The somewhat self-induced collapse of the economy from the COVID-19 pandemic has been a huge struggle for many top U.S. companies. Some that have taken the worst hits had pre-existing issues that were compounded with the arrival of the recession. While the economy is slowly reviving (first-time unemployment filings dropped below a million last week for the first time since March), we still have a long way to go.

A new Jefferies research report focuses on six companies the firm feels could be big winners when the economic recovery strengthens and life starts to return to what most consider normal.
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The Jefferies analysts noted this in the report.

With signs that fear of a backsliding recovery might be overdone, Jefferies identifies a basket of stocks that stand to benefit from recent economic momentum. This selection of stocks represents industries that have been hardest hit by the pandemic and whose performance has significantly lagged the broader market. For these stocks, we see the potential for significant upside versus expectations through 2022 and beyond.

While all these stocks are rated Buy at Jefferies, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Boeing

This company has had a public relations nightmare due to the 737 Max issues. Boeing Co. (NYSE: BA) is the world’s leading aerospace company and the largest manufacturer of commercial jetliners and military aircraft combined. It is also one of the most valuable brands in the world.

The different segments in the company are Commercial Airplanes, Boeing Defense, Space & Security and Boeing Capital. The latter provides financial solutions facilitating sale and delivery of Boeing commercial and military aircraft, satellites and launch vehicles.

Jefferies said this about the aerospace and defense giant:

We believe the commercial aerospace duopoly should provide some opportunity as the market improves, despite constrained widebody demand. In addition, we think free-cash-flow should start to normalize in 2022 as deliveries move in line with production and Boeing sees the benefit of inventory burndown. Shares currently trade at a 12% 2023 free-cash-flow yield.

While the macro environment is still highly uncertain, many on Wall Street believe Boeing will be able to communicate greater visibility and confidence in all of the key matters the company is facing. Recertification test flights have begun, customers have had more time to make near and long-term fleet planning decisions, and Boeing secured $25 billion of additional liquidity with the May bond issuance.

The Jefferies price objective for the shares is $270, and the Wall Street consensus target is just $173.50. Boeing stock closed trading on Friday at $178.08.

Bright Horizons Family Solutions

A return to offices will be huge for the childcare industry, and this is a leader. Bright Horizons Family Solutions Inc. (NYSE: BFAM) is the leader in the U.S. employer-sponsored childcare market. As of 2019, it operated 1,084 centers with a total capacity of 120,000. In addition, it is the largest and one of the only multinational providers of backup dependent care services. The company also provides educational advisory services, and it currently partners with over 1,100 corporations, including 150 of the Fortune 500 companies.

Jefferies is very optimistic on the prospects for the company:

We expect 85% of centers to reopen by the third quarter of 2020, with utilization rates fully ramping in 2022. We estimate the company has ~30% share in daycare centers, but highlight that the addressable market keeps growing. Pre-COVID, the company saw 8-10% annual organic revenue growth, with 50-100 basis points of margin expansion and double-digit earnings per share growth. Shares trade at ~7 turn discount to its 2019 peak on an EV/EBITDA basis.

Jefferies has a $165 price target, while the consensus target is $136.22 and shares closed at $130.31 on Friday.

Caesars Entertainment

This well-known old-school gaming company offers solid upside, and a reopening of the economy and casinos could be huge. Caesars Entertainment Corp. (NASDAQ: CZR) announced in July that it has entered into a definitive merger agreement with Eldorado Resorts to create the largest U.S. gaming company.

The proposed transaction will combine two leading gaming companies with complementary national operating platforms, strong brands, strategic industry alliances and a collective commitment to enhancing guest service and shareholder value. The combined company will provide its guests with access to approximately 60 domestic casino–resorts and gaming facilities across 16 states.

The transaction is transformational for each company’s shareholders, employees and customers, combining Eldorado’s operational expertise with Caesars industry-leading loyalty program, regional network and Las Vegas assets.

Jefferies liked the merger and said this:

Caesars is now a combined entity with Eldorado, led by the Eldorado leadership team, which had been among the most productive acquirers in the gaming sector over the past several years. Prior to 2015, Eldorado was a single-property operator generating $124 million of EBITDA and rent costs, and as of the completion of the merger on July 20 is now 37 properties in 16 states generating approximately $3 billion in EBITDA and rent costs. The current merger brings some important steps beyond the boundaries of prior mergers that we believe add manageable risk. They are: 1) entry into the Las Vegas Strip market, which is about 30% of total EBITDA, and 2) Elevated leverage of 7.7x and 6.4x in 2022, according to our estimates.

