An Average Brokerage Recommendation (ABR) is a calculated rating that represents the consensus view of various brokerage firms regarding a specific stock. It serves as an aggregated indicator of how Wall Street analysts collectively perceive a stock's investment potential.
Understanding the Average Brokerage Recommendation (ABR)
The ABR is derived by taking the average of the actual investment recommendations issued by different brokerage firms for a particular company's stock. These recommendations typically include categories such as Strong Buy, Buy, Hold, Underperform, and Sell.
- Calculation Method: To compute the ABR, each qualitative recommendation (e.g., Strong Buy, Hold, Sell) is assigned a numerical value by the rating provider. For instance, a "Strong Buy" might be assigned a value of 1 (indicating the most favorable outlook), while a "Sell" might be assigned a value of 5. The ABR is then the arithmetic mean of these numerical values from all contributing brokerage firms. A lower ABR generally signifies a more favorable consensus among analysts.
- Display Format: A key characteristic of the ABR is its display with decimal points, offering a granular view of the average sentiment. For example, an ABR of 1.52 indicates a stronger overall "buy" sentiment compared to an ABR of 2.80. This precision allows investors to discern subtle differences in analyst consensus.
- Purpose: Investors often use the ABR as part of their due diligence to quickly gauge the professional market sentiment surrounding a stock, which can complement their own research and analysis. For more on how analyst ratings are formed, you can refer to general explanations of analyst ratings.
ABR in Context: Precision and Comparison
The use of decimals in ABR ratings distinguishes them from other rating systems that might employ only whole numbers. This allows for a more nuanced representation of the collective opinion.
For instance, while a proprietary ranking system might assign a stock a whole number like "1" or "2," an ABR provides a more detailed figure, such as 1.35 or 2.10, reflecting a finer average of the underlying recommendations. This precision can be valuable for investors seeking detailed insights into analyst consensus.
