Does Huron Consulting (HURN) Have the Potential to Rally 43% as Wall Street Analysts Expect?

Srabbits from Huron Advice (HURN) are up 7.8% over the past four weeks to close the last trading session at $48.25, but the stock could still have solid upside potential if Wall Street analysts’ near-term price targets are any indication. Judging by the price targets, the median estimate of $69 indicates a potential upside of 43%.

The average includes three short-term price targets ranging from a low of $67 to a high of $72, with a standard deviation of $2.65. While the lowest estimate shows a 38.9% rise from current price levels, the most optimistic estimate points to a 49.2% upside potential. Here, more than the range, the standard deviation should be considered as it helps to understand the variability of the estimates. The smaller the standard deviation, the greater the agreement among analysts.

While the consensus price target is highly sought after by investors, the skill and impartiality of analysts in setting price targets has long been questionable. And investors making investment decisions based solely on this tool would arguably be doing themselves a disservice.

But for HURN, an impressive average price target isn’t the only indicator of potential upside. Strong consensus among analysts on the company’s ability to report better than previously forecast earnings reinforces this view. While a positive trend in earnings estimate revisions isn’t a predictor of how much a stock could gain, it has been proven to be meaningful in predicting an uptrend.

Here’s what you should know about analyst price targets

According to researchers at several universities around the world, a price target is one of many pieces of information about a stock that far more often mislead than guide investors. In fact, empirical research shows that price targets by multiple analysts, regardless of the degree of agreement, rarely indicate where a stock’s price might actually go.

While Wall Street analysts have an in-depth understanding of a company’s fundamentals and the sensitivity of its business to economic and industry issues, many of them tend to be overly optimistic about price targets. Are you wondering why?

They usually do this to generate interest in the stocks of companies with which their firms either have existing business relationships or wish to be associated. In other words, business incentives for companies backing a stock often result in inflated price targets set by analysts.

However, a tight cluster of price targets, represented by a low standard deviation, indicates that analysts have a high degree of consensus about the direction and magnitude of a stock’s price movement. While that doesn’t necessarily mean the stock will hit the average price target, it could be a good starting point for further research aimed at identifying the potential fundamental drivers.

While investors shouldn’t completely ignore price targets, investing solely on price targets could result in a disappointing ROI. Price targets should therefore always be viewed with great skepticism.

Here’s why there could still be plenty of upside potential in HURN

There has been increasing optimism about the company’s earnings prospects among analysts of late, as evidenced by the strong consensus among them to upgrade EPS estimates. And that could be a legitimate reason to expect the stock to move higher. Finally, empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock price movements.

For the year-to-date, an estimate has moved up in the last 30 days compared to no negative revision. As a result, the Zacks consensus estimate is up 0.2%.

Additionally, HURN currently has a Zacks rank of #2 (Buy), meaning it’s in the top 20% of more than 4,000 stocks we rank based on four factors related to earnings estimates. Faced with an impressive externally audited track record, is a more conclusive indication of the stock’s short-term upside potential. You can see the full list of today’s Zacks Rank #1 (Strong Buy) stocks here >>>>

While the consensus price target may not be a reliable indicator of how much HURN could gain, the direction of price action it implies seems like a good guide.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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