Advertisement
UK markets closed
  • FTSE 100

    8,155.72
    -49.17 (-0.60%)
     
  • FTSE 250

    21,067.68
    -166.48 (-0.78%)
     
  • AIM

    784.13
    -3.54 (-0.45%)
     
  • GBP/EUR

    1.1866
    -0.0009 (-0.08%)
     
  • GBP/USD

    1.2915
    -0.0032 (-0.25%)
     
  • Bitcoin GBP

    51,727.64
    +186.37 (+0.36%)
     
  • CMC Crypto 200

    1,380.01
    +49.11 (+3.69%)
     
  • S&P 500

    5,505.00
    -39.59 (-0.71%)
     
  • DOW

    40,287.53
    -377.49 (-0.93%)
     
  • CRUDE OIL

    80.25
    -2.57 (-3.10%)
     
  • GOLD FUTURES

    2,402.80
    -53.60 (-2.18%)
     
  • NIKKEI 225

    40,063.79
    -62.56 (-0.16%)
     
  • HANG SENG

    17,417.68
    -360.73 (-2.03%)
     
  • DAX

    18,171.93
    -182.83 (-1.00%)
     
  • CAC 40

    7,534.52
    -52.03 (-0.69%)
     

Wall Street Analysts Think Tenet (THC) Is a Good Investment: Is It?

The recommendations of Wall Street analysts are often relied on by investors when deciding whether to buy, sell, or hold a stock. Media reports about these brokerage-firm-employed (or sell-side) analysts changing their ratings often affect a stock's price. Do they really matter, though?

Let's take a look at what these Wall Street heavyweights have to say about Tenet Healthcare (THC) before we discuss the reliability of brokerage recommendations and how to use them to your advantage.

Tenet currently has an average brokerage recommendation (ABR) of 1.17, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by 18 brokerage firms. An ABR of 1.17 approximates between Strong Buy and Buy.

Of the 18 recommendations that derive the current ABR, 16 are Strong Buy and one is Buy. Strong Buy and Buy respectively account for 88.9% and 5.6% of all recommendations.

ADVERTISEMENT

Brokerage Recommendation Trends for THC

Broker Rating Breakdown Chart for THC
Broker Rating Breakdown Chart for THC



Check price target & stock forecast for Tenet here>>>

While the ABR calls for buying Tenet, it may not be wise to make an investment decision solely based on this information. Several studies have shown limited to no success of brokerage recommendations in guiding investors to pick stocks with the best price increase potential.

Do you wonder why? As a result of the vested interest of brokerage firms in a stock they cover, their analysts tend to rate it with a strong positive bias. According to our research, brokerage firms assign five "Strong Buy" recommendations for every "Strong Sell" recommendation.

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.

Zacks Rank Should Not Be Confused With ABR

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.

The ABR is calculated solely based on brokerage recommendations and is typically displayed with decimals (example: 1.28). In contrast, the Zacks Rank is a quantitative model allowing investors 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.

Furthermore, the different grades of the Zacks Rank are applied proportionately across all stocks for which brokerage analysts provide earnings estimates for the current year. In other words, at all times, this tool maintains a balance among the five ranks it assigns.

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 THC?

Looking at the earnings estimate revisions for Tenet, the Zacks Consensus Estimate for the current year has increased 0.3% over the past month to $8.74.

Analysts' growing optimism over the company's earnings prospects, as indicated by strong agreement among them in revising EPS estimates higher, could be a legitimate reason for the stock to soar 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 #1 (Strong Buy) for Tenet. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here >>>>

Therefore, the Buy-equivalent ABR for Tenet may serve as a useful guide for investors.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Tenet Healthcare Corporation (THC) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research