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Long: EXPE, BYD, AMN, POAHY, IHRT, GME, BLDE, PLCE, ATIP, PLBY, PENN, PSA, FFNTF, FWONK, BFLY Short: PLUG, CMG, CCK |
Below are updates on our eighteen current high-conviction long and short ideas. We have added Butterfly Network (BFLY) to the long side of Investing Ideas and Crown Holdings (CCK) to the short side. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
EXPE
The 2nd derivative explosion in European travel bookings have been a sight to see lately and we have highlighted those trends over the last few weeks. In that same vein we shouldn’t overlook what’s going on here in the US. The EU recovery story is definitely a catalyst for both Expedia (EXPE) and BKNG but more so for BKNG, but the growth vs 2019 that we’re seeing in US leisure has to have positive implications, too.
BKNG is making a push here in the US and should benefit from these robust trends but EXPE is the dominant OTA in the US so this US leisure story is really theirs for the taking, and we think their doing big business on the accommodation side (where we have our best visibility).
The below chart is an update from our June OTA deck, and captures key hotel demand segments and their growth performance through last week (concurrent and bullish) – note that US Resort and Weekend RevPAR is now trending up low double digits and mid-single digits vs 2019. On the forward-looking side, the pace of new app downloads continues to show growth vs 2019 as well.
We repeat – this leisure and OTA story has legs, long legs. EXPE remains a Best Idea Long.
BYD & penn
Buying everything “recovery” is probably now a stale thesis and regional gaming stocks seem to have been lumped in that basket. Indeed, regional gaming stocks have been under pressure in recent weeks but these companies are not on a multi-year path just to get back to 2019 levels of EBITDA like many others in our universe.
Rather, regional gaming companies are in growth mode vs 2019 already, with sustainable trends to further EBITDA growth. Our conviction in the near and long term continues to build and we’re finding more reasons why now could be an opportune time to own a few of these stocks.
We’ve been clear and consistent in our belief that regional gamers are poised to handily best Q2, 2021, and 2022 estimates. Maybe some of that is in the stocks as the buy side’s expectations > sell side, but not nearly as high ours. Incrementally, we believe the cash flow stories are not well understood or appreciated by the investment community, and that will be a focus of our presentation.
Sentiment towards online sports betting (OSB) and iGaming (iG) had been the driver of stock price weakness for some in early Q2, but now sentiment appears to be souring on the sustainability of the strength B&M business.
We’ll counter the skepticism with data and analysis that supports our thesis of the sustainability of top line growth and higher than consensus margins. PENN and BYD have been our go-to horses, and we still see huge upside in those names.
These companies should generate higher than expected cash flow and bring balance sheets to target levels earlier than expected. Cash flow generation will continue to grow and the companies have ample opportunities to augment strong fundamentals with smart uses of that excess cash.
AMN
Propelled by the four demand cycles laid out in our initial thesis, AMN Healthcare (AMN) has gone up and stayed up. With that in mind, AMN still looks good to us. The company itself is hiring into demand, and we can see hourly rates staying "sticky" to the upside (physical offices).
Also, for hospitals, we look at production and non-supervisory and that is up quite a bit y/y and sticking. The hospital system jobs board data we stacked looks good, and even quits (from JOLTS) are suggestive of strength.
Additionally, AMN released their annual AMN Survey: 2021 Temporary Physician Staffing Trends. From the survey, we can see that 27% of respondents reported stopping or reducing the number of assignments they took because of COVID-19. We assume that the wage pressure this causes is likely to abate as COVID-19 continues to wane over the coming months.
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
This week GameStop (GME) completed its second at the market equity offering, it raised $1.126mm selling 5mm shares. One the coming quarter, GME likely will have about $2bn on the balance sheet.
With that kind of capital and still a very powerful equity currency, there are many things this company can do to transform the business and tap into the large global gaming business.
So much about this space will be changing over the next few years and for once we think we’ll see GME on the forefront of gaming innovation rather than being beholden to an old gaming model that made it a good short for 5 years leading into 2020.
Between a new console cycle, a new balance sheet, and new leadership everything has changed and GME now has the opportunity to be a leader in the gaming space.
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
The Children's Place (PLCE) gets the award for the most low-ball 2Q earnings revision for this earnings season. The company absolutely blistered the 1Q consensus by coming in at $3.25, when the Street thought that earning one buck was a pipe dream.
And for some reason the Street is modeling that the company earns a whopping $0.31 in 2Q. Granted, the company normally earns ~25-50% less in 2Q than 1Q, but the Street is being excessive.
Remember that the company will have closed 300 stores in B and C malls and will have 75% of its business in strip malls an online by the end of this year – a significant permanent change. Getting out of money-losing stores is a permanent positive change, and one that puts $10ps in earnings in play.
ATIP
The merger vote for FAII occurred last week with no lack of excitement. Originally set to appear on Hedgeye TV the following day, FAII’s target company, ATI Physical Therapy (ATIP), cancelled the appearance.
As a result, we sent out a cancellation and the stock traded all over the map shortly after. Despite many emails/calls regarding speculation for canceling, we are not concerned. We have connected again with the company and have already rescheduled, as well as been offered more access.
Furthermore, the trend in physical therapy medical claims and hiring at US Physical Therapy (USPH), their closest competitor, are both trending positive QTD in 2Q21. We are seeing 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 knows something, our guess is that it is 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 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 ATIP on our Hedgeye Health Care Position Monitor.
