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Short: MPW, EWCZ, ULTA, ALGN, RBRK, PDCO, VRT, HST, GII, ELF Long: XYL, NEM, DGX, PM, ULS, PSA, CPT, AVB, IRT, T, VTR, AMH, TKO, RTO, TTD, ADBE |
This week we added Adobe (ADBE) to the Long side and removed Viking Holdings (VIK) and Exxon Mobil (XOM) from the Long side of Investing Ideas.
See below for updates on our 26 current high-conviction Long and Short ideas. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
XYL
Sector: Industrials
Sector Head: Jay Van Sciver
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THESIS SUMMARY: Xylem Inc. (XYL) is poised for growth as a leader in global water infrastructure, benefiting from increased awareness, legislative support, and strategic positioning in sustainable water management amidst rising demand for water treatment and infrastructure upgrade. Read full stock report, "The Rising Tide of Water Tech: How Xylem Inc. (XYL) is Pioneering the Future." |
WEEKEND UPDATE: Xylem (XYL) - North Battleford Saskatchewan, in partnership with Xylem Inc. (XYL), modernized its water operations using smart meters and the Sensus FlexNet communication network, enabling proactive leak detection and real-time consumption alerts. This technology helps the city quickly address issues like pipe bursts and sprinkler leaks within 24 hours, significantly enhancing customer service. We continue to like select industrials stocks in #Quad4 as we await a potential quad shift in the near future. Stay long XYL.
NEM
Sector: Industrials
Sector Head: Jay Van Sciver
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THESIS SUMMARY: Newmont has historically outperformed during Quad 4 macroeconomic conditions, characterized by decelerating growth and disinflationary pressures. Read full stock report, "Newmont Corporation (NEM): A Sure Way To Underperform Gold Long Term, But Short-Term Upside" |
WEEKEND UPDATE: Newmont Corporation (NEM) - The company has agreed to sell the Telfer operation and 70% of the Havieron gold-copper project in Australia to Greatland Gold as part of its ongoing divestment of non-core assets. The deal, expected to close in Q4 2024, will provide Newmont with up to USD$475 million in proceeds, including USD$207.5 million in cash, USD$167.5 million in Greatland shares, and up to USD$100 million in deferred contingent cash. This sale aligns with Newmont’s strategy to focus on Tier 1 assets, reduce debt, and return capital to shareholders, contributing to its goal of generating at least USD$2 billion from non-core asset sales, particularly following its Newcrest acquisition.
DGX
Sector: Health Care
Sector Head: Tom Tobin
WEEKEND UPDATE: Quest Diagnostics (DGX) – The company has launched 13 consumer-initiated blood tests to evaluate micronutrient deficiencies, available exclusively at questhealth.com. These panels are designed for individuals with dietary restrictions, food allergies, prescription medications, or chronic conditions like Celiac disease and thyroid disorders, which may hinder nutrient absorption. The tests, priced from $65 to $299, offer insights into deficiencies linked to specific allergies, medications, and health conditions, empowering individuals to take charge of their health. This expansion reflects Quest's commitment to providing accessible, personalized health solutions to address the growing consumer demand for proactive wellbeing management.
PM
Sector: Consumer Staples
Sector Head: Daniel Biolsi
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THESIS SUMMARY: Philip Morris International embodies a transformative investment opportunity within the tobacco industry. Its strategic pivot towards smoke-free products, combined with a compelling financial profile and growth prospects shows potential in the stock price. Read full stock report, "Philip Morris International (PM): Smoking the Competition in Alternative Nicotine" |
WEEKEND UPDATE: Philip Morris International (PM) - The company has increased its quarterly dividend by 3.8%, raising it to $1.35 per share from $1.30, or $5.40 annually, resulting in a yield of about 4.31% based on Wednesday’s closing price of $125.26, up from 4.15%. The increased dividend is payable on October 10 to shareholders of record as of September 26.
ULS
Sector: Industrials
Sector Head: Jay Van Sciver
WEEKEND UPDATE: UL Solutions (ULS) - The company announced the pricing of a public offering of 20,000,000 shares of Class A common stock at $49.00 per share, consisting entirely of secondary shares sold by UL Standards & Engagement. The underwriters, led by Goldman Sachs & Co. LLC and J.P. Morgan, have a 30-day option to purchase up to an additional 3,000,000 shares from the selling stockholder. UL Solutions will not receive any proceeds from the sale. The offering, expected to close on September 9, 2024, is subject to customary closing conditions. Copies of the prospectus can be obtained from the lead underwriters.
