Snap Stock Extends Rally After Analyst Upgrade

Analyst believes Snap will outperform the sector through year end

Snap Inc. (SNAP) shares rose more than 3% during Tuesday's session after Guggenheim upgraded the stock from Neutral to Buy with a price target of $22.00 per share, which represents a significant 25% premium over the current market price.

Analyst Michael Morris believes that Snap is well positioned to outperform the sector during the remainder of the year. In particular, the analyst cites strong usage trends, industry-leading access to 18- to 34-year-old users, and platform improvements that should drive growth in advertiser demand. Morris says that Snap's long-term revenue potential is the underappreciated and should support a sustained premium.

Earlier this month, Susquehanna analyst Shyam Patil upgraded Snap stock to Neutral after channel checks showed solid growth during the third quarter. The analyst pointed to many of the same underlying app improvements while noting that Facebook, Inc.'s (FB) Instagram Stories have "lowered barriers" for Snapchat's Stories adoption by advertisers. However, Patil believes that Snap stock's valuation could be the biggest hurdle.

Chart showing the share price performance of Snap Inc. (SNAP)

From a technical standpoint, Snap stock gapped higher during Tuesday's session to nearly retest highs made in late July of around $18.50. The relative strength index (RSI) moved closer to overbought levels with a reading of 66.52, but the moving average convergence divergence (MACD) remains in a bullish upswing. These indicators suggest that the stock could see some near-term consolidation before resuming its uptrend.

Traders should watch for some consolidation below July's highs of around $18.50 over the coming months. If the stock breaks out from these levels, traders should watch for a move toward R2 resistance at $18.52. If the stock gives up ground, traders could see a move back to R1 support at $17.18 or the pivot point and 50-day moving average at $16.17.

The author holds no position in the stock(s) mentioned except through passively managed index funds.

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