The $54 Jefferies target compares to a clearly outdated $11.96 consensus figure. Caesars stock ended last week at $41.32 a share.

A resumption in musical entertainment would be gigantic lift for this stock. LiveNation Inc. (NYSE: LYV) is an entertainment company that engages in producing, marketing and selling live concerts for artists via global concert pipe.

The Concerts segment involves the promotion of live music events in owned or operated and in rented third-party venues. The Sponsorship and Advertising segment offers a sales force that creates and maintains relationships with sponsors through a combination of international, national and local opportunities that allow businesses to reach customers through concerts, venue, festivals and ticketing assets, including advertising on websites. The Ticketing segment includes selling of tickets for events on behalf of clients. It retains a fee or service charge for these services.

The analysts noted this about the industry:

While we expect drive-in concerts and virtual streaming to dominate events for the next 6-9 months, we see the potential for: 1) delayed/canceled events occurring in 2021 or early 2022; 2) M&A accelerating and 3) Ticketmaster expanding its margins as investments abate. We estimate annual operating income could be similar to our pre-COVID estimate of $1.0-1.1 billion vs $943 million in 2019. Shares trade at ~5 turn discount to peak on an EV/EBITDA basis.

Jefferies has set a $55 price objective on LiveNation stock. The last trade on Friday hit the tape at $51.48, above the $50.80 consensus target.

Marriott International

Without a doubt, travel and lodging returning to normal levels will be big for this lodging giant. Marriott International Inc. (NYSE: MAR) is a global lodging company with over 6,200 properties and 1.2 million rooms in its system. The company has 30 brands in the limited-service (including Courtyard, Residence Inn, TownePlace Suites, Fairfield Inn, SpringHill Suites) and full-service (Marriott, Ritz-Carlton, Renaissance, Bulgari, W Hotels, St. Regis) segments.

Jefferies loves the company’s sector dominance:

The strength of Marriott’s business prior to the pandemic had been very strong. Although RevPAR for the industry overall and the company had been flattish, 0%-2%, the unit growth of 4.9% is strong by historical standards. Growth in fees had also been bolstered by other fee generation, most notably credit card fees earned from co-branded deals generated 11% of total fees. The company was continuing to integrate the Starwood acquisition of 2015 and derive benefit from its increased scale and brand portfolio of 1.4 million rooms versus approximately 1 million for competitors.

Shareholders receive a 1.5% dividend. The Jefferies target price is $125. The consensus target is $97.81, and Marriott International stock closed at $96.01.

Sysco

Returning to normal for dining would be huge for this company. Sysco Corp. (NYSE: SYY) markets and distributes a range of food and related products primarily to the foodservice or food-away-from-home industry.

The company distributes a line of frozen foods, such as meats, seafood, fully prepared entrees, fruits, vegetables and desserts. It also distributes a line of canned and dry foods, as well as fresh meats and seafood, dairy products, beverage products, imported specialties and fresh produce.

Sysco supplies various nonfood items, including paper products comprising disposable napkins, plates, and cups; tableware consisting of China and silverware; cookware, which includes pots, pans and utensils; restaurant and kitchen equipment and supplies; and cleaning supplies. The company serves restaurants, hospitals, nursing homes, schools and colleges, hotels and motels, industrial caterers and other foodservice venues.

The analysts said this:

The company is positioning itself to realize accelerated sales growth and share gains as the Food Away From Home industry gradually recovers. In addition, a leaner cost structure should allow the company to return to 2019 profitability levels by sometime in 2022, while any acceleration in consumer activity would represent upside to our estimates. Shares trade at 10.5x on an EV/EBITDA basis, well below the 14x peak multiple.

The $88 Jefferies price target is well above the $63.50 consensus target and Sysco stock’s latest closing price of $59.54.

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It is clear that with any sort of return to how life was just a short nine months ago, all these top companies will be back in the game fast. Their shares make sense for long-term growth investors with a patient investing mindset who cannot wait for the return to life as we once knew it.

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