PSA
Sector: Real Estate Investment Trusts (REITs)
Sector Head: Rob Simone
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THESIS SUMMARY: PSA maintains by far the most conservatively levered balance sheet, proving it with the greatest ability among storage REITS to supplement internal “same store” growth with accretive “external” growth via acquisitions and developments. Read full PSA Stock Report, "Public Storage (PSA): Safest In Self-Storage" |
WEEKEND UPDATE: Public Storage (PSA) - Our REIT longs continue to generate alpha in the current #Quad4 economic environment as other exposures like tech are left exposed to increased volatility. Stay long PSA.
CPT
Sector: Real Estate Investment Trusts (REITs)
Sector Head: Rob Simone
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THESIS SUMMARY: This company's strong market position, operational efficiency, strategic development projects, and financial performance position it for significant growth over the next 6 months to 3 years. Read full stock report, "Camden Property Trust (CPT): High-Growth Market Operator" |
WEEKEND UPDATE: Camden Property Trust (CPT) - The company reported steady improvements in its third-quarter 2024 operating statistics, as shown below. Stay long this name.
AVB
Sector: Real Estate Investment Trusts (REITs)
Sector Head: Rob Simone
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THESIS SUMMARY: Read full stock report, "AvalonBay Communities (AVB): A Core Long" |
WEEKEND UPDATE: AvalonBay Communities (AVB) - The company hit a 52 week high of $233 this week. It also recently provided third quarter Same Store Residential operating metrics, as seen below.
IRT
Sector: Real Estate Investment Trusts (REITs)
Sector Head: Rob Simone
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THESIS SUMMARY: IRT’s focus on value-add renovations, disciplined capital allocation, and presence in high-growth markets underpin its performance and growth prospects. Read full stock report, "Independence Realty Trust (IRT): Best Capital Allocator" |
WEEKEND UPDATE: Independence Realty Trust (IRT) - Since 2021, IRT has successfully reduced leverage while growing GAAP and cash earnings and compounding NAV, despite challenges like selling ~$525 million in assets in a higher-cap rate environment, facing higher interest rates, and navigating a multifamily market slowdown with supply overhang. Since launching the value-add redevelopment program in April 2018, IRT has recycled a net ~$367 million, deployed ~$607 million, and raised ~$213 million externally, resulting in a nearly flat net use of funds at ~$27 million. All cash investment activities were funded through a mix of internal and external capital, with dividends primarily covered by cash from operations, making AFFO a reliable coverage metric with OCF remaining robust.
T
Sector: Communications
Sector Head: Andrew Freedman
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THESIS SUMMARY: New dynamics around Fixed Wireless, Fiber Optic Internet, and the end of the Affordable Connectivity Program have caused concerns for traditional cable companies, but AT&T’s consistent results and diverse range of products positions them well to capitalize on emerging trends. The TAIL duration (3 years or less) outlook looks strong. Read full stock report, "AT&T (T): Telecom Giant" |
WEEKEND UPDATE: AT&T (T) - Competitor Verizon (VZ) has agreed to acquire Frontier Communications (FYBR) for approximately $9.59 billion to expand its high-speed internet business. The deal, which includes debt, values Frontier at $20 billion and offers Frontier’s investors $38.50 per share, representing a 37% premium to its closing price before the deal was announced.
VTR
Sector: Real Estate Investment Trusts (REITs)
Sector Head: Rob Simone
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THESIS SUMMARY: Ventas, Inc. stands out in the REIT sector, driven by its strategic focus on senior housing, favorable Return on Capital (RoC) profile, and effective capital deployment. Read full stock report, "Ventas Inc. (VTR): Earnings Growth 'Flywheel'" |
WEEKEND UPDATE: Ventas Inc. (VTR) - We like this company over a TAIL duration. 6 months to 3 years are where we see the most alpha. VTR is an earnings compounder that has shown potential for RoC acceleration.
The company also announced that its subsidiary, Ventas Realty, priced a $550 million public offering of 5.0% Senior Notes due 2035 at 99.647% of the principal amount. The Notes, guaranteed by Ventas and maturing on January 15, 2035, are expected to close on September 9, 2024, subject to customary conditions. Proceeds will be used for general corporate purposes, including potential debt repayment and related fees.
