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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 will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
EXPE
OTAs seem to be taking a breather at these fully recovered levels, but as the industry heads into peak leisure season we’d suspect the contribution to RevPAR remains elevated and goes higher.
But either way, even if the US sees some slow down, the implications are very bullish as other parts of the world are just starting to kick into gear, and AA is off the charts; thus, operating trends for Expedia (EXPE) should be looking much stronger than consensus and what the stocks are currently implying.
EXPE remains a Best Idea at Hedgeye and we see significant upside born out of accelerating operating trends in the near term, cyclical and secular forces driving normalized growth higher, and robust cash conversion that should come right back to shareholders – we’d be buying on any additional weakness.
BYD | PENN
With our preference for regional gaming stocks (Penn National Gaming (PENN) and Boyd Gaming (BYD)), we’ll be commenting on most of the GGR data releases in the coming week, regardless of how the data trends, and so far Q2 looks like it ended on a very strong note.
The next week or so should be busy with regional gaming revenue reports and if other states are anything like MD and OH, Q2 will go out with a bang. The stocks are ignoring these robust figures right now and we suspect that’s due to fears over revenue sustainability and meaningful decelerating growth. To be clear, we’re not modeling GGR acceleration from the current low double-digit growth range but we believe there are multiple factors in place that should support much stronger growth than is currently implied by consensus estimates and the stocks.
The regional gaming stocks look oversold to us and as investors gain confidence in the sustainability of GGR trends (and margins), the stocks could re-rate higher in a hurry. We like BYD and PENN on the long side.
AMN
Following another article on regional nurse strikes, we are expecting the level of conflict between labor and management in the Health Care Industry is heading higher. The level of sustained demand and shortage of available supply make for an unfavorable situation for anyone on the bid side.
The decision to pay a premium for the next hire extends to the entire staff. The decision not to hire means share loss, lower service levels, unhappy staff. All to say positive for AMN Healthcare (AMN) and anyone on the ask side of Health Care Labor.
POAHY
Porsche Automobil Holding SE (POAHY) is a family controlled holding company that has voting control of VW and holds ~157 million shares (~31%), and little in the way of relevant other assets or on balance sheet liabilities.
Those shares are worth about Euro 25 billion vs. Porsche’s cap of about Euro 17 billion, a sizeable discount despite the same functional control position (or better, since Porsche SE holders are in the same position as the Piëch/Porsche).
The Porsche car brand is owned and operated by VW. The Porsche SE holding company just holds controlling shares of VW, although it somehow feels more confusing. The gap need not close, but it is a discounted way to buy shares of VW, which already appear to trade for about half what they should.
IHRT
iHeartMedia (IHRT) announced they will voluntarily prepay about $250M or about 10% of its combined $2.5B in term loan debt with cash on hand while simultaneously repricing their term loan with a close set for the middle of July.
As a reminder, IHRT is highly levered at 6x Net Debt / EBITDA assuming they get back to $1B annual EBITDA. But they are also FCF positive for 2 out of the last 3 quarters, and on a track to get back to the $400M or so in FCF per year they were generating pre-pandemic. The move to voluntarily prepay is a signal of confidence management has in the business and could be a sign of more prepayments to come.
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) announced an expansion of its North America fulfillment network with a new 530k SQFT facility in Reno, Nevada. The facility will help increase delivery speed and product availability for the west coast market.
It’s expected to be operational in 2022. One of the key pillars of the new business transformation is improving the online shopping experience for the Gamestop customer.
That’s the ecommerce 101 that Ryan Cohen brings from Chewy. You need to have the product customers want and the ability to get it to them fast and at a competitive price.
GME has now lined up two new facilities to help execute this with the Reno and Pennsylvania fulfillment centers. The business transformation continues on with much more to come.
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.
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. 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. BLDE will continue to benefit from private aviation traffic.
PLCE
Our channel checks suggest that The Children's Place (PLCE) is continuing its momentum and having a very strong second quarter. It will be important to keep an eye on inventory flows as we head into the back to school season. We have seen some reports regarding Carter’s having trouble keeping clothing for kids in stock (~2yo and up). There does not appear to be an issue currently PLCE’s inventory levels so it is likely in good position to capture some share at very strong margins in Q2 given high levels of full price sell through. We have rising confidence that we will see material upside to EPS over the coming quarters that will be a catalyst to take the stock higher.
ATIP
The merger vote for FAII occurred last month 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.
Additional fallout from the de-SPAC includes lots of activity around the redemption, trading volume, etc. We've been doing a lot of work around digital health and think there's an underappreciated digital health/direct contracting angle.
Things are changing in the US Medical Economy and ATIP is well-positioned (e.g., for providers participating in value-based, at-risk programs as therapists do more - i.e., operate at the top of their licenses).
We hosted a great call with management earlier this week (open to HC Pro Subscribers) which centered 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
When it comes to brands and logos only a handful truly have universal and global recognition, but one brand name that absolutely deserves to be in that category is Playboy (PLBY). The company has an upcoming JV in India, a huge presence in China and is known throughout the West.
