Upgrades Will Drive The Market HigherThe 3rd quarter earnings cycle is yet to really begin but there is already a major theme emerging.
Upgrades. The analysts have been upgrading their targets and ratings on the pandemic-proof and recovery stocks for the last month and the
trend is accelerating. The latest round includes new ratings on some companies well-positioned for the 4th quarter.
McDonald’s: Leader Of The Pack
got a
price-target upgrade from Bank America that puts another $25 or 11% of the value on the stock. BOA analysts think the company is benefiting from a second surge now that people have grown tired of eating at home. Even without that, McDonald’s is the leading name in a segment that has seen a strong rebound since hitting the low last spring. The current consensus price target is near $215 or down about 5% from current trading levels but that does not reflect a recent trend. Over the past month, McDonald’s has received 6 price target updates and one upgrade that put the value closer to $235.
"The quick-service segment as a whole has seen greater demand during Covid than pre-Covid as consumers tired of their own cooking and leaned into drive-thru and off-premise for engagement with restaurants," says Bank of America.
Polaris Riding A Wave Of Bullish Sentiment
Polaris (NYSE:PII) received three major analysts upgrades over the past two weeks that point to double-digit gains for this stock. The company has seen a tremendous uptick in demand due to the pandemic and that trend has not abated. The latest upgrade is from Baird. Baird gave the stock a double-upgrade from Neutral to Outperform citing strong retail trends and inventory depletion as drivers of growth. Longbow sees retail trends tracking above expectations and leading to better than expected results for the 3rd and current quarter of the year.
Share prices are fairly valued relative to the consensus but, once again, the consensus is not reflective of recent upgrades. Baird’s target of $120 is a 20% premium, the Wall Street high is $128. In addition, Polaris is a solid dividend payer with 23 years of consecutive increases on record. The yield at today’s prices is just above 2.5% which is much better than both McDonald’s 2.0% and the broad market average of 1.85%.
“It has been an incredible summer as consumers shun crowded spaces for the outdoors, driving two indisputable facts: 1) the pandemic has attracted more people to Polaris, and 2) surging demand has depleted dealer inventory, setting up a healthy replenishment cycle," says Baird. 
Freshpet Is Going Ballistic
Freshpet (NASDAQ:FRPT) garnered another bull this week. Atlantic Securities initiated coverage with an Overweight rating as the “growth story plays out”. The growth story is pets. The pet industry is growing at roughly 5% annually and fast becoming dominated by specialty brands. Freshpet sells its fresh cat and dog foods in refrigerated cases right in the grocery store making it easy and affordable. Regarding company growth, Freshpet saw its revenues climb more than 30% in the last reported quarter.
The new rating set a price target of $131 for the stock which is the Wall Street high. The consensus is closer to $90 but the vast majority of ratings have not been changed since early in the year. Based on the results for this year and the stickiness of trends within the pet care industry I expect to see more upgrades for this stock very soon. 
The Analysts Are Buying Into Carvana
Carvana (NYSE:CVNA) received not one but two new analyst ratings on Monday bringing the total to 26. The new ratings come from Edward Jones and BNP Paribas who both initiated at Outperform. Only Edward Jones set a price target, $272, or an upside close to 25%, and it is well above consensus. The consensus estimate is about 15% below the current price action but the trend is up and the outlook for the used car market is still strong. Bank of America is another to issue positive comments recently, upping the stock from Underweight to Equal-Weight.
"Carvana has disrupted the used car dealer industry by offering a comprehensive end to end experience for consumers to transact in the buying and selling of cars online. CVNA built the necessary infrastructure, logistics network, online product capabilities and heavily advertised to consumers, which is all a part of their recipe for success." 
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