - they tend to raise forecasts too slowly in good markets, and reduce them too slowly in bad markets !

Nonetheless knowing the consensus of the market is extremely useful as you’ll then be able to see clearly when the market is surprised positively or negatively. As trends tend to persist, purchasing stocks that are surprising, or forcing upgrades on the upside or selling stocks surprising to the downside can be a wise decision.

Broker Forecasts

This section of the Stock report shows detailed earnings forecast data and whether analysts have been increasing or reducing their forecasts on a 1 month and 3 month basis. The numbers are colour coded for quick review.

  • Price Target - This shows the consensus price target given by covering brokers. The numbers are at the discretion of each broker and tend to be on a 1 year timeframe. They should be used with caution.
  • Long term growth forecast - again this is a particularly inaccurate measure from brokers, but may help with understanding the consensus expectations.

Broker's Consensus Trend

Due to a behavioural bias called anchoring analysts tend to ratchet their forecasts in one direction or the other only slowly. As a result it tends to be a positive signal if forecasts have been consistently upgraded, and a negative one in persistently downgraded. The trend is your friend !

  • Consensus Recommendation - The horizontal bar displays the consensus recommendation from strong sell to strong buy, it also shows in grey where the consensus was 3 months ago so you can spot movements. Recommendation data should be taken with a pinch of salt. Due to the fact that many broking firms also provide corporate finance services to their clients, it has been shown that brokers are reluctant to put out 'sell' recommendations. The majority of stocks analysed in the city are 'buys' or 'outperforms', and much research has indicated that stocks with a 'sell' rating actually outperform stocks with a 'buy' rating. This indicator is provided for reference only, but can sometimes be used as a useful contrarian signal. For a full indication of how poor broker recommendations can be please do read this article by our CEO, Ed Croft “Can you beat the market using broker buy recommendations?

  • Forecast Trend - The trend in forecasts is charted below the broker consensus. This shows how the current year forecast has changed over the last 18 months. Most investors soon learn that companies with a habit of beating forecasts tend to outperform the market. The reason is that due to a behavioural quirk called price anchoring, analysts tend to raise their forecasts too conservatively. This can lead to sequences of earnings upgrades and surprises which investors can take advantage of.