Morgan Stanley Strategy Highlights 9 Oversold Covid Beneficiaries

Morgan Stanley Equity Strategist, Michelle Weaver, highlighted 9 Overweight rated Covid beneficiaries that have sold off hard since the beginning of the year and appear to represent values at current levels:

Bath & Body Works, Inc. (NYSE: BBWI)

• both 2022 management guidance and consensus estimates already embed sales and margin deceleration from highs achieved in 2H20 and 2021 to levels more similar to historical trend
• with sales and margins reset from Covid highs in 2022, BBWI has established a new base from which to grow.

Dick's Sporting Goods (NYSE: DKS)

• DKS screens as undervalued for its structurally higher margin and growth rates which the analyst thinks are sustainable post-Covid
• more conviction in Sporting Goods retention of pandemic demand vs other categories due to the more repeatable nature of the Sporting Goods purchase cycle gross margin profile is
• structurally higher with several idiosyncratic catalysts/initiatives that started to ramp pre-Covid and were accelerated over the past two years

Five Below (NASDAQ: FIVE)

• Despite this positive fundamental outlook, FIVE has underperformed YTD (-34% vs S&P -17%). Its multiple has de-rated to ~23x NTM P/E, well below its mid-30s historical average, and implies a ~40% premium to the market (vs its historical 75-100% premium)

The New York Times Co. (NYSE: NYT)

• recent share underperformance highlights concerns over a broader pull-forward in consumer demand that has negatively impacted the growth outlook ahead. 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 the analyst expects net adds to further accelerate in ‘22E pro forma for The Athletic.

Nike (NYSE: NKE)

• the pandemic enabled NKE to 1) welcome nearly 110M new members to its ecosystem (as of May 2021), a 55%+ increase compared to pre-Covid levels, at little to no cost; 2) capture a greater share of its brand revenue through its higher-margin DTC channel (e.g., DTC 37% in FY 2021 vs. 30% in FY 2019 and NKE-owned digital 20% vs. 10%, respectively), and 3) subsequently double-down on digital via the Consumer Direct Acceleration (“CDA”) strategy, the successor to its Consumer Direct Offense (“CDO”) strategy

On Holding AG (NYSE: ONON)

• 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.

Simon Property Group (NYSE: SPG)

• SPG purchased high-quality mall portfolio TRG, which gives SPG additional scale and negotiating leverage with retailer tenants. In 1Q22, the first quarter following the anniversary of the transaction, TRG posted NOI growth of 9.4%
• In 1Q22, fixed lease income grew by 2.1% y/y and by 5.0% q/q, suggesting that the business’s core rental income can once again grow post-Covid
• While ’21 was certainly a strong year for SPG, it still faced headwinds from Covid-related closures in Europe affecting their local properties, as well as lower tourism in the U.S. that affected their U.S. domestic portfolio.

Sonos (NASDAQ: SONO)

• we believe Covid helped to permanently accelerate underlying demand and engagement trends, aided by the proliferation of streaming audio and video. In fact, revenue growth is expected to compound at a 13% CAGR between FY21-FY24 (i.e., post-pandemic), 3 points faster than Sonos’s pre-Covid annual revenue growth rate of ~10%, which we believe offers the most concrete evidence Sonos is much more than a narrowly defined Covid beneficiary.

Zoom (NASDAQ: ZM)

• at 5x EV/’23 Sales and 16x EV/’23 FCF, no growth is credited in valuation. The company has opportunities to expand internationally, sell additional products into its installed base, and take additional share in its core market. The analyst sees an opportunity to trade closer to mature software names on a FCF basis (large cap median EV/’23e FCF is 28x) as the company delivers on double-digit growth again in FY23e

For an analyst ratings summary and ratings history on Zoom Video click here. For more ratings news on Zoom Video click here.

Shares of Zoom Video closed at $84.95 yesterday.

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