Can You Really Trust Wall Street's Stock Picks? Here's What RITM's Rating Reveals

When investment banks publish stock ratings, retail investors often treat them as gospel. But should they? A closer look at Rithm (RITM) shows why simply following analyst consensus could be risky—and what smarter investors should do instead.

The Bias Problem No One Talks About

Wall Street analysts have a fundamental conflict of interest. The brokerage firms that employ them benefit from coverage activity and client relationships, which means their ratings tend to skew optimistic. The data confirms this: for every “Strong Sell” recommendation issued across the market, firms hand out roughly five “Strong Buy” ratings. This lopsided distribution reveals the uncomfortable truth—analyst ratings aren’t objective market forecasts; they’re influenced by institutional incentives.

Rithm currently carries an average brokerage recommendation (ABR) of 1.44 on a 1-to-5 scale (1 being Strong Buy, 5 being Strong Sell). This translates to “buy territory”—with six Strong Buy and two Buy ratings among nine covering firms. Sounds bullish on the surface. But here’s the catch: these recommendations don’t necessarily correlate with actual stock price movements.

Beyond the Headline Rating: What Actually Predicts Price Movement

If analyst ratings are unreliable, what should investors monitor instead? The answer lies in a different metric entirely: earnings estimate revisions.

Stocks that see consistent upward revisions to earnings forecasts tend to experience near-term price appreciation. This isn’t guesswork—it’s an empirically validated relationship. The Zacks Rank captures this dynamic by analyzing whether analysts are collectively raising or lowering their earnings expectations for a company.

Unlike the ABR, which simply averages broker recommendations (often stale and biased), the Zacks Rank operates as a quantitative framework. It updates dynamically as fresh earnings estimates roll in and maintains balanced distribution across five categories. This means it’s always current and always calibrated.

How RITM Stacks Up on the Metrics That Matter

For Rithm, the consensus earnings estimate for the current year recently ticked up 0.2% to $2.15 per share. That modest revision, combined with other earnings-related factors, places RITM at a Zacks Rank #2 (Buy). The fact that analysts are moving their pencils higher—even incrementally—signals growing confidence in the company’s financial trajectory.

The convergence between the bullish ABR and the quantitative Buy ranking suggests aligned momentum. But investors should understand what’s driving each signal. The ABR reflects what investment banks are saying publicly; the Zacks Rank reflects what their revised numbers actually show.

The Takeaway for Individual Investors

Using analyst ratings as your sole investment thesis is a trap. But using them as a data point to validate other research—particularly earnings trend analysis—is sensible. When both metrics point the same direction, as they do for RITM, it strengthens the case. When they diverge, that’s your signal to dig deeper.

The best investment newsletter wisdom isn’t about blindly following Wall Street consensus. It’s about understanding what the ratings really mean, recognizing institutional biases, and building a framework that separates noise from signal.