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Long: EXPE, BYD, AMN, POAHY, IHRT, GME, BLDE, PLCE, ASPL, FAII, PLBY, PENN, PSA, FFNTF, FWONK Short: PLUG, BYND, ACI |
Below are updates on our eighteen current high-conviction long and short ideas. We have removed Brink's (BCO) & Citi Trends (CTRN) this week. We have added Formula One (FWONK) to the long side and Albertsons (ACI) to the short side. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
EXPE
Last week’s hotel RevPAR was a tad bit better than the prior week, led by a leisure demand pick up heading into the Memorial Day Weekend (MDW). The prior week’s RevPAR performance had shown slowing growth, but this coming week which is impacted favorably by the long weekend, should build upon the reaccelerating trend.
The slowdown a few weeks back was mostly related to the winding down of spring break holiday schedules, and the impact of comping against what are typically core business travel weeks (transient and group), which could be foreshadowing for the fall and winter months.
But it’s leisure time in the US and that means accelerating RevPAR growth and demand.
We updated our preferred proxy for weekly hotel RevPAR tracking and for the 7 days through February May 29th (corresponding with upcoming STR calendar), TSA throughput data fell 26% (vs ’19 levels) vs -34% YoY for the prior 7 days.
With this in mind, we’re forecasting Total RevPAR to drop ~20% (vs ’19), which would mark a real solid acceleration vs last week’s RevPAR growth (-27% vs ’19). For this coming week, we expect the weekend days (Fri-Sat) to lead but Thursday will also see a lift judging by the TSA data as travelers got to their destinations a day or two early. Following this big holiday week, we’d expect the diverging weekday vs weekend trend to manifest and likely widen as leisure demand accelerates and corporate weekday demand remains limited in most US markets.
Playing the accelerating hotel demand and leisure theme still looks best expressed through the OTAs (like Expedia (EXPE)) than through hotel REITs or select C-Corps.
BYD & penn
Regional gaming states will be releasing May gaming revenues over the next several weeks with MD and IA kicking it off as usual.
Neither state necessarily moves the needle for PENN/BYD, our two favorite gaming stocks, but should signal better results at the other states as well – they tend to be indicative of monthly trends for the remaining states.
Our contention is that May was very strong and for most states, and in the aggregate, B&M GGR should exceed May 2019. May is looking like the first test of whether the reopening strength is continuing even after stimulus and initial pent-up demand effects abate.
Based on our work, we say yes it is, and while May won’t be up as much as April, analysts’ models are showing a down Q2 in terms of B&M revs for both PENN and BYD. That’s where we differ from the street – we see sustainability of top line trends due to better demographics (re: younger players) and much better margins as the street misses the concept of flow through in this fixed cost heavy business.
After Iowa and MD, OH and IL, important states to PENN should report next week and then MI and IN. BYD maintains a diverse set of exposure to most of these states.
The upshot is that analysts will likely raise estimates in the coming weeks to account for the better top line but they will likely not move high enough, and not reflect the kind of margins that we think are sustainable.
For now, our Q2 EBITDA estimates reside significantly above the Street and PENN and BYD remain on the Hedgeye Best Idea Long List.
AMN
Last month, 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 do not 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).
Following the deal announcement, the ADP released their employment report for May 2021 earlier this week.
We have found that medical consumption is closely tied to employment in the health care sector, which is why the strongest month-over-month gain since June 2020 is a good sign for re-opening. We still need approximately 20k more jobs to fully recover to trend.
As we have been highlighting, medical consumption pent- up demand remains significant for many types of care, and we have only recently begun to see the signs that thawing. Heightened demand for labor is directly positive for AMN. We remain long on our Hedgeye Health Care Position Monitor.
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
A lot of mixed news about NFTs in the market the last week or. When we talk about GameStop (GME) and NFTs, the opportunity has nothing to do with seeing digital art at high sticker prices.
Rather its about crypto gaming where games are run/played on peer to peer networks and the skins, property, tools, etc in games can be owned, traded, and exchanged in NFT form (check out crypto games on YouTube for context).
A good comparison is thinking about the current in game purchasing market. That today is roughly 75% of all sales in global gaming, we’re talking a number approaching $150bn in just a couple years.
The appetite to acquire/own content in digital form for gamers is high. So as new crypto games and gaming worlds are created, the NFT gaming market is likely to continue growing rapidly. We think GME will likely be helping to build/create the market here.
It looks to be investing in the talent to build its own blockchain ecosystem that could provide a wide range of offerings to gamers around the world. We can’t think of a more relevant brand to be helping to create and build the next gaming evolution.
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.
PLCE
The concept of retailers being flush with cash is not new – particularly as most have smoked earnings during the latter part of the pandemic. But Children's Place (PLCE) is one we’d call out in particular.
We think the company is going to pay off its debt in the upcoming quarter and then direct its free cash flow to buying back stock. Remember that the tight share count here is especially sensitive to the company’s repo activity.
The consensus already doubts that the company will break the $10 EPS level – but we think it happened by next year – if not this year. Then with a cumulative $500mm in repo in the coming three years we think that pushed EPS closer to $14 per share, which is good for a stock of at least $150.
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 month. 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).
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. We remain long FAII on our Hedgeye Health Care Position Monitor.
PLBY
A category that Playboy (PLBY) management has signaled as important for the long-term story of this brand is beauty which is a category that by our numbers has around $300bn in global sales.
Playboy used to have a women-centric fragrance business for many years that pulled in roughly $150mm per year, but got rid of it during the changing of power from Hefner to the current regime.