PLBY
We have talked about how Playboy (PLBY) renegotiating its licenses with Chinese vendors from its current criminally low rate of 2% to a normalized 5% will drive top and bottom line growth for them, but on top of that Playboy continues to execute on their initiative of creating products themselves and capturing 100% of the dollar.
On their first earnings call as a public company CEO Ben Kohn said “In 2021 we’re making investments aimed at capturing 100 cents on the dollar by building out our in house design and production teams…”
To that end, Playboy has recently debuted new lines of owned apparel such as Playboy Golf, a Pride collaboration with Bretman Rock (which is currently sold out), and an Independence Day collection to highlight a few.
People cannot get enough of the Bunny and Playboy is taking full advantage of that consumer sentiment and building out its full arsenal of selling tools.
PSA
Public Storage (PSA) recently announced another higher-cost preferred stock redemption, calling to redeem all $325 million of the 4.95% Series D preferred on 7/20. This came on the heels of redeeming the $200 million of 5.125% Series C preferred, issuing $525 million of new 4.0% Series P preferred to fund both redemptions, and raising $1.8 billion of ~2.0% unsecured debt to fund an acquisition.
In doing so, PSA reduced the cost on this $525 million of preferred capital by about ~100bps. Recall that one of the pillars of our long thesis was on-going balance sheet optimization, namely increasing the amount of lower-cost unsecured debt and shifting the balance away from preferred, which by definition translates to a higher value for the enterprise and a higher stock price.
There is still about $1 billion of preferred coming callable through late-2022, so we expect this capital markets activity to continue to play out. As we close out 2Q21, we expect PSA to at least narrow the FY21 guidance ranges (provided for the first time ever earlier this year) and move the midpoints higher when they report given the acceleration in self-storage pricing levels, which would be an additional upside catalyst for the stock.
FFNTF
The majority of 4Front Ventures' (FFNTF) retail assets are in Massachusetts which is having record sales. 4Front has three dispensary locations in the state (4Front also has one location in IL and one in MI). The Massachusetts adult-use market still has room to run.
The annual run rate for adult-use in the state is $1.183 billion, but our projections estimate that a mature adult-use market will be $1.54 Billion. In recent weeks sales have picked up in the state with continuous week-over-week increases in the past month.
These dispensary locations are strategically positioned right outside of Boston and along major highways. With such strong sales, MA will be a strong revenue driver for 4Front which has its own cultivation facilities in the state supporting these dispensaries.
FWONK
A key part of our thesis for Liberty Media Formula (FWONK) is increased interest in the sport in America. We track this in real-time through the viewership numbers released by ESPN, which have been very encouraging this year.
We are 1/4th of the way through this year's season, and already US viewership is up 57% over last year's 17 race season. Additionally, through the first seven races of the season, viewership is 2/3rd's that of last year's season. We have provided our recaps and viewership metrics for the last three races in Monaco, Azerbaijan, and France below.
BFLY
Hedgeye CEO Keith McCullough added Butterfly Network (BFLY) to the long side of Investing Ideas this week. Below is a brief note.
A new idea from Tom Tobin and our Healthcare Research team is Butterfly Network (BFLY).. This a SPAC name that Wall Street hasn’t done the real work on, yet…
It's also corrected toward the low-end of my Risk Range this week on #decelerating volume.
You can get more details on the idea from our Healthcare Pro research product:
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Following our call with management earlier today, we are excited to present our Butterfly Network (BFLY) Black Book in the studio on Thursday, June 17th at 10am ET. Over the last few weeks, we have heard great reviews on the many different use cases for the device from a number of physicians in different specialties, the attractive pricing relative to quality of imaging, prevalence in training in nearly 100 US medical schools, and a recently doubled salesforce focused on growing the enterprise sales side of the business. |
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
The bull case for Chipotle (CMG) is strong unit growth to more than 6,000 restaurants, AUV is above $2.5 million, and restaurant-level margins above 25%.
Driving this growth will be making the brand visible relevant; utilizing a disciplined approach to creativity and food innovation; leveraging digital capabilities to drive productivity and expand access and engagement; the loyalty program; running successful restaurants while delivering an exceptional in-restaurant and digital experiences.
The top trending topics include the quesadilla launch, Chipotlanes, and new beverages. Shares are trading at 61x this year and 46x next year’s EPS estimates and 38x this year and 30x next year’s EBITDA estimates. What happens when the top topics become decelerating comps, comps driven by price and not traffic, and wage inflation?
CCK
Hedgeye CEO Keith McCullough added Crown Holdings (CCK) to the short side of Investing Ideas this week. Below is a brief note.
With the US stock market at all-time #Quad2 highs, I'm taking down some of my Gross Long Exposure (that I took up big time on this day of last week) and tightening my Net Exposure (by adding to my shorts)...
Looking for Bearish @Hedgeye TREND signals that are approaching the top-end of my Risk Range™ Signal, I find Crown Holdings (CCK) by Industrials analyst Jay Van Sciver. I’d be shorting more BLL here too.
Here's a summary excerpt from his excellent Industrials Pro research product:
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Summary Can manufacturers face problematic volume compares and inflationary pressures in coming quarters. With a robust Quad 2 growth backdrop and large stimulus package on its way, we doubt that richly valued ‘aluminum can plays’ will be sought out by the equity market. The ESG story for these names, which has supported lofty valuations, is steadily eroding. |
