Buy these 21 overlooked stocks set for huge gains as the world's vaccine hopes just became a reality, Jefferies says

  • A group of Jefferies analysts make a compelling case for a cohort of stocks that should benefit from the disbursement of a coronavirus vaccine.
  • The analysts approach the vaccine's implementation with a cautious eye, noting "availability, duration of protection, and true efficacy in a world without precautions."
  • In total, the analysts provided 21 stock picks and additional commentary to express their reasoning.
  • Click here for more premium stories.

After months of waiting, a viable coronavirus vaccine has finally come to fruition. On Monday, Pfizer announced that its vaccine was more than 90% effective in its final stage of testing, sparking hope throughout the world that a return to normalcy was within reach.

For society, that's overwhelmingly new good news. However, the stock market's reaction was a bit more nuanced.

The S&P 500 and Dow Jones Industrial Average rose 1.2% and 3% respectively, while the tech-heavy Nasdaq composite lost 1.5% of its value.

Analysts at Jefferies think that rotation may continue.

"Following this morning's vaccine news, the US stock market is beginning to reflect a broadening rotation," a group of analysts penned in a recent client note.

"While the vaccine data update from Pfizer (PFE, N/C) and BioNtech's (BNTX, N/C) candidate highlighted surprisingly positive efficacy above 90% at 7 days after the second dose (~28 days after the first dose), we know neither the timing to broad availability of a vaccine nor the expected duration of protection."

That last bit is important. A lot of uncertainty surrounds the vaccine's timeline and protective interval. It's why the analysts continue to watch developments with a cautious eye.

"Though questions remain on availability, duration of protection, and true efficacy in a world without precautions, the move today on a return to normalcy highlights how dislocated expectations remain," they said. "However, sales and earnings estimates have already been on the rise, and even an incremental uptick in 'normal' consumer behavior is likely to have profound implications."

With unemployment falling rapidly and GDP on the mend, that aforementioned "normal" consumer behavior could be right around the corner. It has the analysts thinking that "less obvious" companies may also benefit from the uptick in activity. 

With all of that to chew on, the analysts compiled a list of 21 that stand to benefit from the vaccine's implementation. Additional commentary is included to provide background on the analysts' recommendations.

1. Caesars

Ticker: CZR

Sector: Consumer Discretionary

Analyst commentary: "Caesars (CZR, Buy, PT: $68) provides the two pieces for upside on this development. First, the financial leverage involved, 7.2x on '21, 6.0X on '22. Second, the recovery in Las Vegas is the key driver of estimate upside, from our current $1.2B EBITDAR for the Las Vegas segment compares with $1.6B pre-COVID and could be higher still on cost management through the crisis."

Source: Jefferies LLC / Jefferies Research Services

2. Bloomin' Brands

Ticker: BLMN

Sector: Consumer Discretionary

Analyst commentary: "For BLMN, they see consumer demand for full service restaurant dining driving an upside EBITDA scenario in '21/22 EBITDA of $390/$440M vs. Cons of $356/398M, yielding an upside target of $29 on 8x '22 EBITDA or +68% (stock is -21% YTD)."

Source: Jefferies LLC / Jefferies Research Services

3. Brinker International

Ticker: EAT

Sector: Consumer Discretionary

Analyst commentary: "For EAT, they see consumer demand driving an upside EBITDA scenario in C22 EBITDA of $495M vs Cons of $423M, yielding an upside target of $73 on 9x C22 EBITDA or +52% (stock is +16% YTD)."

Source: Jefferies LLC / Jefferies Research Services

4. US Foods

Ticker: USFD

Sector: Consumer Discretionary

Analyst commentary: "For USFD, they see stronger restaurant demand (as well as greater demand from hospitality, healthcare and education industries) driving an upside EBITDA scenario in '21/22 EBITDA of $1.2/ $1.4B vs Cons of $1.1/1.3B, yielding an upside target of $48 on 11x '22 EBITDA or +63% (stock is -28% YTD)."

Source: Jefferies LLC / Jefferies Research Services

5. Performance Food Group

Ticker: PFGC

Sector: Consumer Discretionary

Analyst commentary: "For PFGC, they see stronger restaurant demand (as well as greater demand from c-store, theater, vending & office coffee categories) driving an upside EBITDA scenario in C22 EBITDA of $835M vs Cons of $779M, yielding an upside target of $60 on 12x C22 EBITDA or +31% (stock is -11% YTD)."

