Three Consumer Stocks Moving Up On Analysts Support

When The Analysts Start Getting Bullish …

Following the Wall Street sell-side analysts is often a good strategy but can be a two-edged sword. If you find a stock early in a cycle of upgrades it’s often possible to ride that stock to big gains. The catch is that, if you get into the action too late, much of the gains may have already occurred.

In today’s news, we have three names that are all catching the attention of the analysts, if at different points in their upgrade cycles. What they all have in common is their industry, consumerism, and positioning in the post-pandemic world.

Amazon - The Structural Winner

Amazon (AMZN) didn’t get a rating upgrade, RBC was already bullish on the stock, but it did get a price-target upgrade and that is just as good. RBC raised its target for Amazon to $3,300 per share and the highest on Wall Street. The analyst says Amazon is the “structural winner” in the post-pandemic world and the best global play in the eCommerce business.

In Amazon’s favor? Ecommerce was already growing at a solid double-digit pace before the pandemic set in. Now that we’ve all had a chance to really appreciate the eCommerce model, those trends have accelerated.

The average analysts rating for Amazon is Very Bullish which raises a red flag. The mitigating factor is that the consensus estimate is only $2,500 which provides a 20% upside to the RBC target. The assumption now is that other sell-side analysts will begin to up their price targets as well. If and when that happens we can expect to see Amazon price action move up as well.

Dunkin Brands - Execution Is Key

Dunkin Brands (DNKN) got an upgrade to Overweight from Sector Weight at KeyBanc Capital Markets. The analysts there note good execution by management during the pandemic, a sentiment expressed by other analysts earlier in the crisis. KeyBank also says the chain is well-positioned to benefit from the reopening as it gains momentum.

The latest data shows Dunkin’s week-to-week sales are improving. As of last week, the QTD comp sales down only 23% compared to 25% in the prior week, and weekly sales are down only -15% compared to the same week last year. The company still has about 650 stores closed, about 50% of the peak, with most slated for reopen by early July.

Dunkin Brands received a double-upgrade by Credit-Suisse in early April that first led me to speculate on an analyst-driven rally in 2020. At the time, most analysts were neutral and that situation has not changed much so the outlook is the same. With 20 of the 28 ratings neutral, there is plenty of ammo for an analyst driven rally.

Michael’s Companies - A Deep Value Turnaround-Story

Michael’s Companies (MIK) got an upgrade to Overweight from Neutral from J.P. Morgan. The analyst notes Michael’s attractive valuation and the promise of a newly appointed management team. In the report, J.P. Morgan notes the company’s improving margins and an expectation for comp-sales to go positive very soon for the arts&crafts retailer.

• Today’s news helped spark a round of short-covering that sent the stock up more than 30% at the open of trading.

This upgrade is notable because Michael’s released Q1 earnings a few days ago and the report wasn’t great. The company missed on the top and bottom lines due to massive store closures related to the pandemic. The mitigating factor, alongside fresh management, is the company expects virtually all its stores to be reopened by the end of this month, June 2020, and its cash position is more than sufficient to last until then.

The average analyst rating for Michaels is neutral with a bearish bias but that should begin to change soon. Based on today’s price action, it looks like the analysts may be behind the curve on this one and that means aggressive upgrading may be in store. On a technical basis, the stock is now trading above the pre-correction levels and looking very, very strong.