3 Hot Stock Upgrades That Should Be on Your Radar

Key Points

• Domino's Pizza is growing and widening its margin, driving a solid capital return program.
• Target is amid a turnaround that should lead it back to growth by year's end. 
• Texas Roadhouse is accelerating growth and aggressively increasing its distribution. 

Analysts' sentiment is a powerful force in the market that can make the difference between winning and losing a trade. The stocks on this list are among the Most Upgraded Stocks tracked by MarketBeat and have bullish support from analysts. They also have secular tailwinds to support their business growth, suggesting analysts' support will remain firm this year and continue to lead their markets higher. The takeaway for investors is that Domino’s Pizza NYSE: DPZ, Target NYSE: TGT, and Texas Roadhouse NASDAQ: TXRH can all set new highs this year while paying solid dividends. 

Domino’s Pizza Rally has Legs

Domino’s is not a new name on the list of Most Upgraded Stocks, but it is creeping up the rankings, entering the top ten in Q2 2024. MarketBeat.com tracks twenty-six positive revisions from twenty-six analysts, a favorable ratio for investors, with many coming out after the Q1 release. The consensus target aligns with the current price action, suggesting the stock is fairly valued; however, the consensus is up 45% YOY, 25% since last quarter, and 13% in the last months, leading the market to new highs. The freshest targets have the market trading near $590, which is 15% above the consensus target. 

A move by the DPZ market to the consensus target would set a new all-time high. In this scenario, the market will cross a significant pivot point after a multi-year consolidation that could lead it up by $300 or more. The bull case target is $880; the stock price will get there on steady growth, solid margin, and a healthy capital return. 

The dividend yield is smallish at 1.20% but due to a higher-than-average valuation. The stock trades above 30X this year’s earnings but is expected to grow the bottom line over the next five years. Valuation falls to 28X relative to next year’s outlook and below 25X within the next three. Until then, the distribution is less than 35% of this year’s earnings, growing at a double-digit CAGR. Domino’s also repurchases and retires shares, reducing the count by an average of 1.5% at the end of Q1. 

Target Well-Liked Ahead of Q1 Earnings 

Since the last report, Target slipped to #7 on the Most Upgraded list but is still a significant opportunity for investors. The factor most affecting the slip is Target’s late-season report. It is slated to issue its Q1 results in two weeks and will likely catalyze another round of analyst revisions. 

The revisions to date are positive; MarketBeat.com tracks twenty-seven revisions, including three upgrades since March, and they are leading the market to new highs. The $180 consensus target implies a 12% upside from $160, with most fresh targets above it. The freshest targets have this stock trading near $190 to $200 and a multi-year high. A move to that level would confirm a complete reversal in this market and open the door to a sustained rally. 

The analysts are not expecting much from Target, so revenue outperformance should be expected relative to the consensus of $24.5 billion or down 3% YOY. Seventeen of twenty-three revenue/earnings estimates were lowered since the last report, setting the bar low. The critical details will be the margin and the growth outlook, which is expected to return by year’s end. 

Texas Roadhouse Sizzles: Stock Hits New Highs

Texas Roadhouse’s Q1 results were mixed relative to the analysts’ consensus forecasts but solid enough to issue thirteen revisions, twenty-eight since the Q4 release, lifting the consensus price target by 15% in a few days. The consensus target assumes a 7% decline but is led higher; the freshest targets have this stock trading at $170 to $180, flat to up 6% from current levels. Because the discretionary company delivers solid cash flow, pays a healthy dividend, and is expected to accelerate growth this year, investors may expect the revision trend to continue. Regardless, the technical action suggests this rally still has legs and may rise another 10% to 15% before topping out.