Stephanie Wissink — Fitness & Wellness and Cosmetics, Household & Personal Care

Source: Jefferies LLC / Jefferies Research Services

6. One Spa World

Ticker: OSW

Sector: Consumer Discretionary

Analyst commentary: "One Spa World operates Spas & Fitness Centers on cruise ships. 2021 estimates reflect depressed demand & utilization with an assumed return to sea in late-2H21. Widespread vaccine deployment would pull forward the time horizon to return to sea and would also allow ships to return to sea at/near full/higher capacity. 2021 estimates still 25% below 2019. Company executed private placement in June, providing ample cash to get OSW back on the water in an expedited way."

Source: Jefferies LLC / Jefferies Research Services

7. Ulta Beauty

Ticker: ULTA

Sector: Consumer Discretionary

Analyst commentary: "Ulta Beauty provides beauty retail & services with 1200 U.S. based stores & salons impacted directly by COVID traffic declines. Widespread vaccine would imply potential for stores to return to sampling & discovery, which drives traffic. If trial & testing is possible, beauty cos (vendors) will reactivate their innovation pipelines. ULTA wins when there's innovation – it's the single biggest driver of store comps. Trajectory of business recovery could accelerate and store growth plans could be renewed; and store traffic is preferred as e-com bears 300-400bps lower margin."

Source: Jefferies LLC / Jefferies Research Services

8. Planet Fitness

Ticker: PLNT

Sector: Consumer Discretionary

Analyst commentary: "Planet Fitness's (PLNT, Buy, PT: $80) membership growth has been the central focus of our recent conversations with investors, following the company's earnings report last week, which Randy discussed here, and meaningful progress in regard to a vaccine could significantly improve the outlook for this important metric. Thus, the potential for PLNT's top-line and earnings growth in the quarters ahead could improve remarkably as well (Randy's 2021 EPS estimate of $1.81 remains ahead of consensus of $1.55). We know that membership declines are slowing, cancellations are stabilizing, and utilization is increasing (illustrated by traffic data analysis here), but a better vaccine outlook, Randy believes, could drive further improvement in these trends."

Source: Jefferies LLC / Jefferies Research Services

9. Post Holding

Ticker: POST

Sector: Consumer Staples

Analyst commentary: "For POST, the company has ~25% revenue exposure to the foodservice channel. The stock trades at a material discount to food peers on a EV/EBITDA basis. Different from SMPL, however, the upside potential on POST will also be contingent on FAH deceleration pacing and potentially increased competitive activity in 2021 and 2022."

Source: Jefferies LLC / Jefferies Research Services

10. Marathon Petroleum

Ticker: MPC

Sector: Energy

Analyst commentary: "US refiners have come under extreme pressure as COVID has sapped the demand for refined products, crimping utilization rates to the ~80% territory and inverting unit economics given significant fixed-cost absorption; a COVID vaccine could reverse these factors and restore the highly cash-generative nature of the business model. Moreover, MPC is set to sell its Speedway franchise to Seven & I in early 2021 for $21B in cash, providing a punctuated restoration of its balance sheet and significant excess cash to pursue buybacks, investments, or further deleveraging."

Source: Jefferies LLC / Jefferies Research Services

11. Scorpio Tankers

Ticker: STNG

Sector: Energy

Analyst commentary: "Increased demand for air travel should help clear crude and products (jet fuel, diesel, gasoline) inventories that have been an overhang on the space. Once inventories clear, this will put upward pressure on rates due to increased refinery utilization and increased transportation demand."

"A successful vaccine would likely boost demand for petroleum products as people begin to travel more, causing an increase in rates and ultimately earnings."

Source: Jefferies LLC / Jefferies Research Services

12. Blackstone

Ticker: BX

Sector: Financials

Analyst commentary: "Current consensus estimates for BX in FY21 are $2.94 which compares to our forecast for $3.07 and an upside EPS scenario of $3.75. A vaccine would likely pull forward the ability to achieve regular way private equity exits sooner than the market is expecting with BX well positioned as of quarter end with $3.6B ($2.96/share) of embedded gains. It would also greatly facility in-person due diligence likely increasing the ability to fundraise for new strategies ($150B of dry powder)."

Source: Jefferies LLC / Jefferies Research Services

13. Compass

Ticker: CODI

Sector: Financials

Analyst commentary: "Some of Compass' consumer portfolio names have been under COVID-19 induced pressure (ErgoBaby). One of the company's top industrial companies was struggling as well (Sterno, which designs heat products for large gatherings. Consensus currently sits at $1.63 for CAD in 2021, while the company did $1.73 in 2019 and has made two substantial acquisitions since this in the consumer space. Kyle believes there could be meaningful upside to '21 estimates as a result of the vaccine."

