Analyst ratings can sometimes be complicated, and we here at ETF Channel have noticed a bit of a paradox with TransAlta Corp. ( TAC). The average 12-month price target for TAC — averaging the work of 4 analysts — reveals an average price target of $4.95/share. That's a whopping 26.04% above where TAC has been trading recently at $3.92/share. With this kind of capital gain potential (should TAC reach that price target), one might expect to see a high concentration of "buy" or even "strong buy" ratings on the stock. Yet, take a look at the bearishness:
|Recent TAC Analyst Ratings Breakdown|
|Current||1 Month Ago||2 Month Ago||3 Month Ago|
|Strong buy ratings:||0||0||0||0|
|Strong sell ratings:||1||2||2||2|
The average rating presented in the last row of the table above is from 1 to 5, where 1 would be a consensus Strong Buy and 5 would be a consensus Strong Sell. In the middle, 3 would be a Hold. So anything above 3 leans toward Sell as the average analyst sentiment. The average rating of 3.5 for TAC leans towards Sell, yet the TAC price target paints a different picture. Clearly, there is something more to the story here that is worth investigating for investors looking at TransAlta Corp. Of course, the average price target is just that — a mathematical average, and is only one metric. There are analysts with lower targets than the average, including one looking for a price of $3.85. And then on the other side of the spectrum one analyst has a target as high as $6.00. The standard deviation is $0.878.But the whole reason to look at the average in the first place is to tap into a "wisdom of crowds" effort, putting together the contributions of all the individual minds who contributed to the ultimate number, as opposed to what just one particular expert believes — much like with guessing the number of jelly beans in a jar, where the average guess tends to be very close. And so with TAC trading so far below that average target price of $4.95/share, the 26.04% upside to that average target does seem to be a paradox against the bearish analyst ratings. Might analysts be behind the curve with their targets and downward adjustments are forthcoming? Or, is it time for some of these analysts to turn bullish and upgrade? One thing is for sure: this apparent paradox makes for a good "signal" to investors in TAC to spend fresh time assessing the company and deciding whether analysts have it right with their sentiment, or have it right with their price target for TransAlta Corp. This article used data provided by Zacks Investment Research via Quandl.com. Get the latest Zacks research report on TAC — FREE.