AMH
Sector: Real Estate Investment Trusts (REITs)
Sector Head: Rob Simone
WEEKEND UPDATE: American Homes 4 Rent (AMH) - The company is positioned for growth in FY25, driven by accelerating return on capital (RoC), underestimated numbers, and compounding NAV. For FY24, we project core FFO up 6.4% year-over-year to $1.77/share, above guidance and consensus estimates, with SSNOI growth at 4.2%. FY25 assumptions include an 8.7% core FFO increase to $1.92/share and 3.5% SSNOI growth. Valuation is underpinned by a 7.25% required unlevered IRR, a 5.2% nominal cash cap rate, and an estimated NAV of $35-40/share. With AMH compounding NAV at a steady cap rate multiple (+7% YTD, +35% since 2022), its strategic portfolio growth supports the long case, with shares trading at ~$326/door and a 4.3% implied cap rate.
TKO
Sector: Communications
Sector Head: Andrew Freedman
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THESIS SUMMARY: TKO is well-positioned for long-term growth through its dominant brands in UFC and WWE, bolstered by strategic deals and strong margins, but faces risks from competition, regulatory challenges, and potential streaming disruptions. Read full stock report, "TKO Group Holdings (TKO): Fighting for the Sports Entertainment Belt" |
WEEKEND UPDATE: TKO Holdings (TKO) - UFC 306 takes place tonight at the Sphere in Las Vegas, marking the venue’s first UFC event on Mexican Independence Day. While the event is set to achieve a record-smashing gate of over $20 million, concerns loom over high production costs, making it a low-margin event for the UFC. The fight card lacks star power, featuring smaller names that may struggle to attract casual fans. Ticket prices, once in the $2,000-$3,000 range, have now dropped to around $750, reflecting the challenges in drawing a broader audience. All eyes are on the Sphere to deliver.
RTO
Sector: Industrials
Sector Head: Jay Van Sciver
WEEKEND UPDATE: Rentokil (RTO) - Recently on "The Pitch," Van Sciver presented his Long thesis for RTO. CLICK HERE to watch.
Pest control trackers and data is fine, but fine in Quad 4 is good. RTO credit card data is still in recovery. They are having an alright quarter, and our trackers are looking pretty good. Keith's signal likes this name as we await their next earnings print for more concrete confirmation of upward trends.
TTD
Sector: Communications
Sector Head: Andrew Freedman
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THESIS SUMMARY: The Trade Desk shows upside over a TAIL (3 years or less) duration, driven by its strategic initiatives in retail media along with its strong market position. Read full stock report, "The Trade Desk (TTD): Benefiting from Network Effect Expansion" |
WEEKEND UPDATE: The Trade Desk (TTD) - Rumors suggest The Trade Desk is developing a smart TV operating system, sparking speculation about competition with giants like Roku, Amazon, and Google. However, CEO Jeff Green dismissed these claims at Exchangewire’s ATS conference, emphasizing partnerships, not rivalry, especially highlighting their data deal with Roku. Green stressed The Trade Desk’s focus on improving the TV advertising supply chain rather than controlling content or competing directly with other OS providers. He highlighted the importance of streamlining access to premium content outside walled gardens, positioning The Trade Desk as a foundational player in the connected TV ecosystem rather than a direct competitor.
ADBE
Sector: Software
Sector Heads: Andrew Freedman, Felix Wang
WEEKEND UPDATE Adobe (ADBE) - This name was added to the Long side of Investing Ideas this week. Hedgeye CEO Keith McCullough sent out a Real-Time Alert to subscribers - see below:
On The Call @Hedgeye (745AM ET, you can listen in on my Research Team and I) this morning, I thought Felix did a good job explaining the difference between what he thought was conservative guidance by ADBE's management team and Felix's ADBE model (which has the high on the Street in terms of estimates and above management's guidance)...
Coaching Notes:
1. As we make the #QuadShift from #Quad4 in Q3 to #Quad3 in Q4, we want to own LARGE CAP GROWTH stocks that have #accelerating REVENUES (or what we call "Pod1")
2. Not all Large Cap Tech will have that in this #Quad3 because they have extremely difficult comparisons vs. last year's accelerations...
3. So you better get your company modelling right!
KM
MPW
Sector: Real Estate Investment Trusts (REITs)
Sector Head: Rob Simone
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THESIS SUMMARY: The company is not a traditional triple-net REIT, rather an investor in hospital systems ("WholeCos" using the company's own words). In the process MPW removes the arbitrage from a traditional PorpCo-OpCo arbitrage. These investments are structured as loans + equity investments to the operator tenants, which are in many cases distressed and owe significant rent payments back to MPW as landlord. The arrangement is circular and depends on MPW's ability to raise attractively-priced external capital. The equity is very possibly completely worthless, as we think the assets are worth no more than ~$6.5 billion (updated) to true "arm's length" third-party buyers vs. pro forma net debt of ~$10.5 billion at share. Read full stock report, "Medical Properties Trust (MPW): A Dumpster Fire Burning on Fumes" |
WEEKEND UPDATE: Medical Properties Trust (MPW) - Following a Senate HELP committee hearing this week, concerns over Medical Properties Trust (MPW) were highlighted, particularly regarding its dealings with Steward Health. Key issues include admissions that MPW’s leases were “above market” and “unaffordable,” with capital investments not used for hospital improvements but instead to sustain recorded “rent” payments. MPW's recent "global settlement" suggests no cash flow for 18 months, and it appears aimed at avoiding real estate impairments and litigation. MPW faces significant impairments, potential funding gaps, and questions about liquidity, with its business model criticized for unsustainable practices and misaligned incentives focused on non-cash metrics. The company’s strategy risks repeating past mistakes by lending to undercapitalized operators to artificially maintain rent and earnings figures, pushing it into deeper financial instability.
EWCZ
Sector: Retail
Sector Head: Brian McGough
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THESIS SUMMARY: We are Short European Wax Center (EWCZ) due to future negative comparable store sales (comps), an uncertain pricing strategy, high franchise costs, and an increasingly leveraged financial structure. Read full stock report, "European Wax Center (EWCZ): A Profitable Opportunity From a "Failed IPO." |
WEEKEND UPDATE: European Wax Center (EWCZ) - The stock has started to stabilize around $7 after falling to sub-$5 and then recovering to where it is now. The company cut guidance on its last print and we are going to continue to see weak growth trends out of the company. Management lowered expectations but we continue to think that consumer pressure will weigh down more heavily and longer than expectations. This weak we saw a warning from ALLY bank that suggested consumers are struggling to pay their loan payments. Pressure on discretionary spending continues to build. This stock traded to sub-$5 before and there is no reason it can’t trade back down there on weaker trends.
ULTA
Sector: Retail
Sector Head: Brian McGough
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THESIS SUMMARY: Ulta Beauty is facing a multifaceted challenge as it contends with shifting consumer preferences, increased competition from Kohl’s Sephora, and potential market saturation. Read full stock report, "Ulta Beauty (ULTA): Headwinds and Slowing Trends" |
WEEKEND UPDATE: Ulta Beauty (ULTA) - The ULTA 21 Days Of Beauty sale is still going on and we have started to see Sephora going toe to toe with ULTA on promos, i.e. offering the same product at the same discount as ULTA, assuming there is brand overlap. The competitive landscape has really heated up over the last couple of years and it has put pressure on ULTA. Especially with Sephora mirroring ULTA promotions, it’s going to be tough to maintain marketshare in this environment. The increased competition and resulting promotions will continue to cause margins to weaken and we are starting to see revenue and comp trends decelerate. The multiple could still head lower with plenty of earnings risk ahead.
ALGN
Sector: Health Care
Sector Head: Tom Tobin
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THESIS SUMMARY: Align Technology faces a challenging outlook heading into the second half of 2024. The combination of macroeconomic headwinds, high out-of-pocket expenses, rising financing costs, and competitive pressures creates a bearish scenario for the stock. Read full stock report, "Align Technology (ALGN): Macro and Market Headwinds" |
WEEKEND UPDATE: Align Technology (ALGN) - We remain short on ALGN as part of our broader stance against discretionary healthcare. Despite a recent surge in the stock due to positive orthodontic growth survey data, underlying issues persist. The company has been cutting prices amid increasing competition, while app download delinquencies signal weakening consumer engagement. Additionally, ALGN is facing pressure as consumers tighten spending, leading to a loss of market share. Notably, after raising guidance, they quickly reversed course and cut it. Given these factors, ALGN continues to be a short.