Source: Jefferies LLC / Jefferies Research Services

14. Apollo

Ticker: AINV

Sector: Financials

Analyst commentary: "12% of Apollo's portfolio is an aircraft lessor. As a result, the stock is trading at a 40% discount to NAV as expectations are for losses to be elevated. This is one BDC in which the economy recovering in '21 would be offering the highest near-term upside. In addition, Kyle highlights a nearly 14% dividend yield, which he considers more sustainable in an environment with a vaccine."

Source: Jefferies LLC / Jefferies Research Services

15. HCA Healthcare

Ticker: HCA

Sector: Healthcare

Analyst commentary: "Patients, particularly seniors, or those with co-morbidities, remain cautious for fear of contracting the virus. An approval of the vaccine could certainly address those concerns and provide an inflection catalyst for broader healthcare utilization. Brian currently estimates healthcare sector volumes trending 5%-10% below pre-COVID levels, and 2021 estimates mostly reflect modest recovery from these levels, with investors expecting HCA Healthcare (HCA, Buy, PT: $160) 's volumes to decline 2%-3% next year. For this reason, a vaccine-driven recovery would certainly be a meaningful top line upside catalyst for HCA."

Source: Jefferies LLC / Jefferies Research Services

16. Schrodinger

Ticker: SDGR

Sector: Healthcare

Analyst commentary:  "In general, Mike thinks biotech R&D activity could pick up again, as more industry employees return to the workplace. With increased customer activity, Schrodinger (SDGR, Buy, PT: $75) could see its software revenues grow in the nearer-term. He points out that we could also see operations pick up at for SDGR's other end-users, including materials science customer."

Source: Jefferies LLC / Jefferies Research Services

17. Gilead

Ticker: GILD

Sector: Healthcare

Analyst commentary: "Product sales within Gilead (GILD, Buy, PT: $75) core business have been negatively impacted by COVID in 2020, so an effective vaccine could allow patients to return to the clinic and seek treatments, enabling HIV, HCV, and cancer sales to pick up earlier-than-expected."

Source: Jefferies LLC / Jefferies Research Services

18. TE Connectivity

Ticker: TEL

Sector: Information Technology

Analyst commentary: "A vaccine would seemingly improve visibility to both and his top "vaccine" pick is TE Connectivity (TEL, Buy, PT: $126) given their broad cyclical exposure (+70% of sales derived via autos & industrials end markets), recent cost initiatives ($500M in restructuring since '19) and content positioning. For TEL, expected 30-35% incrementals in FY'21 tracks above historical 25-30% range reflecting improved cost structure. Yet, outsized underlying Auto volume ramp (fiscal 1Q LVP guide is cautious) could drive upside as mgmt. notes targeted 20% Transportation Solution EBIT margins (14% in '20) can be achieved below prior peak global auto production."

Source: Jefferies LLC / Jefferies Research Services

19. Perficient

Ticker: PRFT

Sector: Information Technology

Analyst commentary: "Perficient (PRFT, Buy, PT: $57): A return to "normal", on a relative basis, would benefit stocks within IT Consulting that are less levered to the assumption of a material acceleration in digital spend. Relative to its peers, PRFT has been hurt in 2020 by its small cap status and an under appreciation of the potential long-term resiliency of its business amidst concerns around shorter project duration and being squeezed out by larger competitors. A faster than anticipated return to high single or low double-digit organic growth from flattish growth currently would result in the company meaningfully exceeding 2021 consensus adj EPS estimate of $2.74, by 5-10%."

Source: Jefferies LLC / Jefferies Research Services

20. Huntsman

Ticker: HUN

Sector: Materials

Analyst commentary: "For HUN, a sustained recovery in the construction and automotive markets could support a move to >$3 in EPS and a share price >$45."

Source: Jefferies LLC / Jefferies Research Services

21. Sealed Air

Ticker: SEE

Sector: Materials

Analyst commentary: "Phil expects a vaccine would result in improved demand in Consumer Packaging and Engineered Materials, partially offset by slower growth in Health, Hygiene, & Specialties. CPI has ~37% exposure to industrial, auto, and construction end markets (vs. 13% for Consumer Packaging North America) and CPNA saw foodservice declines of 20-25% at the peak of the pandemic, both of which Phil thinks would improve with the roll out of a vaccine. Similarly, EM would benefit from a pickup in industrials with ~70% of sales in distribution and specialties."

Source: Jefferies LLC / Jefferies Research Services

Source: Read Full Article