A Technical Assessment of Analyst Ratings

Regular readers are aware of the place that point-and-figure technical analysis plays in our investment process (for more details on the methodology, including information on our proprietary modifications to the discipline, see here).  We find this tool particularly useful in helping us identify investment opportunities where, in spite of decent (or even very good) fundamentals, the market disagrees.  As we have outlined before (see here), analyst ratings are not always consistent with the trend in a particular stock's price.  Taking a look at the handful of equities for which ratings changed today, we can see just where this tool becomes helpful.

On the positive side, price targets for both JC Decaux (France/ Advertising) and Schroders (UK/ Asset Management & Custody Banks) were upgraded.  In the case of the latter, that assessment seems reasonable enough-- providing 'C' does not turn out to be resistance, of course.  For the advertiser that continues to remain locked in a multi-year trading range, and is approaching the upper bound of said range, a higher price target might be more of a stretch.

Downgrades to the price target and estimate for Embraer (Brazil/ Aerospace & Defense) and Admiral Group (UK/ Property & Casualty Insurance), respectively, also seem to have mixed validity when we consider the chart patterns.  While it seems reasonable to assume the airplane manufacturer will remain in its trading range (and thus warrant a more conservative price estimate), the pattern for Admiral is more constructive and would suggest that, having broken a downtrend to form a multi-year base, estimates could improve.

Finally, we have the the rating change to outperform from market perform for Citigroup (US/ Other Diversified Financial Services).  The uptrend (within a long-term trading range) remains intact but has struggled to overcome resistance, calling into question whether or not accumulative forces can prevail-- and, thus, leading us to question whether or not such an upgrade could be, at the very least, a bit early.