Definition of 'Downgrade'
A negative change in the rating of a security. This situation occurs when analysts feel that the
future prospects for the security have weakened from the orginal recommendation, usually due to a material and fundamental change in the company's operations, future outlook or industry.
Investopedia explains 'Downgrade'
Analysts place recommendations on securities to give their clients or investors a general idea on the expected performance of that security looking forward. These recommendations are adjusted when the basis behind the recommendation changes, such as the price of the stock or newly released data in the company's financial statements.
An analyst may downgrade a stock from a buy to a sell, after the company released information about an Securities and Exchange Commission investigation into the company's operations.