Wall Street Analysts Weigh In: What Teekay Tankers’ Ratings Mean
Investors frequently rely on recommendations from Wall Street analysts when deciding whether to buy, sell, or hold a stock. Although media attention surrounding rating changes by sell-side analysts can impact stock prices, it raises the question: how much do these ratings actually matter?
To better understand the reliability of brokerage ratings, we’ll explore what analysts are saying about Teekay Tankers (TNK).
Brokerage Ratings for Teekay Tankers
Teekay Tankers currently holds an average brokerage recommendation (ABR) of 1.60, measured on a scale from 1 to 5 (with 1 being Strong Buy and 5 being Strong Sell). This average is derived from the recommendations of five brokerage firms, where an ABR of 1.60 suggests a position between Strong Buy and Buy.
Out of the five recommendations contributing to the current ABR, four are classified as Strong Buy. This indicates that 80% of analysts favor buying the stock.
View price target and stock forecasts for Teekay Tankers here>>>
Understanding the Limitations of Brokerage Recommendations
While the ABR suggests a positive outlook for Teekay Tankers, investors should exercise caution before making decisions based solely on these ratings. Research has demonstrated limited effectiveness of brokerage recommendations in identifying stocks with the highest potential for price increases.
This discrepancy arises from brokerage firms’ vested interests in the stocks they cover. Analysts often exhibit a strong positive bias, resulting in five “Strong Buy” ratings for every “Strong Sell.” This misalignment of interests may not provide the best insight into a stock’s future performance, suggesting that investors should use these ratings to corroborate their own analyses instead.
With a strong track record, Zacks Rank—a proprietary stock rating tool—can help investors gauge a stock’s short-term price potential. It categorizes stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell). Combining the Zacks Rank with the ABR may lead to more informed investment decisions.
Distinguishing ABR from Zacks Rank
It is essential to recognize the differences between ABR and Zacks Rank, even though both systems operate on a scale of 1 to 5.
The ABR is based entirely on brokerage recommendations and is typically presented with decimals (e.g., 1.28). In contrast, Zacks Rank is a quantitative model that leverages earnings estimate revisions and is represented in whole numbers from 1 to 5.
Brokerage analysts have consistently shown a tendency to be overly optimistic, largely due to the interests of their firms, which often leads to more favorable ratings than warranted by their research. This can mislead investors rather than assist them.
On the other hand, Zacks Rank is influenced by earnings estimate changes. Empirical research has demonstrated that near-term stock price movements closely follow trends in these earnings estimates.
Moreover, the Zacks Rank applies different grades proportionally across all stocks for which analysts provide earnings estimates, ensuring balance among the five classifications it assigns.
Another distinction lies in the timeliness of the ratings. The ABR may not always reflect the latest updates, whereas Zacks Rank quickly incorporates revisions to reflect changing business conditions, maintaining its relevance in predicting future price movements.
Evaluating Teekay Tankers as a Potential Investment
For Teekay Tankers, the Zacks Consensus Estimate for this year has fallen by 1.9% over the past month, now sitting at $6.62.
Analysts’ increasingly negative outlook, highlighted by their consensus on lowering earnings per share estimates, poses a legitimate concern for the stock’s prospects in the near term.
The significant recent decline in the consensus estimate, coupled with three additional factors tied to earnings estimates, has led to a Zacks Rank of #5 (Strong Sell) for Teekay Tankers. You can view today’s Zacks Rank #1 (Strong Buy) stocks here>>>>
Given these developments, investors should approach the Buy-equivalent ABR for Teekay Tankers with caution.
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Teekay Tankers Ltd. (TNK): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
