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Wall Street Targets Go Stale as Analysts Struggle to Assess Risk

Jeran Wittenstein

(Bloomberg) -- For another measure on the force of the sell-off, consider how far below Wall Street’s price forecasts stocks have fallen. It’s the most in at least a decade, showing analysts are struggling as much as everyone else with the long-term implications of the coronavirus pandemic.

The average share target for companies in the S&P 500 Index has fallen just 3.3% since the benchmark peaked on Feb. 19, according to data compiled by Bloomberg. Over the same period, the S&P 500 has dropped 29%. That’s created the widest gap since Bloomberg began gathering the data in 2004.

“Analysts are basically paralyzed given what is going on,” said Jared Holz, a health-care trading strategist with Jefferies Financial Group.

The dislocation underscores the speed at which the longest bull market in U.S. stocks unraveled, as well as the challenge of estimating the economic damage caused by efforts to slow the spread of the virus. It also could point to a good long-term buying opportunity, based on data from past downturns, according to Bespoke Investment Group.

“Extreme distance from medium-term price targets is generally a good thing for forward equity market returns,” the firm said in a note to clients on Thursday. “Whether or not we have seen a bottom in equity prices is up for debate and is impossible to know at this point, but this data suggests that the outlook for the next year is very bright indeed.”

Take Carnival Corp., for example. The cruise-ship operator has been battered by the spread of the virus on a number of its ships and tumbling bookings. The stock has fallen 77% since Feb. 19 yet the average price target is down just 17%. And only one of the 19 analysts covering the company has cut their rating.

No one knows how broadly the virus will spread or how long it will affect global commerce, according to D.A. Davidson analyst Tom White, who covers internet companies including Booking Holdings Inc. and Expedia Group Inc.

“When the market is moving this quickly and the data about the broader economy is changing, it’s hard to keep pace with it,” he said in an interview. “It’s very clear that a lot of people’s most recently published forecasts are too high, but you have to weigh cutting your estimates quickly versus trying to do it in a thoughtful way.”

It’s also not clear if the virus will cause permanent changes to a business’s fundamentals, said Jefferies’ Janine Stichter, who covers retailers such as Ross Stores Inc. and Urban Outfitters Inc. that have shuttered stores.

“Our view on a lot of the stocks that we cover is, obviously this is a near-term challenge, but nothing structural has changed as long as they have the balance sheet to get through it,” she said.

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