Following analyst upgrades on Wall Street can provide investors valuable insights into the most promising stocks. This approach sharpens the investment edge and highlights opportunities that might otherwise be overlooked in the current volatility. Positive endorsements by brokers are regarded as powerful catalysts for stock prices, often leading to increased investor buying interest. Understanding the fundamental rationale behind these bullish outlooks can help make better-informed investment decisions.

In this article, we take a closer look at three significant analyst upgrades that have captured the attention of Wall Street. They highlight analysts’ confidence in these companies’ growth prospects and their potential to outperform in the rest of 2024. However, investors should always consider how these analyst upgrades align with their overall investment strategy and risk tolerance. With that information, let’s delve into the specifics of these analyst upgrades and discover why these broker bets are garnering attention in May.

Arista Networks (ANET)

First on our list of analyst upgrades is the cloud networking solutions provider Arista Networks (NYSE:ANET). It provides switches and routing systems for data centers and hyperscalers that connect servers to the cloud.

On May 7, Arista reported solid first quarter fiscal 2024 results, buoyed by increased AI spending. Revenue surged 16% year-over-year (YOY) to $1.57 billion. Earnings per share (EPS) came in at $1.99, representing a 44% increase YOY.

Analysts are increasingly bullish about Arista’s potential to capitalize on surging cloud computing and AI infrastructure spending, highlighting strong growth in data center buildouts. In addition, the company has a favorable positioning within the back-end networking space. We should note that the overall data center capital expenditure is expected to surpass $1 trillion by 2027. Booming investments in AI infrastructure will drive this growth.

Arista’s primary competitive advantage lies in its technological know-how to develop faster and more reliable data flows that consume less energy. Its innovative software stack enhances Arista’s reliability in developing large AI clusters. Hence, its network solutions command robust margins that generate significant free cash flow. 

Year-to-date (YTD), ANET stock is up 17%. Given its robust growth narrative, shares are priced at a premium valuation of 40.7 times forward earnings and 14.7 times trailing sales. Meanwhile, analysts’ 12-month price target for ANET stock suggests an upside potential of 11% from current levels.

TJX Companies (TJX)

Next up on our list of analyst upgrades is off-price retail giant TJX Companies (NYSE:TJX). The company operates in apparel and home fashion with key brands like TJ Maxx, Marshalls and HomeGoods.

The retailer is expected to announce the first quarter fiscal 2024 results on May 15. Before that, the fourth quarter fiscal 2023 results showed a 13% YOY increase in revenue to $16.4 billion. EPS surged 37% YOY to $1.22, driven by a 5% increase in comparable store sales and rising gross margin.

At present, the retail landscape is difficult for companies to navigate, partly due to the given uncertainty over interest rates. Yet, TJX’s ability to attract deal-conscious shoppers across different income levels and its flexible business model gives the company a competitive edge. As consumers seek value amid sticky inflation, the retailer could continue gaining market share from department stores and full-price retailers.

Strong consumer spending and an improving macro outlook suggest a positive overview for the financial year 2025. Analysts expect TJX to beat its financial year 2025 guidance on comparable store sales growth and EPS fronts.

So far, in 2024, TJX stock is up just 1%. Meanwhile, shares are trading at a forward price-to-earnings (P/E) ratio of 23.6x and a trailing price-to-sales (P/S) ratio of 2.1x. Finally, Wall Street’s 12-month price targets for TJX shares imply an upside potential of 16% from current levels.

Union Pacific (UNP)

We discuss analyst upgrades with the leading railroad operator Union Pacific (NYSE:UNP). The company enjoys a duopoly with BNSF Railway over the U.S. West Coast ports, moving freight across 23 states and gateway cities in Canada and Mexico.

The railroad operator reported first quarter fiscal 2024 results in late April. Operating revenues remained flat at $6.03 billion due to economic headwinds, while EPS increased 1% YOY to $2.69, beating Wall Street’s expectations. In addition, free cashflow more than doubled to $525 million, driven by pricing gains that helped to compensate for lower volume and declining fuel surcharge revenue.

Union Pacific’s ability to maintain stable revenue and improve efficiency amid economic headwinds in part shows its effective cost management strategies. Despite the flat revenue growth, the group lowered operating expenses in an inflationary environment.

Management’s optimistic outlook is based on expectations of stable domestic grain demand and growth potential in other segments. As a result, Union Pacific upgraded its profitability outlook.

Yet, so far in 2024, UNP stock is down 1%. Shares are trading at a forward P/E ratio of 21.2x and a trailing P/S ratio of 6.1x. Wall Street’s average 12-month price target for UNP shares implies an upside potential of 12% from current levels.

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.