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How Have Analysts Performed Relative to Their Stock Ratings?

Earnings

By John Butters  |  June 18, 2018

How have analysts performed in terms of their ratings over the past 12 months?

To analyze their performance, FactSet divided the stocks that were in the S&P 500 on June 30, 2017 into five equal-sized groups (quintiles) based on the percentage of Buy ratings on that date. The 20% of S&P 500 companies with the highest percentage of Buy ratings were placed in the first group (Quintile 1). The 20% of S&P 500 companies with next highest percentage of Buy ratings were placed in the second group (Quintile 2). The 20% of S&P 500 companies with the lowest percentage of Buy ratings were placed in the last group (Quintile 5).

FactSet then looked at the average total return and median total return for each group from June 30, 2017 through June 14, 2018 to measure performance. For companies that were no longer publicly traded as of yesterday, total return numbers were calculated based on data from the last trading day of the stock when available.

Percent of Buy Ratings Vs Total Return

The first quintile and third quintiles have been the top performers during this period. The first quintile has recorded the highest average total return (+17.5%) and the highest median total return (+17.1%) during this time. The average percentage of Buy ratings for a stock in first quintile was 78.6%, while the median percentage of Buy ratings for a stock in the first quintile was 76.9%. The third quintile has recorded the second highest average total return (+17.2%) and the second highest median total return (+16.3%) during this time. The average percentage of Buy ratings for a stock in the third quintile was 48.0%, while the median percentage of Buy ratings for a stock in the third quintile was 47.6%.

Average and Median Percent of Buy Ratings on June 30

The fourth and fifth quintiles have been the bottom performers during this period. The fourth quintile has recorded the lowest average total return (+11.2%) and the lowest median total return (+6.2) during this time. The average percentage of Buy ratings for a stock in fourth quintile was 33.6%, while the median percentage of Buy ratings for a stock in the fourth quintile was 33.3%. The fifth quintile has recorded the second lowest average total return (+12.0%) and the second lowest median total return (+6.5%) during this time. The average percentage of Buy ratings for a stock in the fifth quintile was 15.6%, while the median percentage of Buy ratings for a stock in this quintile was 16.0%.

Overall Performance 

Broadly speaking, S&P 500 companies in the first three quintiles have outperformed S&P 500 companies in the bottom two quintiles since June 30, 2017. However, the third quintile has outperformed the second quintile over this period, while the fifth quintile has outperformed the fourth quintile during this time.

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John Butters

Vice President, Senior Earnings Analyst

Mr. John Butters is Vice President and Senior Earnings Analyst at FactSet. His weekly research report, “Earnings Insight,” provides analysis and commentary on trends in corporate earnings data for the S&P 500 including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, The Financial Times, The New York Times, MarketWatch, and Yahoo! Finance. Mr. Butters has over 15 years of experience in the financial services industry. Prior to FactSet in January 2011, he worked for more than 10 years at Thomson Reuters (Thomson Financial), most recently as Director of U.S. Earnings Research (2007-2010).

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