Retail investors often feel on the outside of the stock market since information can often be hard to access and digest when the factors and trends to be identified aren’t too clear-cut. This is why looking at Wall Street analyst actions can be an important checklist for retail investors when looking at potential opportunities to put their capital to work.
What is especially important to keep in mind is that analysts talk to each other, and they more or less have assumptions in mind that drive these stock valuations. So, any recent upgrade that stands above the consensus should be considered with all the more importance since it means that analysts stuck their necks out to make this rating public.
This is why investors should pay special attention to three recent analyst upgrades since there is a common thread behind these decisions and what is happening in the broader United States economy today. These stocks are Chewy Inc. (NYSE: CHWY), CVS Health Co. (NYSE: CVS), and even United Airlines Holdings Inc. (NASDAQ: UAL) to give investors a diversified way to get exposure to the different trends and themes taking over the stock market today.
Why Analysts Believe Chewy Stock Can Thrive Through Inflation or Recession
Based on the price action from different asset classes today, investors now face the potential for two distinct themes in the United States economy. The first, driven by the sudden rallies in gold and cryptocurrency, is the possibility of inflation resurgence. Second, it is driven by the energy sector’s inability to break out as a result of low oil prices and a recession.
Ultimately, if the dollar stays this strong for longer, the latter might become a reality, but that’s for another day. Today, investors need to focus on the fact that Chewy stock combines the stability of the consumer staples sector with the high-margin and high-growth nature of the technology sector.
This business model will allow the stock to see less volatility and probably more upside in whichever of these two scenarios plays out. Knowing this, Wall Street analysts may have found this stock easy to boost in recent weeks.
Bank of America has boosted the stock’s rating from an Underperform to a Buy, this time coupling their view with a $40 a share price target for the company. Chewy stock would have to rally by as much as 15% from where it trades today, not to mention a new high for the year, to prove this valuation right.
CVS Stock Gains Momentum: Wall Street Predicts Double-Digit Upside from Market Share Growth
Now that the news has been digested, Wall Street and the market know that Walgreens Boots Alliance Inc. (NASDAQ: WBA) closing more locations could mean good news for CVS, as market share will shift to the latter.
The scalability and ability to overtake new customers are all in the difference between Walgreens' and CVS's financials, particularly the free cash flow figures (Operating cash flow minus capital expenditures). Positive cash flow allows CVS to expand and upkeep its locations in a manner that Walgreens’ negative free cash flow can’t.
Because of this, analysts at TD Cowen boosted their Hold view on CVS stock up to a Buy rating, this time coupling it with a price target as high as $85 a share. From where the stock trades today, this new rating would call for a net upside of up to 46.5%, offering investors the sort of upside they probably won’t find anywhere else in the medical sector.
More than this upside, investors can count on the company’s $2.66 a share payout, which translates into an annualized dividend yield of up to 4.6% to beat any inflation rates or recessionary slowdowns that could hit the United States economy in the coming quarters.
Backing these upside figures, Wall Street analysts now project earnings per share (EPS) in CVS stock to reach up to $1.96 in 12 months, a net growth rate of 80% from today’s $1.09. This justifies the double-digit upside in today’s price targets and then some.
Fuel Cost Hedging Could Propel United Airlines Stock to Analyst-Projected Highs
Now that oil prices have remained closer to their cyclical lows, the cost to operate each flight and maintain current aircraft is also on the lower end of the cycle. This is always a good thing for capital-intensive companies such as United Airlines. More than that, the industry has a rare combination of tailwinds today.
The United States economy has pushed recent growth rates, backed mostly by a strong consumer, despite fears of inflation coming back or a potential recession. Strong consumer trends, combined with low fuel costs, are two factors that could open up a stock like United Airlines to potentially double-digit rallies in the future.
This is one factor that analysts at Barclays may have leaned on when reiterating their Overweight rating for United Airlines stock. The difference is that this time, they landed on a much higher valuation of $150 a share, calling for a net upside of up to 60% from where the stock trades today.