Sell side analysts not only follow stocks but their contrived – sorry I mean derived – price targets also seem to follow stock prices.
We’ve written a little about the shaky methodology and assumptions that have been used by the sell side recently to justify hotel stock valuations. The gaming sell side seems to be equally as momentum oriented. Maybe it’s a function of the 2008 stock market crash followed by a huge recovery. If it’s working, then stick with it, right?
The problem is who is paying the sell side for momentum calls? I never did. Anna never did. Keith never did. Adjusting price targets up or down following big stock moves to maintain a 25% spread to justify ratings does not seem to be much of a value-added service. Rather, the sell side should be about providing unique fundamental research and analysis.
Case in point, GS lowered its price target on MGM and took the stock off its Conviction Buy List today. MGM was added to the List in late April at roughly $14 after a monster move up. The removal today at $11.95 follows a 28% three week decline. The analyst’s price target was taken down from $17.50 to $14.00. Some investors have made a lot of money in a momentum oriented way. I’m fine with that but let’s call a spade a spade.