Stock Rating System
Citigroup Investment Research Stock Rating System
How Our Rating System Works
Under our rating system, each stock is given a two-part rating, which indicates the following:
Investment Ratings
- Buy (1)
- Hold (2)
- Sell (3)
Risk Ratings
- Low (L)
- Medium (M)
- High (H)
- Speculative (S)
Our Analyst's Methodology
Target price and expected total return
Initially, an analyst derives an expected 12-month target price using multiple valuation methodologies (as specified in the Valuation section of the research). The current market price is then compared with the target price to calculate an expected gain or loss. The one-year projected dividend yield, if any, is then added to the expected gain or loss to calculate an expected total return.
Risk rating
The analyst then assesses the risk of a stock based on various quantitative and fundamental factors that relate to the stock's local market/country (as specified in the Risk section of the research). We continue to categorize risk as Low, Medium, High or Speculative.
Ratings-Risk-Return Matrix
Finally, based on both the expected total return and risk rating, an investment rating is established using our ratings-risk-return matrix (below). We categorize investment ratings as Buy, Hold or Sell. All published research contains a Valuation and Risk section where analysts must discuss how they derived their price targets and risk ratings. Investors are encouraged to read this section for a detailed description.
Expected Total Returns Ratings-Risk-Return Matrix
| Developed Market: U.S., UK, EU, Australia/New Zealand and Japan | ||||
| LOW Risk | MEDIUM Risk | HIGH Risk | SPECULATIVE | |
|---|---|---|---|---|
| BUY (1) | R >10 | R >15 | R >20 | R >35 |
| HOLD (2) | 0 <R <10 | 0 <R < 15 | 0 < R <20 | 0 < R < 35 |
| SELL (3) | R <0 | R <0 | R <0 | R <0 |
| Emerging Market: Asia Pacific, EMEA and Latin America | ||||
| LOW Risk | MEDIUM Risk | HIGH Risk | SPECULATIVE | |
|---|---|---|---|---|
| BUY (1) | R >15 | R >20 | R >30 | R >40 |
| HOLD (2) | 5 <R < 15 | 10 < R < 20 | 15 < R < 30 | 20 < R < 40 |
| SELL (3) | R >5 | R >10 | R >15 | R >20 |
R = Expected Total Return (12 months) = [(Target Price - Current Price)/Current Price] + Forecast 12-month Dividend Yield These benchmarks are subject to change.
How Closed-End Funds Are Rated
Since our analysts do not assign a price target to closed-end funds, they are not rated on an absolute basis in the way other equity securities are. Instead, our analysts will determine an investment rating for a closed-end fund by comparing its expected performance relative to its peer group. Risk ratings are determined by the quality, liquidity and exposure of the fund's investments.
Investment ratings for closed-end funds
- 1 = Outperform. The fund's total return is expected to outperform its peer group, and/or the fund is expected to provide stable to rising dividends, where applicable.
- 2 = In-Line. The fund's total return is expected to perform in line with its peer group, and/or the fund is expected to provide stable dividends, where applicable.
- 3 = Underperform. The fund's total return is expected to underperform its peer group, and/or the fund is expected to provide a declining dividend, where applicable.
Risk ratings for closed-end funds
- L = Low Risk. The fund invests in high-quality, liquid securities with little to no financial leverage or foreign currency exposure.
- M = Medium Risk. Overall, the fund invests in moderate- to high-quality, liquid securities with reasonable financial leverage and provides primarily United States dollar currency exposure.
- H = High Risk. The fund may invest in low-quality, less-liquid securities, have exposure to foreign currencies and above-average degrees of financial leverage.
- S = Speculative. The fund invests in low-grade, illiquid and/or highly volatile securities, has exposure to foreign currency and may also use high degrees of financial leverage.
Important Disclosures
Guide to Investment Ratings:
Citigroup's stock recommendations include a risk rating and an investment rating.
Risk ratings, which take into account both price volatility and fundamental criteria, are: Low [L], Medium [M], High [H] and Speculative [S].
Investment ratings are a function of Citigroup's expectation of total return (forecast price appreciation and dividend yield within the next 12 months) and risk rating.
For securities in developed markets (U.S., UK, Europe, Japan and Australia/New Zealand),investment ratings are: Buy [1] (expected total return of 10% or more for Low-Risk stocks, 15% or more for Medium-Risk stocks, 20% or more for High-Risk stocks, and 35% or more for Speculative stocks); Hold [2] (0% - 10% for Low-Risk stocks, 0% - 15% for Medium-Risk stocks, 0% - 20% for High-Risk stocks, and 0% - 35% for Speculative stocks); and Sell [3] (negative total return).
For securities in emerging markets (Asia Pacific, Emerging Europe/Middle East/Africa and Latin America),investment ratings are: Buy [1] (expected total return of 15% or more for Low-Risk stocks, 20% or more for Medium-Risk stocks, 30% or more for High-Risk stocks and 40% or more for Speculative stocks); Hold [2] (5% - 15% for Low-Risk stocks, 10% - 20% for Medium-Risk stocks, 15% - 30% for High-Risk stocks, and 20% - 40% for Speculative stocks); and Sell (5% or less for Low-Risk stocks, 10% or less for Medium-Risk stocks, 15% or less for High-Risk stocks and 20% or less for Speculative stocks).
Investment ratings are required to fall into the ranges described above at the time of initiation of coverage, a change in risk rating, or a change in price target. At other times, the expected total returns may fall outside of these ranges because of price movement and/or volatility. Such interim deviations from specified ranges will be permitted but will become subject to review by Research Management. Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after evaluating the stock's expected performance and risk.
Guide to Investment Ratings—Closed-End Funds:
Citigroup's closed-end funds recommendations include a risk rating and an investment rating.
Risk ratings, which take into account the quality and liquidity of the underlying securities, financial leverage and foreign currency exposure, are: Low [L] (fund invests in high-quality, liquid securities with little to no financial leverage or foreign currency exposure); Medium [M] (overall, fund invests in moderate- to high-quality, liquid securities with reasonable financial leverage, and provides primarily United States dollar currency exposure); High [H] (fund may invest in low-quality, less-liquid securities, have exposure to foreign currencies, and use above-average degrees of financial leverage); and Speculative [S] (fund invests in low-grade, illiquid and/or highly volatile securities, have exposure to foreign currency and may also use high degrees of financial leverage).
Investment ratings are based upon Citigroup's expectation of the fund's total return relative to its peer group of closed-end funds, and the ability to provide stable to rising dividends, where applicable. Investment ratings are: Outperform [1] (fund is expected to outperform its peer group, and/or the fund is expected to provide stable to rising dividends, where applicable); In-Line [2] (fund is expected to perform in line with its peer group, and/or the fund is expected to provide stable dividends, where applicable); and Underperform [3] (fund is expected to underper-form its peer group, and/or the fund is expected to provide a declining dividend, where applicable).
For more information, please contact your Financial Advisor.