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Initiating coverage on a stock by analyst(s) plays a crucial role in guiding investment decisions. Analysts offer vital insights and information about a stock that holds immense value for investors. It is evident that the absence of consistent information leads to inefficiencies which can potentially lead to misjudging the true value of stocks.
Recently, a number of stocks, including Beazer Homes USA, Inc. (BZH - Free Report) , Seadrill Limited (SDRL - Free Report) , EnerSys (ENS - Free Report) and Neogen Corporation (NEOG - Free Report) have garnered the attention of analysts, indicating potential value and growth for investors.
Coverage initiation on a stock by analysts often indicates a higher level of investor interest. Investors frequently interpret analyst coverage as a signal that the stock possesses unique qualities or potential. In other words, they perceive the fact that analysts are focusing on a particular company as a strong indication of its underlying value.
Do analysts create value for companies by initiating coverage? Of course, they do because they play an important intermediary role with their extensive access to relevant data. Investors hold a strong belief in the value of analysts' research, acknowledging the risks of inefficiencies that can stem from limited information.
Obviously, stocks are not randomly chosen to cover. New coverage on a stock usually reflects a reassuring future envisioned by the analyst(s). At times, increased investor focus on a stock motivates analysts to take a closer look at it. After all, who doesn’t like to produce something that is already in demand? Hence, we often find that analysts’ ratings on newly added stocks are more favorable than their ratings on continuously covered stocks.
Needless to say, the average change in broker recommendation is preferable to a single recommendation change.
Impact on Stock Price
The price movement of a stock is generally a function of the recommendations on it from new analysts. Stocks typically see an upward price movement with new analyst coverage compared to what they witness with a rating upgrade under an existing coverage. Positive recommendations — Buy and Strong Buy — generally lead to a significantly positive price reaction than Hold recommendations. On the contrary, analysts hardly initiate coverage with a Strong Sell or Sell recommendation.
When an analyst provides a new recommendation for a company that has limited or no existing coverage, it captures the attention of investors, who become more interested in the stock. Additionally, the introduction of new information often entices portfolio managers to establish positions in the stock.
So, it’s a good strategy to bet on stocks that have seen increased analyst coverage over the last few weeks.
Screening Criteria
Number of Broker Ratings now greater than the Number of Broker Ratings four weeks ago (this will shortlist stocks that have recent new coverage).
Average Broker Rating less than Average Broker Rating four weeks ago (“less than” means “better than” four weeks ago).
Increased analyst coverage and improving average rating are the primary criteria of this strategy but one should also consider other relevant parameters to make it foolproof.
Here are the other screening parameters:
Price greater than or equal to $5 (as a stock below $5 will not likely create significant interest for most investors).
Average Daily Volume greater than or equal to 100,000 shares (if the volume isn’t enough, it will not attract individual investors).
Here are four out of 11 stocks that passed the screen:
Beazer Homes USA: This homebuilder, headquartered in Atlanta, GA, specializes in the design, construction, and sale of both single-family and multi-family residences. BZH offers a variety of housing options under the names Beazer Homes, Gatherings and Choice Plans. The company’s shares have gained 127.6% year to date (YTD), outperforming the industry’s 50.2% increase.
BZH’s earnings estimates for 2023 have increased to $3.95 per share from $3.56 over the past 90 days. This depicts analysts’ optimism about the company. BZH’s earnings topped the consensus mark in each of the last four quarters, with the average being 25.1%. Currently, Beazer Homes sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Seadrill: Based in Hamilton, Bermuda, Seadrill provides offshore contract drilling services to the oil and gas industry worldwide. The company’s shares have gained 38.2% YTD, outperforming the industry’s 15.3% increase.
SDRL currently sports a Zacks Rank #1. The company’s earnings estimates for 2023 have increased to $2.93 per share from $1.75 over the past 60 days. Seadrill’s earnings topped the consensus mark in the last-reported quarter, with the surprise being 50.9%.
EnerSys: Headquartered in Reading, PA, EnerSys is a global provider of stored energy solutions catering to industrial applications. The company’s shares have gained 50.3% YTD, outperforming the industry’s 13.5% rise.
ENS currently sports a Zacks Rank #1. The company’s earnings estimates for 2023 have increased to $6.84 per share from $6.13 over the past 60 days. Earnings for 2023 are expected to grow 28.1% from 2022. ENS earnings topped the consensus mark in three of the last four quarters and met on one occasion, with the average being 9%.
Neogen: This Lansing, MI-based company develops and markets food and animal safety products. Shares of NEOG have gained 47.6% YTD, outperforming the industry’s 4.3% rise.
Currently, Neogen carries a Zacks Rank #2 (Buy). The company’s earnings estimates for fiscal 2023 have increased to 50 cents per share from 45 cents over the past 60 days. NEOG’s earnings topped the consensus mark in three of the last four quarters and missed once, with the average being 123.4%.
