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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 will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
EXPE
We have talked about robust leisure travel demand for some time now, and over the last few months, consensus has certainly gotten more bullish. The opportunity? Consensus isn’t bullish enough and they are overlooking the true beneficiaries of this cyclical and secular upturn.
We have been on the OTAs for some time now and have featured Expedia (EXPE) as one of our go to horses. EXPE has done really well, but following our recent and ongoing review of the OTA space, we’re getting increasingly more bullish on the fundamental backdrop and outlook for these stocks.
At the same time consensus has raised some near-term numbers (they’re still much too low), but the implied expectations in their out-year estimates are too bearish and are not supported by the data.
Consternation about longer term growth, penetration, and margins appear to be creeping back into the fold, but our deck will work to support why / how those narratives are misplaced / incorrect.
In the last few weeks, we have been accumulating new data, refresh and beefing up analyses, and getting a better sense for where expectations reside for both the near and long term.
BYD
It’s still early in the monthly GGR reporting cycle and more markets are set to report monthly results, but we’re very encouraged by the May GGR trends thus far.
Slowing growth? Yeah, sure there’s some slow down as the effect of stimulus checks and other one-off factors start to burn off, but double-digit casino GGR growth vs 2019 is impressive under any scenario.
So far, MD has been the only state to post accelerating growth vs April levels, but IA, MO, MD, OH are all growing in excess of 10% vs 2019 and some states even growing north of 20% higher than 2019.
May is a good month to measure as there aren’t really any calendar benefits relative to 2019, and we think stimulus money ear marked for gambling has probably been accounted for at this point, so the month should provide us a solid look at the industry’s underlying demand trends.
Our work suggests the demand trends are robust but also sustainable, and the estimate revision cycle for many regional gaming stocks has a ton of room to run.
Boyd Gaming (BYD) = Hedgeye Best Idea longs.
PENN
Late last week, Podtrac released the results of their May ’21 Podcast industry rankings and it was another solid showing for Barstool Sports Media.
Among the Top 20 shows, Barstool placed 2 on the list and both cracked the Top 10, and as whole, the company continues to take share and crush it. For May, Barstool was again featured as a Top 5 Podcast publisher in terms of unique audience, reaching an estimated 9MM uniques in the US.
We estimate that for the QTD, Barstool’s overall share of the Podcast unique listener market is around ~7.5% which is nearly double its share from just two short years ago. Why do we care? Because this data is contributes to our thesis that that the Barstool brand is powerful, its media business is valuable, and PENN’s stock does not reflect much of this value.
In addition to the podcasts (audio advertising), Barstool is doing well in digital advertising while their licensing business is taking off, too. At an $80 stock price, we don’t believe much of any value is being ascribed to PENN’s eventual control of this crown jewel media asset.
As we laid out in our recent Gaming deck, Barstool Media is conservatively worth ~$7 / share to PENN’s stock today and will likely be worth a lot more down the road.
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
Shares of VW have held up perhaps because it is positioned to be the top global EV producer in 2021. Still, Porsche Automobil SE Holdings (POAHY), continues to lag VW. We still like the asymmetric return of Porsche Automobil SE Holdings, which is pretty much a holdco of VW shares.
Shares of Porsche trades at a discount due to legal liabilities, some of which are likely to resolve this year for vastly less than estimated.
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
GameStop (GME) reported earnings this week. 1Q was a good quarter relative to expectations and in terms of rate of change. EPS was at a 45 cent loss vs consensus at 82 cent loss. Revenue accelerated to +25% from -3% last Q.
May sales have accelerated slightly to +27%. In 1Q sales were a bit below our model, mainly in the US but we’re still not seeing consoles in stock. Sales growth will be somewhat muted until GME can get its hands on plentiful new consoles.
International markets with heavy lockdowns did better than expected. All in the company delivered just under a 1mm loss in adjusted EBITDA which was ahead of our number due to better than expected gross margins. The company announced its new CEO and CFO. The new CEO is Matt Furlong who comes with nearly 9 years of experience at Amazon where he recently led the Australia business, as well as having prior work experience at Proctor and Gamble.
The new CFO also comes from Amazon where he worked 17 years and most recently as the VP/CFO of North America Consumer. There may be some disappointment from the Reddit crowd to not have Ryan Cohen in the CEO seat and the market didn’t seem to like the announcement Thursday, but ultimately for the long term success of GME, it doesn’t matter.
The company is attracting top talent, and Cohen can steer the strategic direction from the chairman of the board seat. At the same time GameStop is setting up another at the market share offering of up to 5mm shares.
The company has about $650mm in net cash, with potentially another $1.5bn in cash coming from this next equity offering. The possibilities for strategic moves are endless.
BLDE & ASPL
With office occupancy rates remaining low in addition to still lagging subway ridership levels, high passenger vehicle traffic, some potential commuters are instead working remote from the beach, which has boosted private aviation heading into the summer.
One of Wheels Up’s largest competitors is increasing pricing due to demand and rising fuel prices. Private charter flights into/out of West Hampton airports are up 93.3% versus 2019. Martha’s Vineyard up 44.9% versus 2019.
A couple of industry aviation companies are noting a steady increase in business private aviation traffic since the end of April. Blade has recently resumed flying out of the city to NYC area airports. Both Blade (BLDE) and Wheels Up (ASPL/UP) will continue to benefit from private aviation traffic.
A short-term headwind is Wheels Up is going through the de-spac process, which has been a negative event for many SPAC share prices. BLDE sold off to a small premium above net cash, which provided an excellent re-entry opportunity. We’ll handle ASPL similarly if it gives us the same opportunity.
