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Long: EXPE, BYD, AMN, POAHY, IHRT, GME, BLDE, PLCE, ATIP, PLBY, PENN, PSA, FFNTF, FWONK Short: PLUG, CMG |
Below are updates on our sixteen current high-conviction long and short ideas. We have removed Beyond Meat (BYND), Albertsons (ACI), and Aspirational Consumer (ASPL) from both the long and short sides. We have added Chipotle (CMG) to the short side. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
EXPE
As a follow up to yesterday’s discussion on leisure group demand starting to recover, we decided to peel the onion back a little bit more on Group vs Transient trends to get a better sense for the implied underperformance of corporate travel vs leisure travel.
We won’t rehash our views on either demand segment this AM as they’re well known at this point, but we found this data to be pretty enlightening and really highlights the big hang up within the hotel sector. Weekday Group remains pinned at the lows and has barely improved since last year, but even weekday Transient trends are still down by a massive margin when compared to total RevPAR or compared to weekend Transient.
Though not shown below, when we parse the daily data out a bit more, we found that weekday transient excluding Thursdays is tracking down ~40% (vs 2019) through May which we think gives us a better sense for how true corporate travel is trending – Thursdays likely benefiting most from incremental leisure (long weekend) demand, whereas the other weekdays are not. No surprise, weekend transient (pure leisure demand) is explosive and continues to accelerate in recent weeks, but without the business customer the hotel industry will remain in a world of pain. Of course, that customer isn’t going anywhere anytime soon, but the contribution from leisure will lessen post-August.
Over the intermediate and longer term, we still would rather be LONG proxies of the right-hand chart (OTAs like Expedia (EXPE)), and SHORT the left-hand chart. That said, we do recognize the timing risk of being outright SHORT the REITs given the broader momentum of RevPAR growth that is ongoing.
BYD
The LV Locals continues to look like one of the strongest markets in the country in terms of near and long term growth. In this installment of our macro checkup we’re looking at a very relevant, but sometimes not so often discussed macro data series for the Las Vegas Local economy.
Home prices and equity build (touched on more frequently) are some of the stronger leading indicators for consumer confidence and consumption power for LV Locals gamblers, but another input that matters significantly to future GGR growth is population growth.
Population data series generally come out on a lag, but handy proxies like driver’s license surrenders offer a glimpse at where trends could be headed. Last October, thanks to very strong pent-up demand, the surrenders metric hit an all-time monthly high, but then faded a bit in the ensuring months through February.
Since then, however, surrenders have re-inflected and are now tracking up 2-4% vs 2019 levels through May which is impressive and portends well for the coming months and years of macro momentum. RRR and Boyd Gaming (BYD) retain the most exposure to the market, and we remain positively biased on both stocks, but continue to prefer BYD as a Best Idea given the additional upside we see left in the stock.
PENN
For the B&M casino operators, their existing physical locations served as the best way to fill their new customer engagement funnel, but that only goes so far in the digital world. Layering in the online category of sports betting and iGaming came at the perfect time for many casino companies.
The B&M business needed a spark and being able to offer both online and on-premise has been the perfect set up for driving engagement with a much wider base of potential customers.
Penn National (PENN) seized the opportunity and saw Barstool to permanently get ahead in the race for mindshare and loyal audiences in the right demographics. PENN’s reach and breadth of product today vs 3-4yrs ago is almost immeasurable and we can already see it bear fruit.
AMN
Propelled by the four demand cycles laid out in our initial thesis, AMN Healthcare (AMN) has gone up and stayed up. With this backdrop in mind, we would be remiss not to continue to measure and map our trackers and re-evaluate our thesis for drift.
For that reason, we are excited to have Robert Longyear, VP of Digital Health and Innovation at Wanderly and Avenue Health, back for a discussion (available to HC Pro subscribers).
Last week, the ADP released their employment report for May 2021. 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
There are several “articles” out there over the last week talking about GameStop's (GME) business doesn’t support the valuation. The articles talk about it being a dying mall retailer, the tagline we hear over and over that is wrong on many levels.
The biggest error in that thinking is given the complete rebuild of the balance sheet, and complete transformation of the management team, you can’t value GME based on what it was, you have to be focused on what it can be. It is all about the opportunity under the business transformation. The first big step was changing the leadership.
The other steps taken so far have been small. Further store de-densification. A new 700k SQFT fulfillment in York PA to be running by 4Q. New product offerings like PC gaming computers, monitors, game tables and gaming TVs.
There is so much more GME can and will do. We heard recently about the company recruiting to build an NFT business. That doesn’t mean selling 1-off art or collectibles. Rather it could be developing an entire cryptogaming ecosystem.
GME will likely be helping to build the market here and it shows that the opportunity ahead of GME is much more than “mall retailer”. Crypto gaming could be a large value driver, but it is also a small slice of where GME can go to penetrate the large global gaming market.