You can sign up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Image: Bigstock
Buy These 4 Stocks Following New Analyst Coverage
Initiating coverage on a stock by analyst(s) plays a crucial role in guiding investment decisions. Analysts offer vital insights and information about a stock that holds immense value for investors. It is evident that the absence of consistent information leads to inefficiencies which can potentially lead to misjudging the true value of stocks.
Recently, a number of stocks, including Beazer Homes USA, Inc. (BZH - Free Report) , Seadrill Limited (SDRL - Free Report) , EnerSys (ENS - Free Report) and Neogen Corporation (NEOG - Free Report) have garnered the attention of analysts, indicating potential value and growth for investors.
Coverage initiation on a stock by analysts often indicates a higher level of investor interest. Investors frequently interpret analyst coverage as a signal that the stock possesses unique qualities or potential. In other words, they perceive the fact that analysts are focusing on a particular company as a strong indication of its underlying value.
Do analysts create value for companies by initiating coverage? Of course, they do because they play an important intermediary role with their extensive access to relevant data. Investors hold a strong belief in the value of analysts' research, acknowledging the risks of inefficiencies that can stem from limited information.
Obviously, stocks are not randomly chosen to cover. New coverage on a stock usually reflects a reassuring future envisioned by the analyst(s). At times, increased investor focus on a stock motivates analysts to take a closer look at it. After all, who doesn’t like to produce something that is already in demand? Hence, we often find that analysts’ ratings on newly added stocks are more favorable than their ratings on continuously covered stocks.
Needless to say, the average change in broker recommendation is preferable to a single recommendation change.
Impact on Stock Price
The price movement of a stock is generally a function of the recommendations on it from new analysts. Stocks typically see an upward price movement with new analyst coverage compared to what they witness with a rating upgrade under an existing coverage. Positive recommendations — Buy and Strong Buy — generally lead to a significantly positive price reaction than Hold recommendations. On the contrary, analysts hardly initiate coverage with a Strong Sell or Sell recommendation.
When an analyst provides a new recommendation for a company that has limited or no existing coverage, it captures the attention of investors, who become more interested in the stock. Additionally, the introduction of new information often entices portfolio managers to establish positions in the stock.
So, it’s a good strategy to bet on stocks that have seen increased analyst coverage over the last few weeks.
Screening Criteria
Number of Broker Ratings now greater than the Number of Broker Ratings four weeks ago (this will shortlist stocks that have recent new coverage).
Average Broker Rating less than Average Broker Rating four weeks ago (“less than” means “better than” four weeks ago).
Increased analyst coverage and improving average rating are the primary criteria of this strategy but one should also consider other relevant parameters to make it foolproof.
Here are the other screening parameters:
Price greater than or equal to $5 (as a stock below $5 will not likely create significant interest for most investors).
Average Daily Volume greater than or equal to 100,000 shares (if the volume isn’t enough, it will not attract individual investors).
Here are four out of 11 stocks that passed the screen:
Beazer Homes USA: This homebuilder, headquartered in Atlanta, GA, specializes in the design, construction, and sale of both single-family and multi-family residences. BZH offers a variety of housing options under the names Beazer Homes, Gatherings and Choice Plans. The company’s shares have gained 127.6% year to date (YTD), outperforming the industry’s 50.2% increase.
BZH’s earnings estimates for 2023 have increased to $3.95 per share from $3.56 over the past 90 days. This depicts analysts’ optimism about the company. BZH’s earnings topped the consensus mark in each of the last four quarters, with the average being 25.1%. Currently, Beazer Homes sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Seadrill: Based in Hamilton, Bermuda, Seadrill provides offshore contract drilling services to the oil and gas industry worldwide. The company’s shares have gained 38.2% YTD, outperforming the industry’s 15.3% increase.
SDRL currently sports a Zacks Rank #1. The company’s earnings estimates for 2023 have increased to $2.93 per share from $1.75 over the past 60 days. Seadrill’s earnings topped the consensus mark in the last-reported quarter, with the surprise being 50.9%.
EnerSys: Headquartered in Reading, PA, EnerSys is a global provider of stored energy solutions catering to industrial applications. The company’s shares have gained 50.3% YTD, outperforming the industry’s 13.5% rise.
ENS currently sports a Zacks Rank #1. The company’s earnings estimates for 2023 have increased to $6.84 per share from $6.13 over the past 60 days. Earnings for 2023 are expected to grow 28.1% from 2022. ENS earnings topped the consensus mark in three of the last four quarters and met on one occasion, with the average being 9%.
Neogen: This Lansing, MI-based company develops and markets food and animal safety products. Shares of NEOG have gained 47.6% YTD, outperforming the industry’s 4.3% rise.
Currently, Neogen carries a Zacks Rank #2 (Buy). The company’s earnings estimates for fiscal 2023 have increased to 50 cents per share from 45 cents over the past 60 days. NEOG’s earnings topped the consensus mark in three of the last four quarters and missed once, with the average being 123.4%.
You can sign up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance