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Long: EXPE, BYD, AMN, BCO, POAHY, IHRT, GME, BLDE, CTRN, PLCE, ASPL, FAII, PLBY, PENN, PSA, FFNTF Short: PLUG, BYND |
Below are updates on our eighteen current high-conviction long and short ideas. We have removed Dufry (DUFRY) & Mudrick Capital (MUDS) this week. We have added 4Front Ventures (FFNTF) to the long side and Beyond Meat (BYND) to the short side. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
EXPE
Most industry observers understand that the US leisure traveler is back in action and approaching 2019 levels of booking and stays – the cat is out of the bag on that one. But is the broader consensus prepared for an EU comeback?
We think not, but they will be in the coming months (maybe weeks). The charts below highlight the disparity in hotel bookings between the US and EMEA region but look at the sharp hook higher in the RHS chart over the last 3 weeks for the EMEA region, led predominantly by Western Europe. There’s a seasonal element to this, but the steepness of the inflection in bookings has been impressive and is accelerating.
Importantly, the continued progress in bookings indicates added strength relative to Q1 management commentary. Accelerating vaccination rates and declining covid numbers are likely a driving force behind the added activity – good timing ahead of the travel season. Numbers have come up for the OTAs, but we still see consensus bookings expectations as too low on Expedia (EXPE).
BYD
April was a white-hot month for regional casino activity around the country, and the Las Vegas Locals market was no exception. Yesterday, Nevada reported April gaming revenues – the last of the states to report. Core regional markets outside of Las Vegas posted growth of ~15% vs 2019 and as shown below, the LV Locals market outperformed most other jurisdictions. LV Locals GGR rose 18% vs 2019, and given the calendar, there was little sign of any accounting quirks in the numbers.
Note in the below, volumes were equally strong in the month of April, led by the highest margin segment of slots. This strong performance comes on the back of capacity restrictions that were only eased towards the very end of the month and since early May casinos had gone to 80% occupancy, and now have moved to 100% occupancy + rescinded mask mandates, due to Clark County’s progress on vaccinations.
Stimulus dollars and other factors might crimp some of the unrated play in the months to come but full capacity and more operating flexibility should allow for a lot more of the higher end, and importantly, older rated customers to return. In other words, we think the robust trend of gaming revenue growth is going to remain very strong.
Our Best Idea long BYD maintains 35% exposure to the Las Vegas Locals and Downtown markets in terms of 2019 property EBITDA. For now, we’ll keep Boyd Gaming (BYD) at the top of our gaming ideas list.
PENN
Until last week, our negative view towards DKNG and Online Sports Betting (OSB) stemmed not from long-term opportunity or even the near term monthly results. Rather, those negative views were premised around the irrational exuberance driving the stocks to euphoric valuations that seemed at odds with what we saw as a distinctly negative catalyst calendar. Q1 wasn’t sustainable and we felt that lower betting volumes following March Madness would impact sentiment.
Fast forward to today and sentiment has reversed significantly, almost to the point of being overblown, at least in the case of Penn National (PENN). Our view changed last week, and now with some more positive upcoming catalysts, momentum may build again.
Canada’s SB bill took another step in the right direction yesterday and the prospects for legalization is looking very good. Meanwhile, it looks like CT is a done deal and will be live with both OSB and iGaming at some point in the NTM. By itself, CT doesn’t present much of an opportunity for most publicly listed casino or sports betting stocks; however, the move from CT will put pressure on MA and ME to at least legalize SB/OSB. MA would be the bigger catalyst and although it’s reflected in analyst’s industry estimates, additional clarity on legalization and market structure would be a big positive, particularly for PENN, MGM, and WYNN (WBET).
There are still a few months of softer sports betting volumes, at least until the NFL kicks off in September, but the empty glass if filling up again and that should be a catalyst for PENN.
PENN’s catalyst calendar looks even better relative to the industry as they will be the most active among all companies when it comes to new state launches over the next 6mths. On top of those state launches, PENN should be generating significantly more EBITDAR and FCF growth vs expectations via its core operations at the same time as more customers return to the casino.
We’ve documented all the catalysts in our recent deck, but with PENN still down significantly from its highs coupled with its current slate of catalysts, we don’t think there’s another stock in our coverage that offers as much upside.
AMN
Last week, AMN Healthcare (AMN) quietly announced what looks to be a large deal with legs. From the 8-K, we know that it is an $800 million deal with FEMA for vaccinators. These kinds of deals don’t come as a surprise to us given many of our recent field checks, most notably an Executive Insights staffing call with Robert Longyear of Wanderly/Avenue Health (available to HC Pro subscribers).
The contract is worded as an "Indefinite Delivery-Indefinite Quantity contract to provide contractor-managed medical professionals for COVID-19 vaccine administration in support of Federal vaccination assistance to state, local, tribal and territorial partners in the ‘East Zone.’” The initial term is six months, and the overall spend is not to exceed $800 million. There is potential for the contract to be extended.
AMN has been one of our best performing ideas to date. It has been a nearly perfect story and storm evidenced by its favorable valuation, inflation protection
BCO
The stimulus checks now going out have a history of finding their way into more speculative, momentum driven parts of capital markets. The Quad 2 recovery in activity is increasingly evident, with TSA passenger screenings recovering on extremely easy compares.
From a factor perspective, smaller cap & higher momentum continue to outperform in a ‘risk-on’ trend that makes sense given policy support, accelerating economic growth, and an ‘early-cycle feel’ to the post-pandemic economy.
We continue to like out-of-favor names with asymmetric payoffs like ASPL, as well as our pandemic recovery plays like Brink's Company (BCO) while acknowledging those are much closer to the end than the beginning (i.e. position accordingly).
POAHY
If you have VWAGY, we’d suggest swapping into Porsche Auto (POAHY) – the divergence has rarely been wider and is a relative risk for VWAGY. There is no obvious arbitrage forcing the gap to close, but Porsche SE is (basically) an entity that holds shares of VW
IHRT
iHeartMedia (IHRT) reported strong 1Q20 results with revenue of $707M coming ahead of the FactSet consensus of $689M. More importantly, management guided Q2 revenue to be up 65% YoY in Q2, ahead of the consensus of 57%.
In terms of overall revenue growth for first quarter, it was still down 10% as broadcast recovery continues to be slow with the broader multi-platform segment down 21% (note the programmatic/side of broadcast was only down 11%).
However, the digital audio segment, including podcasting continues to grow rapidly with revenue up 70% - and podcast revenue specifically up 142% YoY (albeit it is less than 5% of revenue in aggregate). While the digital audio segment represents 22% of revenue, as a whole, it represented 39% of total adjusted EBITDA in the quarter.
We still think IHRT to $1B run-rate EBITDA before the year is out, and 2022 estimates need to move higher to $1.1-$1.2B - at 9x gets us to a stock in the high-$20s… and this is before any deleveraging, which for every turn of the multiple is $7/per share and $100M in EBITDA estimate is $6/per share.
GME
This week it was found that GameStop (GME) has launched a website for recruiting/building a business in the NFT market place (https://nft.gamestop.com/). The headline that GME is getting into the NFT space may have surprised some, but not us. We highlighted just a few weeks back that it was one of the top names in our coverage universe we could see getting into the NFT space.
It makes a lot of sense to us, not that GME is going to make and sell digital art, but there is an entire economy around gaming that is very much hidden from the mainstream. Given their general interest in computers and cutting edge digital/computing technology gamers are generally on the forefront of cryto/blockchain/nft technology.
About half of the NFT market historically has been in gaming content and virtual land (otherwise known as Metaverses). The GME website looks to be hiring to potentially create its own blockchain ecosystem.
Why not? GME could make the ‘chain and marketplace catered to the gaming consumer, which is highly involved in the NFT digital content realm already. It’s not unreasonable to think GME could build something rivaling or exceeding the market opportunity of Dapper Labs which recently got a $7.5bn valuation.
BLDE
Blade (BLDE) has a real, rapidly growing, revenue generating business that is, most likely, of strategic interest to several travel and aerospace companies. It also has, depending on how an investor chooses to mark it, a bit less than $4 of cash per share.
That’s what SPACs do – push cash into companies that can use the funding. Would an Uber, Lyft, Gett, an Airline, private aviation company (e.g. XO, Wheels Up, parts of BRK), or an EVTOL/EVA entrant be willing to buy at the current valuation?
We think it is a potentially strategic franchise for many competing or adjacent brands, and wouldn’t be surprised if some enterprising bankers were putting pitches together. Is it still at a ‘high revenue multiple’? On pandemic impacted results, yes. Following a travel recovery and continued mid-double-digit growth? Probably not.
We see BLDE as a worthy allocation here, and we’ll put it back on Best Ideas as a potential multi-bagger from these levels (if not a source of immediate gratification). BLDE app data has started to recover from pandemic induced lows, with summer service restarts a promising positive catalyst.
CTRN
Citi Trends (CTRN) reported earnings this week. It was a great quarter. Though from the pre-announcement we already knew it would be great. It was actually 10% better than the prelim result provided at $3.23. CTRN is nearly generating the EPS of the last 2 years in a single quarter.
The stock sold off after the print due to the tempered guidance on the rest of the year, and the fact that the company is shifting capital allocation to new store growth rather than share buyback. On guidance we think the company is just being conservative, particularly on the margin line as sales guidance at the mid-point is slightly ahead of our prior model, which was already well ahead of the street.
The company bought back 5.4% of the outstanding shares in just this single quarter. We think the shift in capital allocation is a bullish move. Unit growth investment will likely get better return than buying back stock near the peak. It’s a good time to ramp growth and take advantage of good real estate opportunities in urban areas. With that said, we know this board will be happy to reinstate buybacks if the stock pulls back materially, while still driving store growth.
Shareholder return is a key focus for CTRN. Over a tail duration we see earnings power of $9 to $10. We’d put fair value on this at $115 to $140 with potential upside to $150+. Still an underfollowed and under-owned unit growth story that has some of the best growth trends in retail.
PLCE
It’s been a week since Children's Place (PLCE) put our its blowout quarter, and the consensus numbers have settled in. Interestingly enough, the Street came up to $8.36 for the year, which is within spitting distance of our $9.00 estimate.
But in a rather perplexing move, the Street has 2Q EPS clocking in at $0.31 – to be clear, we’re at $2.44. It’s ridiculous to think that this company will go from earning $3.25 in 1Q to one tenth of that level in 2Q. We think that we’re set up for another blow out in the June quarter. In addition, the Street has earnings declining next year by 8% to $7.72 – at a time when stock buyback alone should improve earnings by $0.90-$1.00 per share.
There are plenty of doubters that this company will ever see $10 per share in earnings…but we think the company will prove the doubters wrong. At a minimum, the setup looks solid for the next 13 weeks.
ASPL
Wheels Up (ASPL/UP) may end up playing out similarly to BLDE and CLA/OUST. The de-SPAC has set up lower entry points for these cashed-up, growing businesses.
We see Wheels Up as a compelling SPAC target with a growing business and robust competitive strategy. With nearly $700 million in 2020 revenue, 11,000 active users, and 150,000 passengers flown, Wheels Up is executing on its plan to reduce the vast inefficiencies in the private aviation market. Flight management software, a high customer retention, and a mix of owned & third-party assets likely position the company for ongoing growth.
FAII
ATI Physical Therapy (FAII) reported last week. From the report, it is clear that visits per day solidly progressed throughout the quarter. During the call, management attributed this progression to the re- opening within health care finally getting started (lagging behind many other sectors). CEO, Labeed Diab, said the team saw, “overall volume steadily increasing through the first quarter as COVID-19 vaccination rates rose and the United States gradually [re-opened].”
Following that release, we spoke with management to drill down on a few topics essential to our thesis. From that conversation, we believe volume is returning to normal more quickly than the guidance and forecasts suggest. Two key takeaways from the call were five new clients signed in 1Q21, one more in April; and despite pockets of issues around the country, ATI is ramping up the hiring effort based on the backlog they see within their existing markets.
The commentary from management provides direct evidence for our thesis, and we believe physical therapy is a great way to play it following a relatively synonymous haircut across the sector. All in all, ATI “visit volumes were in the high 70%'s of pre-COVID levels as we entered 2021, increasing to approximately 83% as we exited April 2021." We remain long FAII on our Hedgeye Health Care Position Monitor.
PLBY
The world of Playboy (PLBY) collabs is getting even larger as the company announced a partnership with British footwear company Duke & Dexter. The marriage of these two brands furthers Brand Chief Rachel Webber’s goal to highlight the magazine’s cultural influence and emphasize the Playboy vision of self-expression.
The Duke & Dexter CEO said about the collab “We’re really excited to show who the modern Duke & Dexter x Playboy is – subversive, tasteful and ultimately, aware”.
The collection contains 8 loafer designs all priced between $289-$346. Playboy continues to expand its breadth of collaborations and demonstrate why the bunny is so powerful.
PSA
This week Public Storage (PSA) announced that it would redeem the $200 million of outstanding 5.125% Series C preferred stock. Recall that a portion of our long thesis was gradual capital structure optimization, namely a reduction of outstanding higher-cost preferreds as they come callable over the next two years.
This move appears consistent with that thesis, and was also most likely a point advocated for by Elliott Management as part of their activist campaign. Another $675 million comes callable over the balance of 2021 (Series D & E), followed by $580 million in 2022 (Series F & G), all with coupons averaging to roughly ~5.00%.
Based on our model we calculate that PSA should be able to cover this redemption with available cash on hand. PSA issued $2.0 billion of unsecured senior notes in mid-April in three floating and fixed-rate tranches (blending to a ~2.0% average cost), with $1.85 billion to fund the recent $1.8 billion acquisition of ezStorage + transaction costs and $150 million of additional cash funding to the balance sheet.
With $160 million of unrestricted cash on the balance sheet as of 1Q21, this preferred redemption should be easily covered without additional capital issuance. Taken together, we view the capital structure move as consistent with this piece of our long thesis, and expect additional preferred redemptions in the months to come.
FFNTF
Hedgeye CEO Keith McCullough is adding 4Front Ventures (FFNTF) to the long side of Investing Ideas. Below is a brief note.
Helping you buy things on sale is what we do...
Consumables analyst Howard Penney was happy with what he heard from 4Front (FFNTF) yesterday. Here's an excerpt from his Consumables Pro research on why:
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Takeaway: The company indicated that Guidance has an upward bias in 2H21 FFNTF is a LONG We continue to believe that FFNTF will be one of the better performing small-cap companies in the emerging massive secular growth cannabis industry. At 4Front, you get a combination of low-cost production and distribution in limited license states and mature states too. The company has honed its trade over the past six years in Washington State. It has established a dominant market position in Washington State, with a full line of products distributed to over 260 retail locations. |
PLUG
Several fuel cell companies have been running losses funded with stock and debt issuance for years, essentially a confidence game based on long-term investor hopes. The ‘Street’ feeds on issuance and deal-making, aligning research with those goals.
Companies like Plug Power (PLUG) have been dependent on new capital inflows. That PLUG management viewed 2020 as a ‘breakout year’ despite a widening loss, presumably because the share price performed well, is likely indicative of deep perspective conflicts. The restatement may make future offerings more difficult, potentially attracting substantial regulatory overhangs. The restatement apparently relates to the accounting for issuances of warrants with large customer purchases – stock was *literally* part of the product for AMZN & WMT.
BYND
Hedgeye CEO Keith McCullough is adding Beyond Meat (BYND) to the short side of Investing Ideas. Below is a brief note.
Seeing some of our higher quality SELL ideas getting squeezed to lower-highs now that SPY has ramped back to inside of -1% from its all-time closing high...
Here's a good excerpt from Consumables analyst Howard Penney's Consumables Pro research product on Beyond Meat (BYND):
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BYND is a SHORT Profitability will be elusive Not surprisingly, BYND's financials are a disaster. 1Q21 Non-GAAP EPS of -$0.42 misses by $0.21; GAAP EPS of -$0.43 misses by $0.27. Revenue of $108.16M (+11.4% Y/Y) misses by $5M. Gross margin of 30.2% vs. consensus of 31.8%. BYND spent the last year investing heavily in its business, adding significant infrastructure, personnel, innovation capabilities, partnerships, and a new product pipeline, all designed to chaise the holy grail. The company is making investments in the U.S., EU, and China as the company is not prepared or is of the size to see mass adoption of fake meat. |
