Morgan Stanley: this mall stock is worth buying even with Omicron

We don’t have a bullish stance on the U.S. malls at large, but we are “overweight” Simon Property Group Inc (NYSE: SPG), says Morgan Stanley’s Richard Hill.

Hill defends his bullish case on CNBC’s ‘Power Lunch’

The bullish call on SPG is interesting since it comes at a time when the retail sector is taking a hit on fears related to the new Omicron variant. Stating his reasons why he sees Simon Property Group as different from its competitors, he said on CNBC’s “Power Lunch”:

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It’s a company that lost 20% of its total NOI in 2020 versus 2019. That’s a billion dollars. We believe they can begin to grow again on a derated base. They’ve beat and raised three consecutive quarters in a row this year, something they hadn’t done in quite some time.

Hill’s “buy” rating on SPG comes with a price target of $180 a share that translates to an about 20% upside from here. Strategic acquisitions and strong negotiating power were among other reasons why he likes the Indiana-based company.

SPG is down more than 10% on Omicron news

Simon Property Group slid more than 10% in just over a week after South Africa first reported the new, heavily mutated variant of the Coronavirus. The recent dip, as per Hill, makes up for an attractive point for entry since SPG is now trading below its intrinsic value.

We see a company that you can buy at where it was trading prior to Q3 of 2021, which was a really strong quarter for them. You can bank this opportunity, it’s a mall that’ll be a winner from a continued rationalization in the retail real estate sector.

Simon Property Group has recovered its free cash flow back to the pre-pandemic levels. Yet, its current dividend stands at $6.60 versus $8.30 in 2019. Hill, therefore, is confident SPG will continue to beat and raise and lift its dividend, which will catalyze the stock’s move up.