However, on the most recent PLBY earnings call, management announced it renegotiated its prior beauty license to reclaim several category rights that belonged to its now fragrance only licensee.
This means the company can develop and launch products in cosmetics, grooming, skincare, and bath. Color cosmetics are already in the works with a planned launch in 2022.
Bringing these licenses in house gives a clear path for PLBY to drive strong sales and execution of its beauty strategy thereby increasing its brand and earnings power. The beauty business is just one of many parts of the PLBY story that make it a huge Tail Long idea.
PSA
Public Storage (PSA): Lots of good things happening that suport our Best Idea Long thesis on PSA.
First, in April the company announced a $1.8 billion acquisition of Mid-Atlantic self-storage operator ezStorage at an attractive yield adjusted for pending growth and development.
This matters for our thesis on two fronts: (1) PSA is using its fortress balance sheet to accelerate external growth and hence the overall earnings growth profile of the company, and (2) the deal was financed 100% with $2 billion of unsecured debt, which is a “back-door” approach to taking corporate leverage up to a more appropriate level and shifting the mix away from higher-cost preferred stock.
Then, in late-May the company retired $200 million of Series C preferred stock with the excess cash raised through the above debt offering. There is another ~$1.3 billion of preferred callable and able to be retired through year-end 2022.
To recap, PSA is checking two boxes that drive a higher stock price: (1) higher external growth and (2) more rational leverage and composition.
FFNTF
4Front Ventures (FFNTF) posted solid top-line momentum in Q1 and has carried that into Q2. The company is getting ready to launch two crucial projects in 2Q21 – its Commerce, California production center and the opening of its Brookline, Massachusetts retail location, setting up its growth in the 2H21.
We continue to believe that FFNTF will be one of the better performing small-cap companies in the emerging cannabis industry. With 4Front, you get a combination of low-cost production and distribution in limited license states and mature states.
The company has emerged as a low cost leader by competing in the low cost Washington state market over the past six years. It has established a dominant market position in Washington State, with a full line of products distributed to over 260 retail locations.
The company claims the #1 share in edibles and the #2 share in flower for #2 in Washington’s overall market share.
The company's future is to take these production capabilities to the recreational markets of Illinois, Massachusetts, Michigan, and California. All in, FFNTF serves an addressable market of over 76 million people.
FWONK
Hedgeye CEO Keith McCullough added Formula One (FWONK) to the long side of Investing Ideas. Below is a brief note.
No, you didn't get a bunch of Buy Signals from me on green days...
Today is the day you go shopping with plenty of names that our Independent Research analysts like on sale!
One name I have been waiting on, patiently, has been Formula One (FWONK), which is a Liberty Media SPAC name that Communications analyst Andrew Freedman has done the deep work on:
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ONG LIBERTY MEDIA FORMULA ONE (FWONK); 30% UPSIDE F1 is still amid a turnaround after Liberty Media acquired the asset from private equity group CVC Capital and Bernie Ecclestone in 2016 and IPOing under the FWONK ticker in 2018. The previous management's lack of long-term focus left F1 with poorly constructed race agreements and very few sponsors relative to most premier sports brands. Liberty has been working to resolve these issues. In 2020, F1 reached a new Concorde agreement for the 2021-2025 seasons that will improve the economics of a season over time. Liberty has also focused on entering more attractive, long-term race deals like the Vietnam and Miami Grand Prix agreements (neither has ever held a race in F1's 70-year history). |
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
Not surprisingly, Beyond Meat's (BYND) Q1 results were a disaster. 1Q21 Non-GAAP EPS of -$0.42 missed by $0.21; GAAP EPS of -$0.43 missed by $0.27. Revenue of $108.16M (+11.4% Y/Y) missed by $5M.
Gross margin of 30.2% was below consensus of 31.8%. BYND spent 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 not of the size to see mass adoption of fake meat. As the company said on the call, significant investments are needed to serve any meaningful QSR brand. Making it worse, they are making these investments during the pandemic, leading to a sharp decline in spending by foodservice customers.
The company reported the closure of thousands of independent restaurants during the quarter. As the CEO said, "These outcomes are not unexpected and are a direct result of our belief that it makes little sense to limit our ability to capture future growth due to transient pandemic conditions. We will continue to make such investments, and I'm grateful for all of our team members who work so diligently to keep building our foundation through such a tumultuous time."
With $1.1B of cash on the balance sheet, the company is armed with the capital to continue to invest in the future. What clear is the company is not focused on profitability and will continue to see increased competitive pressures adding to margin pressure.
With limited visibility on short and long-term profitability and the current setup for single-digit EBITDA margins in 2022, and a category is growing 6%, the stock is a short.
ACI
Hedgeye CEO Keith McCullough added Albertsons (ACI) to the short side of Investing Ideas this week. Below is a brief note.
Here's a good research note from our Consumables Pro team (Daniel Biolsi and Howard Penney) on ways to think about playing the SHORT side of #InflationAccelerating:
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Produce prices rise into Memorial Day weekend (ACI) Fresh produce prices are at the highest price for the 21st week of the year (the week headed into Memorial Day weekend). The following chart is a composite of numerous fresh produce items. Higher wages, freight costs, and assorted shortages contributed to the inflationary pressures. Strawberry prices hit $2.11 per pound for the week, exceeding the previous record price of $1.36 per pound driven by robust demand. Fresh produce is one of the highest margin departments in a grocery store. The increased sales velocity during the pandemic led to gross margin expansion for the grocers due to less spoilage. This year sales velocity will be lower while inflationary pressures increase, switching the margin tailwind to a YOY headwind. |