BLDE
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. Blade (BLDE) 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
This week we got US retail sales for May. Looking at the subcategory results, clothing and clothing accessories stores saw the best underlying trends, with sales growth vs 2019 accelerative over 350bps from April.
So even as stimulus support has moderated, sales in this segment of retail are accelerating. We have more runway for outperformance in clothing on further reopening, there’s likely pent up demand for a full back to school season in the coming months, and we have the child tax credit payments hitting consumer wallets starting mid July.
The category tailwinds for Children's Place (PLCE) remain strong and we expect sales and margins to drive earnings well ahead of expectations in 2021.
ATIP
The business combination vote for Fortress Value Acquisition Corp. II (FAII) and its target company, ATI Physical Therapy (new ticker: ATIP), occurred earlier this week with no lack of excitement. Originally set to appear on Hedgeye TV the following day, ATIP's team requested to reschedule the appearance.
As a result, we sent out a cancellation notice, which seemed to add to the day's volatility. Despite many emails/calls regarding speculation for canceling, we were/are not concerned. We remained in contact with the company, have already rescheduled, and were offered more access.
Furthermore, the trend in physical therapy medical claims and hiring at US Physical Therapy (USPH), ATIP's closest public competitor, are both trending positive QTD in 2Q21.
We see other positive indicators with charts for medical claims for 'Joint Pain' and hiring trends for the Medical Device Industry, two big drivers of physical therapy clinic volume. If someone knew something, our guess is that it was probably positive. ATIP is a company with a forecast that is too low in a market that is accelerating. If they are under stress, then it is likely to the upside.
We are looking forward to the call in early July which we expect to focus on the drivers of our positive outlook for the ATIP 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 ATIP on our Hedgeye Health Care Position Monitor.
PLBY
On June 14th Playboy (PLBY) completed its offering of 4.7mm shares, which raised was priced at $46 and raised $203mm for the company. It’s our strong view that the company has already targeted an M&A deal for which the funds will be used.
We wouldn’t be surprised to see a deal announced in the coming weeks. Our bet is that it will be a deal in the ‘sexual wellness’ category, which is massively fragmented and has no clear category leader in either product, brand or distribution (but has the Playboy Bunny waiting in the wings to dominate).
PLBY already has the Yandy and Lovers acquisitions under its belt, so we’ll be interested to see where it goes next. We’d be surprised to see the deal be in the Style and Apparel category, given that this is largely a licensing business (with an upside trajectory to royalty rates as antiquated deals are renegotiated) and as the company builds the capability to produce more of this $2.7bn retail business in-house.
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
It is no secret; the California cannabis market is struggling. Cannabis companies have several issues transitioning from a provisional license to a permanent one. Illicit drug operations are also competing with legal ones causing these legal, licensed businesses to have weaker demand.
But that is not stopping companies from entering the California market. Boris Jordan, the CEO of Curaleaf, said it best: "If we stopped operating in California, we'd kill our competition on margin. But you can't build a national brand without operating in California" This is what 4Front Ventures (FFNTF) is aiming to do.
To combat these adversities that the California market faces, Governor Gavin Newsom has issued $100 Million to assist these struggling businesses. This stimulus will flow into the revenues of dispensaries and cultivators of CA.
4Front is expected to complete its 170,000 Sq. Ft. facility later this in California and will provide high quality cannabis to several retailers. This recent stimulus and crackdown of illicit operations will only strengthen the largest legal cannabis market in the world and provide stronger revenue streams for Californian operators.
4Front has experience manufacturing in the very mature state of Washington. This expertise will increase the efficiency of the operations in California. 4Front also has cultivation and retail locations in attractive limited license states in the east coast which continue to have strong demand.
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.
CMG
Hedgeye CEO Keith McCullough added Chipotle (CMG) to the short side of Investing Ideas this week. Below is a brief note.
Howard Penney is bullish on his Cannabis names and bearish on Chipotle (CMG) which is at the top-end of its Risk Range™ Signal today on an Old Wall "upgrade"...
Here's a good summary clip of content from his Consumables Pro product on how to be position on the other side of our Long Commodity Inflation view:
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CMG/QSR inflation CMG will be raising prices by 4% to offset labor inflation. Bloomberg reported on an internal Restaurant Brands memo that said the company "can see significant inflation across all regions on protein and oils" compared with historical five-year averages. Price inflation across the protein market complex has far exceeded even our most bullish forecasts." Mayonnaise is among the ingredients rising in price due to higher costs for soybean oil. Restaurant Brands employs hedges to help avoid market fluctuations but noted that the availability of processed oil is becoming a "big risk." It replenished its mayonnaise at a higher hedge price to ensure supply for about five months. |
