BlackRock (BLK): A Favorable Investment Choice According to Wall Street Analysts – But Is It Worth It?

Investors often turn to Wall Street analysts for advice on buying, selling, or holding stocks. These analysts work for brokerage firms and their recommendations can influence stock prices. But do their opinions truly make a difference?

Before we dive into the reliability of these analysts’ recommendations and how to use them wisely, let’s see what they have to say about BlackRock (BLK).

Currently, BlackRock’s average brokerage recommendation (ABR) stands at 1.34, rated on a scale from 1 to 5, where 1 means Strong Buy and 5 implies Strong Sell. This calculation considers the actual recommendations given by 16 brokerage firms. With an ABR of 1.34, BlackRock’s rating falls between Strong Buy and Buy.

Out of the 16 recommendations factored into the ABR, 12 are categorized as Strong Buy, while two are labeled Buy. This means that Strong Buy and Buy recommendations make up 75% and 12.5% of all the recommendations, respectively.

Before diving into BlackRock’s price target and stock forecast, it’s crucial to understand that while the Average Brokerage Recommendation (ABR) suggests buying BlackRock, it’s not advisable to base your investment solely on this indicator. Numerous studies have indicated that relying solely on brokerage recommendations may not always lead to the best investment decisions, as these recommendations often come with a positive bias.

Why is this the case? Brokerage firms, which have a vested interest in the stocks they cover, tend to rate them more positively, resulting in a higher number of “Strong Buy” recommendations compared to “Strong Sell” ones. This disparity suggests that analysts’ interests may not always align with those of retail investors, making it challenging to accurately predict a stock’s future price movement based solely on brokerage recommendations.

Zacks Rank Should Not Be Confused With ABR

Instead, it’s essential to complement brokerage recommendations with other reliable indicators, such as the Zacks Rank. The Zacks Rank is a proprietary stock rating tool that categorizes stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell). Unlike the ABR, which is solely based on broker recommendations, the Zacks Rank is backed by a quantitative model that analyzes earnings estimate revisions.

It’s crucial to note that while both the ABR and Zacks Rank use a 1-5 scale, they serve different purposes and are calculated differently. The ABR is calculated based on brokerage recommendations and is typically displayed in decimal form, whereas the Zacks Rank is based on earnings estimate revisions and is displayed in whole numbers.

In summary, while the ABR can provide valuable insights, it’s essential to use it alongside other indicators, such as the Zacks Rank, to make well-informed investment decisions. By leveraging multiple indicators, investors can better navigate the complexities of the stock market and increase their chances of success.

Analysts working for brokerage firms have a tendency to be overly optimistic in their recommendations, often issuing more favorable ratings than warranted by their research. This can lead to misleading advice for investors rather than providing genuine help. In contrast, the Zacks Rank relies on changes in earnings estimates to assess stock performance, which has been shown to be closely linked to short-term price movements based on empirical evidence.

The Zacks Rank categorizes stocks into five grades based on earnings estimate revisions, ensuring a balanced approach across all stocks covered. Unlike the Average Broker Recommendation (ABR), which may not always be current, the Zacks Rank reflects the latest earnings estimate revisions made by analysts, providing timely insights into future price movements.

Analyzing BlackRock’s earnings estimate revisions reveals positive trends, with the Zacks Consensus Estimate for the current year rising by 4% over the past month to $41.32. This indicates analysts’ growing optimism about the company’s earnings prospects, resulting in a Zacks Rank #1 (Strong Buy) for BlackRock.

Given the strong consensus among analysts in revising EPS estimates higher, investors may find the Buy-equivalent ABR for BlackRock to be a valuable reference in their decision-making process.