HomeMost PopularTech StocksHCA (HCA) Is Considered a Good Investment by Brokers: Is That True?

HCA (HCA) Is Considered a Good Investment by Brokers: Is That True?

Actionable Trade Ideas

always free

When it comes to making investment decisions, many investors rely on analyst recommendations from brokerage firms. These recommendations often have an impact on a stock’s price, but how reliable are they really?

Before we delve into the credibility of brokerage recommendations and how to use them to your advantage, let’s take a look at what Wall Street experts think about HCA Healthcare (HCA).

HCA currently has an average brokerage recommendation (ABR) of 1.40, on a scale of 1 to 5 (with 1 being a Strong Buy and 5 being a Strong Sell). This ABR was calculated based on the actual recommendations made by 20 brokerage firms. With an ABR of 1.40, HCA falls between a Strong Buy and a Buy.

Out of the 20 recommendations that were considered, 15 were categorized as Strong Buy and 2 were categorized as Buy. In other words, 75% of the recommendations were Strong Buy and 10% were Buy.

Trends in Brokerage Recommendations for HCA

Broker Rating Breakdown Chart for HCA

If we only consider the ABR, it suggests that buying HCA might be a good idea. However, research has shown that brokerage recommendations have limited success in predicting stocks’ future price appreciation.

But why is that? It turns out that brokerage analysts often have a biased perspective due to their firm’s vested interests in the stocks they cover. They tend to assign more positive ratings to stocks, with five β€œStrong Buy” recommendations for every β€œStrong Sell” recommendation.

This misalignment of interests between brokerage firms and retail investors means that relying solely on brokerage recommendations may not provide a clear direction for a stock’s future price movement. Instead, it would be wise to use this information to validate your own analysis or consider other effective tools for predicting stock price movements.

One such tool is the Zacks Rank, a proprietary stock rating tool that has been externally audited and proven to be effective. The Zacks Rank categorizes stocks into five groups, from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), based on earnings estimate revisions. This ranking can be a valuable indicator of a stock’s near-future price performance.

Distinguishing Between ABR and Zacks Rank

Although both the ABR and Zacks Rank are presented on a scale from 1 to 5, they are fundamentally different measures.

The ABR is solely based on brokerage recommendations and is often displayed with decimals (e.g., 1.28). On the other hand, the Zacks Rank is a quantitative model that incorporates earnings estimate revisions, displayed as whole numbers (1 to 5).

Research has consistently shown that analysts employed by brokerage firms tend to be overly optimistic with their recommendations. Due to their employers’ vested interests, these analysts often give more favorable ratings than warranted, leading to misleading guidance for investors.

In contrast, the Zacks Rank focuses on earnings estimate revisions, which have been proven to have a strong correlation with near-term stock price movements.

Another notable difference between the ABR and Zacks Rank is the freshness of the information. The ABR may not always be up-to-date, while the Zacks Rank quickly incorporates analysts’ revised earnings estimates to reflect changing business trends.

Should You Invest in HCA?

Examining the earnings estimate revisions for HCA, the Zacks Consensus Estimate for the current year has increased by 0.2% over the past month to $18.47.

The growing optimism among analysts, reflected in their agreement to revise EPS estimates higher, could be a valid reason for the stock to experience significant growth in the near term.

Considering the recent change in the consensus estimate and other factors related to earnings estimates, HCA has been awarded a Zacks Rank #2 (Buy). You can find the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

Considering the Buy-equivalent ABR for HCA, it may serve as a useful guide for investors.

For the latest recommendations from Zacks Investment Research, you can download their report on the 7 Best Stocks for the Next 30 Days here.

Want to dive deeper into HCA Healthcare, Inc. and access a free stock analysis report? Click here.

Moving forward, remember that the views and opinions expressed in this article are those of the author and do not necessarily reflect the views and opinions of Nasdaq, Inc.

Swing Trading Ideas and Market Commentary

Need some new swing ideas? Get free weekly swing ideas and market commentary from Jonathan Bernstein here: Swing Trading.

Explore More

Weekly In-Depth Market Analysis and Actionable Trade Ideas

Get institutional-level analysis and trade ideas to take your trading to the next level, sign up for free and become apart of the community.