PLCE
The crux of the Children's Place (PLCE) thesis is that capacity has come out of the kids space over the past four years at the same time PLCE has been closing marginal distribution such that the ‘Dinosaur Mall’ footprint is close to zero percent of the portfolio by the end of this year.
25% of sales are in high quality B malls, with the remainder in A malls. The remaining 75% is permanently split between e-comm and strip malls which are far better places to be competing in this space.
PLCE has flirted with the $10 in EPS level multiple times, but right now the combination of their structural changes and the competitive landscape leads us to think that this is when PLCE finally crosses that barrier.
FAII
Despite a wealth of positive news and incremental updates for our Best Idea Long, ATI Physical Therapy (FAII), there has been little to no meaningful movement in the past few months. The reduced volatility was due to the waiting period between the holding company announcing which company they will buy and the de-SPAC vote which then allows the newly public company to begin trading.
That vote will take place for Fortress Value Acquisition Corporation and ATI on Tuesday, June 15th. Following the vote, we expect the stock to “break out.” In order to help our subscribers, prepare their models, update their outlooks, and learn more about company management, we will be hosting the management team including, CEO, Labeed Diab, and CFO, Joe Jordan, on Hedgeye TV on June 16th.
We are looking forward to this call which we expect to focus on the drivers of our positive outlook for the company and revenue growth over the remainder of 2021 and into 2022.
We believe physical therapy is a great way to play the re-opening, and therefore, remain long FAII on our Hedgeye Health Care Position Monitor.
PLBY
This week Playboy (PLBY) announced a primary share offering. The deal was 4mm shares with another 600k option which was fully filled and priced at $46. Use of proceeds is being stated to “fund future growth, including potential future acquisitions, and for working capital and general corporate purposes”.
The company is likely going to accelerate some elements of its growth strategy which includes potential M&A, particularly in the sexual wellness category. Given the run in the stock since the closing of the SPAC, it’s certainly not a bad idea to create some cushion on the balance sheet as PLBY hits its growth ramp.
Oddly enough the stock sold off after the deal, perhaps wrapped up in a falloff of several other stock popular with retail investors that had rallied over the prior couple weeks.
The concern here would be if this deal pre-empts some big secondary offerings, which is a risk for near term price action on the stock. Ultimately we think the changes in float and liquidity near term are minor as it relates to the long term value potential of the company as its executes its growth plans. We think PLBY can be a $10bn+ company over a Tail duration.
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) has a management team that has proven they can execute on their expansion plans. After a strong earnings report in Q1, the company is set to open its Brookline location later this year.
The company’s massive 180,000 sq. ft. manufacturing/cultivation facility in California is under budget and set to open later this year as well. The CA facility will bring in over $500 million in annual revenue for the company when completed and fully operational.
4Front has significant experience manufacturing and cultivating in Washington which it will only improve on with this new facility. In Washington, 4Front claims the spot for #1 edibles manufacturer and #2 flower cultivator.
The California facility is set to have 10X the production size as its Washington facility although it is only 3X the size due to increased automation and process improvements. 4Front is also in the early stages of what it calls its “Big Daddy” project in Illinois which will give the company significant production capabilities to supply its dispensaries in the state.
4Front is an efficient, vertically integrated operator which has been able to execute on its plans effectively in the past. Despite an ambitious expansion plan management’s track record provides confidence in their ability to execute.
FWONK
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).
We believe there is more grease on the wheels. Liberty can maximize its efforts to increase interest in the sport, continue to go after underpenetrated markets, and use its SVOD service to capitalize on its content more efficiently.
The most significant area of improvement for F1 is their sponsorship and partner agreements; in 2018, F1 only made $266M from sponsors and partners, compared to the Mercedes F1 Team, which made $107M from sponsorships.
We believe there is opportunity in sponsorship with only 17 races out of the record-breaking 23 race calendar having a title sponsor and F1 lacking many low-hanging partnerships such as fuel and hospitality providers.
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
Since coming public Beyond Meat (BYND) has not landed a significant, new chain in the U.S. to purchase its core plant-based patties. What does this suggest for the potential TAM?
If we assume that Beyond Meat can get to a 25% market share of future plant-based meat sales the real market opportunity in the U.S. is about $1.4B. There is only one chain that the company could land a substantial contract win and that is Wendy’s.
Last year in the foodservice channel Beyond Meat had sales of $109M with the potential to reach $140M this year. In order to reach $1B in sales in the foodservice channel by 2030 it would have to grow at a compound growth rate of 30% without the potential of a major new chain.
At the same time competitors continue to develop plant-based meat alternative products. Do restaurant chains need to partner with a plant-based alternative when they can all develop their own?
ACI
The surge in at-home food consumption drove grocery demand ahead of the suppliers’ ability to keep the shelves stocked. This led to grocers and CPG companies pulling back on promotions for much of the pandemic.
Since lapping the grocery stockpiling period last March, the promotional intensity has steadily risen, peaking the week ended April 25 at 62% higher YOY. Since peaking, the promotional intensity has fallen to +51% for the week ended May 9.
Non-edible promotional intensity has been higher than in the edible categories +71% vs. +49%, respectively. Within the edible category, promotions were highest in general food +74. Beverage alcohol promotions were lower than most edible categories +33%.
In addition to promotions intensifying, CPG suppliers and grocers have seen costs, including labor, shipping, and commodity costs, rise. Albertsons (ACI) has planned for inflation of only 1-2% this year, which seems hopeful at best.
