Bank of America names stocks set to benefit as Australia eases Covid-19 restrictions

Published Tue, Oct 5 20217:30 PM EDT

Bank of America expects the Australian economy to rebound as restrictions ease this month and has named several stocks that would be "key beneficiaries." Australia's two largest states — New South Wales and Victoria — have announced plans to loosen some restrictions once 70% of their populations are fully vaccinated. Both states are reportedly projected to achieve that figure this month . "We expect reopening will see strong rebounds in the hospitality, hotel, gaming, 'bricks and mortar' retail, and travel industries as the population seeks to escape the confines of their homes," Bank of America analysts wrote in a report dated Sept. 22. The investment bank flagged two stocks expected to benefit most from the reopening Down Under: hospitality and gaming operator Endeavour Group and national flag carrier Qantas . Endeavour Group More than 40% of Endeavour Group's hotels were temporarily closed due to lockdowns in New South Wales and Victoria. "Once the current restrictions start to ease, we expect Endeavour's sales to bounce back rapidly," the Bank of America analysts said. They expect the group's electronic gaming machine sales to at least return to pre-Covid levels, even as some restrictions are expected to remain in place beyond October. Endeavour is reportedly the third-largest gaming operator in Australia, but is the largest owner of poker machines — with over 12,000 machines in 293 hotels. Bank of America has a price target of 7.70 Australian dollars ($5.57) a share, representing 8.14% upside from Tuesday's close. Qantas Qantas' domestic travel business is expected to recover at a similar pace as it did prior to the most recent lockdown in New South Wales, when interstate borders were open, according to Bank of America. The bank flagged upside risk — the extent to which the stock's value might climb beyond expected levels — due to an increased willingness to travel among people who have been fully vaccinated and as a result of increased savings from households during lockdown. "We reiterate our Buy on (Qantas) given their leverage to the domestic travel recovery and liquidity to sustain current uncertainties," the analysts said. The airline is "expected to achieve approx. 70% domestic market share as Virgin decreases capacity post-restructure ." Internationally, Qantas is set to resume flying to Covid-safe countries by December. CEO Alan Joyce told CNBC in August he expects flights from Australia to the U.S., U.K. and parts of Asia will resume by Christmas. Bank of America's price target for Qantas is 6.15 Australian dollars ($4.45) a share — projecting 7.1% upside. Also bullish on these stocks Bank of America said it is bullish on supermarket operators Coles and Woolworths' margins going forward even as sales are expected to moderate due to pent up demand for dining out. The lockdown sharply drove up sales, pressuring costs and efficiency for supermarkets. The investment bank is also bullish on fuel distributors Viva Energy and Ampol . Both companies saw a material drop in fuel consumption because of the lockdowns and also due to the lack of air travel. "With reopening of economies and borders, it is clear the fuel providers are highly leveraged particularly as there is likely to be pent up demand to travel," the analysts said. In the health care space, Bank of America is bullish on hospital operator Ramsay Health Care's backlog of surgery volumes. Many non-urgent surgeries at several of RHC's New South Wales hospitals were postponed due to Covid-19. "Resumption of elective surgery will support diagnostic imaging providers including Sonic Healthcare , Healius and Integral Diagnostics ... as well as ultrasound disinfection company Nanosonics ," the analysts added. The bank also expects an initial surge in Covid cases once restrictions ease. Testing vigilance in the near-term to control the caseload is expected to continue and it could prolong tailwinds for lab company Australian Clinical Labs .

Long queues of people waiting to get the Covid-19 vaccine at a pop-up walk-in Covid vaccination clinic at the Peanut Farm in St Kilda, Melbourne, Victoria, Australia in August 2021.

Christie Cooper | iStock Editorial | Getty Images

Bank of America expects the Australian economy to rebound as restrictions ease this month and has named several stocks that would be "key beneficiaries."