4. Fundamentals and earnings

Analyst ratings and price targets (ANR)

ANR shows sell-side ratings and 12-month price targets: the average target and its history, the upside to it, and every recent action by firm.

  • 4 min
  • 3 questions
  • Lesson 5 of 5

Why you would care

What do the analysts who cover this stock think? "Morgan Stanley upgrades X to Overweight" is a headline that can move a stock several percent in a morning. Knowing how to read ratings, and their well-known biases, lets you use them as information without taking them as truth.

The idea from scratch

A sell-side analyst covers a list of companies and publishes research (chapter 01, Who is who on Wall Street). Each report carries:

  • a rating: the analyst's verdict,
  • a price target: where they think the price will be in about 12 months.

Ratings come in different words

Each firm has its own scale. They map roughly to three levels:

PositiveNeutralNegative
Buy, Overweight, Outperform, Market OutperformHold, Neutral, Equal weight, Market PerformSell, Underweight, Underperform

"Overweight" means "hold more of it than its weight in the index". "Outperform" means "expect it to do better than the market or its sector".

Actions

  • Initiation

    a firm starts covering the stock.

  • Upgrade / downgrade

    the rating changes level. Rare, and the market listens.

  • Raises / lowers

    the target changes, the rating stays. Very common after reports.

  • Maintains

    rating and target confirmed.

Upside

Upside = average target / current price - 1.

Known biases

  • Few sell ratings: most ratings are positive, partly because banks also sell services to the companies they cover.
  • Targets follow prices: after a big rally, targets get raised.
  • Herding: many firms move together after the same report.
Diagram: Company reports leads to Analysts update models; Analysts update models leads to Targets raised or lowered; Analysts update models leads to Occasional upgrade or downgrade; Targets raised or lowered leads to Average target and upside; Occasional upgrade or downgrade leads to Average target and upside.

See it in Gloom

Gloom screenshot: ANR AMZN: the average target and upside on top, the average target's path over the year, then each recent action by firm
ANR AMZN: the average target and upside on top, the average target's path over the year, then each recent action by firm. Historical example.

open ittype ANR AMZN.

  1. Avg target $329.54 32 firms: the average 12-month target across 32 covering firms.
  2. Upside +32.29%: the average target is 32% above the price at capture (about 249 dollars).
  3. The green line: the average target over time. It dropped in early February, climbed through the spring, and jumped at the end of July, right after the company's report.
  4. The table: 2026-07-31 repeated: most firms updated the day after results. Raises, Maintains, Lowers are target actions; the RATING column is unchanged for all of them (no upgrades or downgrades here).
  5. Cantor Fitzgerald Lowers Overweight $330 → $320: a lower target with the same positive rating. A firm can trim its target and still like the stock.

Practice and recap

Try it3 tasks
  1. In the screenshot, which firm has the highest new target? (Benchmark, $400.)
  2. How many of the visible July 31 rows lowered their target? (One: Cantor Fitzgerald.)
  3. Price 50, average target 45. Upside? (-10%: the average target is below the price.)
Common mistakes4 mistakes
  • Reading "Overweight" and "Outperform" as different opinions. They are roughly the same: positive.
  • Taking the upside as a forecast. Targets miss often and follow prices.
  • Confusing a target raise with an upgrade.
  • Ignoring how many firms are behind the average: 3 firms is not 32.
Check yourself3 questions
  1. Name one positive, one neutral and one negative rating word.
  2. What is the difference between an upgrade and a target raise?
  3. Why do so many firms act on the same day?
Answers
  1. For example Buy, Hold, Sell (or Overweight, Equal weight, Underweight).
  2. An upgrade changes the rating level; a target raise changes only the price target.
  3. They update after the company's quarterly report.
Words in this lesson7 words
rating
An analyst's verdict, in the firm's own words.
price target
Where an analyst expects the price in about 12 months.
overweight / underweight
Hold more / less than the stock's weight in the index.
outperform / underperform
Expected to do better / worse than the market or sector.
initiation
A firm starting coverage of a stock.
upgrade / downgrade
A rating moving up / down a level.
upside
Average target divided by price, minus 1.

Educational material about reading market data, not investment advice.