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The recommendations of Wall Street analysts are often relied on by investors when deciding whether to buy, sell, or hold a stock. Media reports about these brokerage-firm-employed (or sell-side) analysts changing their ratings often affect a stock's price. Do they really matter, though?

Let's take a look at what these Wall Street heavyweights have to say about CVS Health (CVS) before we discuss the reliability of brokerage recommendations and how to use them to your advantage.

CVS Health currently has an average brokerage recommendation (ABR) of 1.82, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by 25 brokerage firms. An ABR of 1.82 approximates between Strong Buy and Buy.

Of the 25 recommendations that derive the current ABR, 13 are Strong Buy and three are Buy. Strong Buy and Buy respectively account for 52% and 12% of all recommendations.

Brokerage Recommendation Trends for CVS

While the ABR calls for buying CVS Health, it may not be wise to make an investment decision solely based on this information. Several studies have shown limited to no success of brokerage recommendations in guiding investors to pick stocks with the best price increase potential.

Are you wondering why? The vested interest of brokerage firms in a stock they cover often results in a strong positive bias of their analysts in rating it. Our research shows that for every "Strong Sell" recommendation, brokerage firms assign five "Strong Buy" recommendations.

This means that the interests of these institutions are not always aligned with those of retail investors, giving little insight into the direction of a stock's future price movement. It would therefore be best to use this information to validate your own analysis or a tool that has proven to be highly effective at predicting stock price movements.

With an impressive externally audited track record, our proprietary stock rating tool, the Zacks Rank, which classifies stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), is a reliable indicator of a stock's near -term price performance. So, validating the Zacks Rank with ABR could go a long way in making a profitable investment decision.

ABR Should Not Be Confused With Zacks Rank

Although both Zacks Rank and ABR are displayed in a range of 1-5, they are different measures altogether.

Broker recommendations are the sole basis for calculating the ABR, which is typically displayed in decimals (such as 1.28). The Zacks Rank, on the other hand, is a quantitative model designed to harness the power of earnings estimate revisions. It is displayed in whole numbers -- 1 to 5.

It has been and continues to be the case that analysts employed by brokerage firms are overly optimistic with their recommendations. Because of their employers' vested interests, these analysts issue more favorable ratings than their research would support, misguiding investors far more often than helping them.

In contrast, the Zacks Rank is driven by earnings estimate revisions. And near-term stock price movements are strongly correlated with trends in earnings estimate revisions, according to empirical research.

In addition, the different Zacks Rank grades are applied proportionately to all stocks for which brokerage analysts provide current-year earnings estimates. In other words, this tool always maintains a balance among its five ranks.

There is also a key difference between the ABR and Zacks Rank when it comes to freshness. When you look at the ABR, it may not be up-to-date. Nonetheless, since brokerage analysts constantly revise their earnings estimates to reflect changing business trends, and their actions get reflected in the Zacks Rank quickly enough, it is always timely in predicting future stock prices.

Is CVS Worth Investing In?

Looking at the earnings estimate revisions for CVS Health, the Zacks Consensus Estimate for the current year has declined 12.2% over the past month to $5.43.

Analysts' growing pessimism over the company's earnings prospects, as indicated by strong agreement among them in revising EPS estimates lower, could be a legitimate reason for the stock to plunge in the near term.

The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #5 (Strong Sell) for CVS Health. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here

Therefore, it could be wise to take the Buy-equivalent ABR for CVS Health with a grain of salt.

Zacks Investment Research

During times of turbulence and uncertainty in the markets, many investors turn to dividend-yielding stocks. These are often companies that have high free cash flows and reward shareholders with a high dividend payout.

Benzinga readers can review the latest analyst takes on their favorite stocks by visiting Analyst Stock Ratings page. Traders can sort through Benzinga's extensive database of analyst ratings, including by analyst accuracy.

Below are the ratings of the most accurate analysts for three high-yielding stocks in the health care sector.

Pfizer Inc.

• Dividend Yield: 6.74%
• Wells Fargo analyst Mohit Bansal maintained an Equal-Weight rating and raised the price target from $28 to $30 on July 31. This analyst has an accuracy rate of 65%.
• Morgan Stanley analyst Terence Flynn maintained an Equal-Weight rating and boosted the price target from $28 to $29 on May 2. This analyst has an accuracy rate of 67%.
• Recent News: On Nov. 20, Pfizer announced new Chief Scientific Officer and President, Research & Development.
• Benzinga Pro's real-time newsfeed alerted to latest PFE news.

As President-elect Donald Trump prepares to return to the White House, renowned economist Mohamed El-Erian is cautioning against media oversimplification of the incoming administration’s proposed tariff strategies.

What Happened: In a recent statement on X, El-Erian highlighted the intricate nature of Trump’s tariff discussions, noting that the proposed economic policies encompass at least three complex economic stages influenced by multiple factors, including trade flows, corporate pricing strategies, and geopolitical considerations.

El-Erian’s core message remains clear: Trump’s tariff debate requires sophisticated, nuanced analysis that transcends simplistic narratives. “The issue is quite complex,” he emphasized, underscoring the need for comprehensive economic understanding beyond headline rhetoric.

Trump’s proposed economic blueprint, which includes a universal tariff of up to 20% on imports and potentially up to 60% on Chinese goods, has sparked intense economic debate. Tech investor Peter Thiel suggests these tariffs could significantly impact Chinese companies while causing minimal disruption to U.S. consumers.

See Also: Bitcoin Hits $95K For The First Time Ever, Ethereum, Dogecoin Flat As Trump’s Crypto Policy Takes Shape: Top Analyst Describes BTC’s Path To $135K

Why It Matters: Goldman Sachs economist David Mericle warns that Trump’s proposed universal tariff could push inflation back to 3%, potentially complicating Federal Reserve monetary strategies.

The National Retail Federation estimates Trump’s tariff proposals could reduce annual consumer spending by $78 billion.

Prominent business leaders have voiced concerns. Citadel LLC CEO Ken Griffin described Trump’s proposed tariffs as a “long, slippery slope” that could hamper U.S. global competitiveness.

Retailers like AutoZone and Columbia Sportswear have signaled potential price increases that would be passed directly to consumers.

"Tariffs would create a headwind to the performance of stocks with high international revenue exposure due to the risk of retaliatory tariffs and heightened geopolitical tensions," Goldman Sachs analyst David Kostin stated.

Goldman Sachs noted that U.S. stocks with domestic sales focus outperformed those with international exposure by 1 percentage point the day after Trump's election and by 4 pp in the following month but underperformed by 9 pp in the next 12 months.

Key stocks in its Domestic Sales Basket include CVS Health Corp. , Wells Fargo & Co. , T-Mobile US Inc. , Verizon Communications Inc. , Lowe's Cos. Inc. , Intuit Inc. , and Union Pacific Corp. .

The International Sales Basket includes Meta Platforms Inc. , Broadcom Inc. , Visa Inc. , Mastercard Inc. , QUALCOMM Inc. , Netflix Inc. , McDonald's Corp. , Philip Morris Intl , Applied Materials Inc. , and Intel Corp. .

Read Next:

• Dollar Upside On The Cards Amid Geopolitical Tensions, Cautious Fed And Solid US Economic Data, Says Expert

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.https://www.benzinga.com/apis?utm_source=benzinga.com&utm_campaign=article-bottom

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