Consensus Recommendation

Consensus Recommendation

The mean or median recommendation that analysts make on a stock. The consensus recommendation is calculated simply by compiling recommendations and taking the average or median. Importantly, the consensus recommendation does not consider past accuracy or respect of the different analysts.

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Consensus recommendation. A consensus recommendation for an individual stock compiles ratings from a number of analysts who track that stock. The recommendation is expressed as either the mean or median of the separate recommendations.

Calculating the consensus is a multi-step process that involves grouping the terms that analysts use to recommend buying, selling, or holding, generally into three or five categories, assigning a scale, and computing the result either by averaging the numbers for the mean or identifying the median, which is the point at which half the views are higher and half are lower.

A consensus recommendation provides a snapshot of current thinking about a stock, so it can serve as a benchmark against which you can compare a single analyst's opinion to gauge how mainstream it is.

But like any statistical mean or median, a consensus recommendation can distort strong differences at either end of the scale. Further, if the report accompanying the consensus view doesn't point out significant differences in the viewpoints of the various analysts it includes, you won't be able to tell where the most respected analysts stand on the stock.

In addition, you should be aware that the consensus recommendation for any given stock might differ from one research company to the next. This is because the mathematical formula that assigns weights to the individual recommendations will vary, based in part on how many levels of differentiation the research company uses and how it interprets the words that analysts use to express their opinions.