RBRK
Sector: Software
Sector Heads: Andrew Freedman, Felix Wang
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THESIS SUMMARY: Rubrik faces growing challenges as competition intensifies, particularly with the Cohesity-Veritas alliance backed by Big Tech and NVDA, which threatens Rubrik's market share in key areas like cyber resilience. Read full stock report, "Rubrik (RBRK): The Best Times are Behind" |
WEEKEND UPDATE: Rubrik Inc. (RBRK) - FQ2 2025 subscription margins guidance (-13% at midpoint) suggest a deterioration from the -8% in FQ1 2025 (adjusted for a 1x payroll employee expense). Rubrik's FY 2025 subscription margin guidance of negative 12% at midpoint was substantially below even our model estimate (-7%). Put simply, this means no margin improvement this year. The company has to substantially invest in their "cyber resilience" story to exhibit growth - a dangerous sign. As discussed on our call, their overly aggressive sales team is the impetus to all this. The new, bigger Cohesity competition will only intensify pressures on Rubrik.
PDCO
Sector: Health Care
Sector Head: Tom Tobin
WEEKEND UPDATE: Patterson Companies (PDCO) - The wage outlook for hospitals is deteriorating month over month, with wage growth now expected to reach 6.5% in December, up from the previous forecast of 6.0%. This trend poses challenges for Patterson Companies (PDCO), as rising costs could impact its financial performance, especially in its veterinary services segment, which is already showing signs of decline. Additionally, the broader pet care market is also trending downward, signaling potential headwinds for PDCO
VRT
Sector: Global Tech
Sector Head: Felix Wang
WEEKEND UPDATE: Vertiv Holdings (VTR) - We remain bearish on Tech and VRT in Quad 4. We believe the name is over owned, the Bulls are trapped, and Felix Wang is the only legit bear on the name. The company's recent earnings didn't impress on the growth side. Demand expectations disappointed big time. Q2 revenues was only in-line with estimates; Q3 guidance (midpoint OF $1.96bn) below Bloomberg and buyside expectations but in-line with our estimate ($1.958bn). The bulls will point to Q2 order growth of 57% (HE: 30%) but it's less clear of a metric than revenues. However, Q3 orders growth guidance was only 10%-15%; we were modeling 15% for Q3. With harder comps on the way, order growth will continue to decelerate in a big way in 2H 2024.
HST
Sector: Gaming, Lodging, and Leisure
Sector Head: Sean Jenkins
WEEKEND UPDATE: Host Hotels & Resorts (HST) - Hotel REITs like Host Hotels & Resorts (HST) are facing significant challenges, with demand slowing across both leisure and non-leisure segments. Despite attempts by the sell-side to call a bottom, we don’t see one yet. The outlook into Q4 and Q1 2025 remains unfavorable, as comps are tougher than expected, and any near-term relief is likely temporary. Leisure travel isn’t offering a meaningful catalyst, and the ongoing shift toward alternative accommodations continues to pressure RevPAR growth. The bull case relies on a sharp reversal of these headwinds, which seems unlikely. We remain underweight and short on HST as further RevPAR deceleration appears likely.
GIII
Sector: Retail
Sector Head: Brian McGough
WEEKEND UPDATE: G-III Apparel Group (GIII) - Another negative apparel read this week, this time out of OXM. The company had an okay quarter but guided down the year and was cautious in commentary on the consumer and the set up for the back half of the year. The consumer saw pressure in the quarter and management expects that to continue for at least the rest of the year. This doesn’t bode well for similar apparel names like GIII, which we expect to have decelerating trends only beating on margins due to a pullback in spend on the PVH licenses it will be losing over the coming years. The stock is likely to be closer to sub $10 over a multi-year timeframe vs the $30 today.
ELF
Sector: Retail
Sector Head: Brian McGough
WEEKEND UPDATE: elf Beauty (ELF) - The stock has been trading down consistently since its print in mid-August, now in the high $110s vs the $170 when it reported. The short on this company isn’t based on the quality of the business, we generally like it long-term, our issue is that growth is slowing and margins are weakening and it’s not being accounted for in the stock yet. EV/EBITDA multiple has come down over the last week to 20x from 26x, but there is still downside from here. This company has too high a multiple on slowing growth trends with real margin risk, and we expect any continued signs of weakness will drive the multiple and stock price lower.
