Morgan Stanley screens most unappreciated post-COVID stocks

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“In our view, it’s not a transitory ‘Covid Bump’ for these 10 stocks,” Morgan Stanley says. “Many companies garnered outsized boosts to revenues in 2020 and 2021, as their business models were leveraged to the sharp changes in the economy and consumer behavior during the peaks of the pandemic, and saw their shares perform strongly as a result.”

Morgan’s equity strategy team said in a note they have “observed that some stocks have underperformed in recent months amid market fears these companies only did well amidst the Covid pandemic.”

“Our analysts view these names not as narrowly-defined Covid beneficiaries but instead as solid businesses that are structurally positioned for long-term outperformance. We believe this disconnect has left many of them at a meaningful discount to intrinsic value.”

The stocks are:

  1. Bath & Body Works (BBWI): “This topline growth and margin profile is best-in-class amongst our coverage. But BBWI currently trades at 7x forward EV/EBITDA, which equates to less than half the level of businesses with similar growth and margin trajectories (e.g., Off-Price, CPG, etc.). As such, we see a multiple re-rating opportunity into the mid-teens+ EV/EBITDA range, which would yield a stock price more than double current levels.”
  2. Dick’s Sporting Goods (DKS): “Clearly some reversion on sales and margins is inevitable, but we believe this reversion could be slower and shallower than is generally expected.”
  3. Five Below (FIVE): “While we believe some degree of de-rating is justified based on higher interest rates, we think the stock is being unfairly categorized as a recession-exposed retailer – even though the business performed well during the financial crisis (delivering +6%/+12% comps in ‘08/’09) and should be a beneficiary of trade-down given its value-oriented, low-price-point offering.”
  4. New York Times (NYT): “While variability in the news cycle remains a driver of quarterly volatility in net adds, NYT in fact delivered 2021 digital net adds ahead of 2019 levels, and we expect net adds to further accelerate in ‘22E pro forma for The Athletic.”
  5. Nike (NYSE:NKE): We “believe Covid permanently accelerated NKE’s transition from a traditional wholesale business into a digitally-driven, direct-to-consumer (DTC) brand, which should lift its revenue, margin, and EPS growth trajectory over time.”
  6. On Running (ONON): Sportswear “spend appears robust YTD, and we see ample opportunity for ONON to continue to grow the top line at least +DD% for the next 15+ years given the brand remains in nascent stages across channels, products, and geographies. This makes ONON a rare compounding growth opportunity, in our view.”
  7. Simon Property (SPG): “At current levels, the stock’s valuation looks attractive through a number of lenses: 1) It trades at an FFO Multiple of ~10x on ’23 MSe FFO $11.87, which compares to 2-/5-/10-year avg NTM FFO multiples of 10.6x/12.0x/15.0x; 2) In our published model (before incorporating 1Q22 actual results), our DCF of FCF using a cost of equity of 7.7% (0.9 beta, 5.23% ERP, and 3% risk free rate) suggests intrinsic value of $141 per share; 3) SPG trades at a dividend yield of ~5% (and in our view will continue to grow their dividend), 5 above closest peer MAC at ~4.5% (which will likely not grow their dividend).”
  8. Sonos (SONO): “While we admit, revenue growth accelerated during the pandemic – to a 2-year CAGR of 17% between FY20 and FY21 – we believe Covid helped to permanently accelerate underlying demand and engagement trends, aided by the proliferation of streaming audio and video.”
  9. Wingstop (WING): Changes “to the business that have improved unit economics, digital mix, scale, and brand awareness for what is still a relatively early-stage growth company.”
  10. Zoom (ZM): Our survey “shows 96% of key decision makers on office strategies note video conferencing is a key component of future workplace plans, to be leveraged to enable hybrid work and to reduce travel expenses.”

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