What’s Behind These 3 Recent Analyst Stock Upgrades?

Key Points

• Three recent analyst ratings go beyond the consensus, making them a much more significant move for Wall Street analysts to consider.
• Institutional buyers think this upside is realistic, keeping in mind the momentum and business models are there to back them.
• On a technical and fundamental basis, these double-digit upside ratings will remain in place in the coming months and quarters.

Investors should often take analyst ratings with a grain of salt, as there are often hidden interests and agendas behind each rating and price target. The truth is, these analysts are regular people with normal jobs. If they are wrong on a call they make on a particular stock, then there is a very real risk of them losing their job, not to mention tarnishing their reputation moving forward.

Knowing this, investors should place even more importance on the analysts' views that go beyond this consensus, the outliers. Since there is always a common view, which significantly influences the rest of Wall Street's leniency on a stock's rating, those analysts who place a price target or valuation that goes above and beyond this consensus range are now on the hook to have a very good reason for doing so.

This is why three stocks with recent upgrades beyond the consensus can be great buy considerations for investors today. They can reverse engineer the reasons behind these aggressive upgrades and why they now place these analysts under immense pressure to do their homework twice. These stocks are CVS Health Co. NYSE: CVS, The Kroger Co. NYSE: KR, and even Chewy Inc. NYSE: CHWY.

Why Wall Street Analysts Are Rating CVS Stock as a Strong Buy Today

After the recent roller coaster in shares of Walgreens Boots Alliance Inc. NASDAQ: WBA, the brand has been closing down underperforming locations and losing market share. The only brand left that will operate in the retail sector dealing with healthcare services and products is CVS.

There are alternatives, but none are the all-in-one locations that CVS offers in this niche. Now that Walgreens is stepping away from the marketplace, analysts may be looking into CVS as a potential alternative for future growth and higher valuations based on this trend.

While the consensus price target for CVS stock is now set at $70.5 today, calling for a 23.9% upside from where the stock trades, some analysts decided to take it a bit further. As of late November 2024, those at TD Cowen decided to keep their Buy rating on CVS stock, though this time boosting their valuations to $80 a share for a 41% upside from today’s price.

More than that, institutional investors from State Street recently boosted their holdings in CVS stock by 3.6%, bringing their net position to a high of $3.5 billion or 4.5% ownership in the company for another vote of confidence to be considered by investors.

Kroger Stock Gains Momentum: Why Institutional Buyers See More Upside Ahead

Now that Kroger stock is attempting to make a new 52-week high, investors can safely assume that the bullish momentum is more than present in the name and will likely stick around to get it to new highs in the coming months. Despite already trading near highs, some agents in the market are willing to boost it further from today’s price.

Starting with Wall Street analysts, the consensus price target is now set for $62.6 for a mere 3.4% upside. It's not enough, or fair enough, for those analysts at Jefferies Financial Group, though. These analysts upgraded their ratings on Kroger stock from Hold to Buy to start December 2024, placing a price target of $73 for 20.5% and a new 52-week high to end the year strong.

Knowing that the stock has a good chance of getting there despite its already high prices today, some institutional buyers decided to support the new ratings and solidify the upside potential inherent in Kroger stock. Like in CVS stock, State Street allocators decided to boost their Kroger stock holdings by 6.8% as of November 2024, netting their investments at a high of $1.9 billion, or another 4.5% ownership in the company.

Chewy Stock Commands a Premium as Analysts Raise Upside Ratings

Compared to the rest of the retail sector, Chewy stock now commands a massive premium through its price-to-book (P/B) ratio of up to 28.4x, while the rest of its peers trade at only 5.5x. While some investors might call this expensive, others will understand that the market is often willing to pay a premium for stocks believed to grow at above-average rates.

Analysts now think Chewy stock is worth a consensus of $33.3 a share, for only a 5% upside from today’s price. However, those from the Royal Bank of Canada decided to justify the market’s premium in Chewy stock by reiterating their Outperform rating on the company, this time along with a $42 price target to show a 32.5% upside from today’s level.

The company’s business model also justifies the upside perceived today. It doesn’t matter whether the economy is booming or busting; people will likely always make room in their budgets to take care of the furry members of the family. This non-cyclical nature justifies and will likely continue to justify the premiums seen in the stock today.