The Breville Group Ltd (ASX: BRG) share price is bucking the morning sell-off even as fears of a COVID-19 resurgence is forcing investors to retreat.
Shares in the kitchen appliance maker surged 5.1% to $24.15 in morning trade when the S&P/ASX 200 Index (Index:^AXJO) fell 0.6%.
Other consumer-facing stocks are also under pressure today. The Harvey Norman Holdings Limited (ASX: HVN) share price lost 1% to $3.53 while the Wesfarmers Ltd (ASX: WES) share price shed 0.5% to $45.81 at the time of writing.
$10 billion opportunity
A very bullish report from Morgan Stanley may be what's firing the Breville share price. The broker initiated coverage on the stock with an "overweight" recommendation as it estimates the global serviceable market for Breville stands at $10 billion.
If you are impressed with that number, Morgan Stanley reckons the stock is worth $62 a pop – although you will have to settle for a more modest 12-month price target of $28 a share in the meantime.
Why the Breville share price could surge over $60
The $62 per share valuation is for FY30, and it assumes the group can achieve a 10% compound annual growth rate (CAGR) over the next 10 years.
"This assumes that BRG can capture 33% of the total revenue opportunity, or A$3.1bn at an EBIT [earnings before interest and tax] margin of 16.2%," said Morgan Stanley.
"We then apply a terminal EBIT multiple of 15.5x, in-line, with BRG's five-year average."
Winning market share
Of course, this also assumes Breville can take market share from rivals. This looks likely given its proven track record in North America and Europe.
Further, the amount the group invests in research and development gives it an important edge over the competition. Management has also built a scalable business model that can support rapid growth, added the broker.
What's more, the coronavirus pandemic is a positive for Breville's business. Stuck-at-home consumers have been buying kitchen appliances as they have to cook at home more due to the lockdown.
The COVID cooking trend
Even after this medical emergency ends, some experts believe households might still spend more time cooking and baking at home compared to the pre-COVID-19 glory days.
The only thing about buying Breville now is that investors will have to cough up big for the stock, although that doesn't bother Morgan Stanley much.
"Our A$28 price target implies 38x FY22E EPS [earnings per share], offering a 12% EPS CAGR (FY20-23E)," explained the broker.
"We think that BRG's premium multiple is sustainable if they can continue their successful execution, given the scarcity of listed global growers in [Australia].
