The part of an analyst report that tends to get
the most attention is the rating — which also serves as
a recommendation. The analyst assigns a rating to a stock as a
way to sum up his or her opinion.
If an analyst believes a company will increase
future earnings at a rate higher than its peers, the analyst gives
the stock a high rating, or recommends that investors buy. If
the analyst believes the stock isn’t worth buying at its
current price, he or she may counsel investors to hold it — saying that it's neither hot nor cold. And if the stock looks
set for a fall, the analyst may give it a low rating, or urge
investors to sell.
Different scales
Some companies use rating scales with finer gradations
between high and low to distinguish a stock that may be poised
for disaster from one that may be only temporarily downtrodden,
and to differentiate the stellar performers from those that are
slightly better than average. Unfortunately, although these scales
are meant to give the investor more information, they often end
up causing more confusion, since the difference between a buy
and a strong buy, for example, may seem arbitrary.
Furthermore, the language of ratings may not be
as intuitive as buy and sell. For example, one
firm refers to overweight, equal-weight, and underweight stocks
in its research, while another prefers to rate stocks using the
terms outperform, in-line, and underperform. And two analysts
may use the same terms to mean different things. You may have
to read the firm's explanation carefully to understand what its
ratings really mean.
Sam Stovall,
Chief Investment Strategist at Standard & Poor’s
Sam Stovall, 