In fact, Playboy is the 17th most licensed brand in the world, sitting between the NFL and the NBA. Think about how much marketing a company would have to spend to get to that point of awareness, and then think about the fact that Playboy does not have to spend that money to get recognition because they are already there.
A reasonable comparison we thought of was Under Armour, who has spent $4.5bn in demand creation over the past 15 years (chart below) to be a global brand, yet still has awareness short of Playboy.
PLBY’s globally recognized presence allows it to expand and execute in any market in a strong but cost-effective way which ultimately helps margins and future EPS.
PSA
Public Storage (PSA) remains the cheapest self-storage name relative to forward growth. There is also the ongoing materialization of several catalysts. These include...
- Initiation of first-ever company guidance for FY21 which blew away expectations to the upside
- Accelerating external growth in the form of a $1.8 billion acquisition
- Financing of that acquisition 100% with unsecured debt
- Ongoing rationalization of the cap structure vis-a-vis a huge slug of preferred stock and
- Presence of a shareholder activist
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.
FFNTF
Having lived through very challenging times (massive decline in wholesale prices), management has developed a low-cost efficient production discipline in their home state of Washington.
The Company's BoD appointed Leo Gontmakher, previously Chief Operating Officer, to CEO in March 2020. Mr. Gontmakher co-founded Northwest Cannabis Solutions, which under his leadership grew to be one of the largest and most successful producers of cannabis products in Washington State. He served as Chief Operating Officer at Cannex, which merged with 4Front in July 2019.
He has significant experience in cannabis facility design, construction management, equipment sourcing, operations, branding, sales and marketing strategy, and software solutions.
From this expertise, 4Front Ventures (FFNTF) is developing low-cost manufacturing facilities in California and Illinois. They are also continuously improving their existing cultivation plants in Massachusetts and Washington.
FWONK
Liberty Media Formula One (FWONK) is one of the most popular premium sports globally and is considered the pinnacle in motorsport. Ten teams and 20 drivers fight to claim the most prestigious motorsport accolade, an F1 World Championship. F1 has a large and growing worldwide audience that is under-monetized; in 2020, F1 averaged 87.4m viewers per race and had a global cumulative audience of 1.5B. The 2020 season consisted of 17 races in 12 countries (COVID impact), and this year's season will consist of 23 races in 20 different countries spanning five contents.
F1 is governed by a document called the "Concorde Agreement" that sets in place the number of races allowed, car and safety regulations, and the amount each team can spend. F1, the teams, and the Sport's safety regulator, FIA, must all agree to the terms for the document to be official and for the Sport to continue. F1 generates revenue from three primary sources 1) race promotion 30% of ’19 revenue - fees paid to F1 to host, 2) broadcast rights (38%), and 3) sponsorship and advertising (15%).
F1 as a business, is still early in its turnaround after Liberty Media acquired the asset from private equity group CVC Capital and Bernie Ecclestone in 2016. The previous management's lack of long-term focus left F1 with poorly constructed race agreements and 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 improves the economics and long-term viability of the sport. 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).
BFLY
Following our call with management, we were excited to present our Butterfly Network (BFLY) Black Book. 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.
Without consensus numbers to play against, the multiple will be untethered for the time being, but we believe there is a logical path to $26/share by executing on their improved business model following an inflection point for the company.
PLUG
The accumulated deficit line is just a smidge under a cumulative $2 billion loss. Plug Power (PLUG) may escape with class action settlements for – and we’re guessing here - $500 million a couple of years out. The projects with SK and Renault are far off; we suspect SK may regret the PLUG investment post restatement.
Not much is happening for PLUG in 2021. The company has sold more stock than any other product…exit while prices last because supplies aren’t particularly limited, and the purpose seems distressingly clear.
CMG
Chipotle (CMG) is using TikTok Resumes to expand its workforce with purpose-driven Gen-Z applicants. Marissa Andrada, Chief Diversity, Inclusion, and People Officer said, "Given the current hiring climate and our strong growth trajectory, it's essential to find new platforms to engage in meaningful career conversations with Gen-Z directly. TikTok has been ingrained into Chipotle's DNA for some time, and now we're evolving our presence to help bring in top talent to our restaurants."
Chipotle also plans to organize its second "Coast To Coast Career Day" soon to hire an additional 15,000 employees to meet current demand and future growth. The company has recruited over 82,000 crew members and had over 4,200 promotions among its restaurant staff since the start of 2021 but is 20,000 short of being staffed appropriately.
Chipotle has had to raise wages and deploy new recruitment strategies in order to staff its stores in the current tight labor market. The company will likely have to do more of both to deal with the shortages.
CCK
Assuming a constant EV/can – which is currently inflated by this ESG/penetration narrative – volume gains would only add 23% to Crown Holdings' (CCK) EV.
We view the can makers as materials conversion companies that are less structurally robust than many investors believe, supplying large packaged beverage companies with a commoditized product.
Selling Euro Food Cans because Bev Cans are highly valued right now seems like the opposite of the right move. We expect perhaps 30% relative downside in shares of CCK and BLL as investors see poor volume evolution in 2021 amid enthusiastic capacity investments.
