Sell-side analyst ratings represent the formal recommendations of institutional research departments at investment banks and brokerage firms, typically expressed on a five-point scale from Strong Buy to Strong Sell. The consensus rating aggregates all outstanding analyst recommendations for a stock into a single average, with the distribution of upgrades and downgrades over time often carrying more signal than the absolute level. A well-documented feature of analyst coverage is its positive skew — Sell and Strong Sell ratings are significantly underrepresented relative to their accuracy because of the business relationships between banks and the companies they cover. Changes in rating, especially from Hold to Buy or from Buy to Hold, often carry more information than the static rating level. Analyst price target changes, even without a rating change, can move stock prices because they signal updated earnings or valuation assumptions from analysts with proprietary company access.
