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Long: EXPE, BYD, AMN, POAHY, IHRT, GME, BLDE, PLCE, ATIP, PLBY, PENN, PSA, FWONK, BFLY Short: PLUG, CCK |
Below are updates on our sixteen current high-conviction long and short ideas. We have removed 4Front Ventures (FFNTF) from the long side and Chipotle (CMG) from the short side from Investing Ideas. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
EXPE
Leisure travel is exploding here in the US and while that favors Expedia (EXPE), the Europe is on the come so BKNG can play catch up. Frankly, the investment community is just not bullish enough. But what about the Quad 3 impact on GLL? Well, the OTA sector actually back tests the best among our coverage in Quad 3 owing in part to their “organic growth” and “high quality” business models.
The OTAs have been stealing share which will likely be compounded by hotels leaning into the OTAs to fill lost business travel room nights. At the company level, there are drivers as well. EXPE should benefit from cost cutting, marketing realignment, leveraging core brands, and the explosive growth in alternative accommodation (AA via Vrbo).
These companies should be in growth mode for a long time and without extensive capital needs, will be big time cash generators. Bottoms up = Macro (Quad 2 or Quad 3) for the OTAs. #Balance
BYD | PENN
Yesterday afternoon much of the final revenue tally for June/Q2 was released for regional gaming, and with just PA and CO left to report, our tracker suggests June may have actually accelerated from the strong May. We find the June numbers impressive on the bottom line alone but given the unfavorable calendar dynamics vs 2019 (1 less Saturday and 1 less Sunday), they’re even more impressive. Looking ahead (see 2nd blurb below), July’s calendar is very favorable with an extra Friday and Saturday.
In the chart below, the blue bar below represents the growth in SS casino GGR for the states that have reported to-date relative to their SS performance back in June 2019, and now includes the big gaming states of LA and MS. PA and CO combined are decent sized weights in the SS revenue sample, so we expect the blue bar to moderate lower a touch, but when states like LA and MS are putting up +15% and +35% growth vs 2019, it’s hard for us not to be bullish on the industry GGR prospects as more states experience an unrestricted casino experience much like the South has for months. Yesterday we mentioned that April GGR growth might wind up being the peak and growth is set to slow, and we stand by that claim (which we have always acknowledged), but perhaps the magnitude of deceleration won’t be as bad as feared? June data would suggest that, at least.
The bears and a potential Quad3 macro environment might be in control of the narrative for now, but proof of sustainability month after month could quickly turn things around for these stocks. The regional gaming business models have undergone a sea change both on the top and bottom line which should lead to continued earnings beats in our estimation. We think the stocks work coming out of Q2 earnings/calls and remain bullish on much of the regional gaming group and feature Penn National Gaming (PENN) and Boyd Gaming (BYD) on our Best Ideas list.
Note, our sample was slightly adjusted to more accurately account for Hard Rock opening their new property and taking over the Majestic Star licenses in Gary, Indiana. We have subsequently removed the performance of Hard Rock and Majestic Star properties from prior year to better gauge true SS trends.
AMN
On our 3Q21 Health Care Themes Call (available to HC Pro Subscribers) earlier this week, we went through a number of key themes, as well as all 17 tickers currently listed on our position monitor.
Of these names, AMN Healthcare (AMN) has had one of the best runs regardless of style or size propelled by four demand cycles we identified last year. Despite the success of our call, we see no reason to move the name down prior to their August 5, 2021, 2Q Earnings Release.
As we have discussed before labor within health care remains tight, therefore pushing wage inflation higher throughout all aspects of care. What we can see from our own trackers is that while demand for COVID ICU nurses is fading, there remains ample room on the OR (operating room) side to recover. Additionally, we can already see that in the JOLTS data and believe AMN will likely see upside on either wages or FTE’s.
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 and anyone on the ask side of Health Care Labor.
POAHY
Shares of VW have held up perhaps because it is positioned to be the top global EV producer in 2021. Still, Porsche Automobil Holding SE (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) 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 it was announced that NFLX looks to be building a team for video game streaming. The typical take is that this is bearish for GameStop (GME), less need for physical gaming items.
We’d start with noting streaming gaming is not new, Amazon/Fire TV has had an offering in gaming for a long time. And while new avenues of gaming like mobile and streaming have previously been considered a big risk for the historical core of console or PC gaming, in reality these evolutions/innovation have simply been additive attracting new gamers and increasing spend per gamer.
The other consideration, is the gaming industry is evolving at the same time GME’s model is evolving. We think a streaming or gaming subscription service is very much something the Cohen GME team is considering for its future product/subscription offering. We may very well see that this NFLX move is once again a way of expanding the gaming industry, rising all boats much like video streaming or music streaming has created many big businesses around them.
This is a risk for GME if it can’t evolve and capitalize on new gaming market opportunities, but the new team is aware of where the future of gaming is growing and that’s the exact reason the team and model is being transformed.
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.
A couple of industry aviation companies are noting a steady increase in business private aviation traffic since the end of April. Blade (BLDE) has recently resumed flying out of the city to NYC area airports. BLDE will continue to benefit from private aviation traffic.
PLCE
Recently a few market research and consulting firms have come out with bullish reports and projections for the upcoming back to school season, and it seems like retailers are paying attention.
JC Penney unveiled a new private-label kids retail brand called Thereabouts which adaptive features for kids with disabilities while Walmart recently announced that they are now offering clothes from the recently resuscitated Justice brand across their retail channels. We have also seen Walmart start offering The Children's Place (PLCE) online.
We see the upswing in announcements in the children’s apparel space as very bullish for PLCE and we think that the confluence of the child tax credit along with a larger than usual back-to-school season due to more schools being in person will create a huge spending tailwind for this sector and despite the competitor investments in the category we think PLCE will see big earnings beats over the coming quarters.
ATIP
Despite the considerable negative price action following a rotation away from small cap stocks entering Macro Quad 3, we chose to bring ATI Physical Therapy (ATIP) to The Pitch earlier this week. While the factor exposure has certainly been a considerable headwind for this former SPAC, we have found ourselves more convinced of our thesis with more work that we do on the name.
During the week, the 2022 Physician Fee Schedule was released, prompting an announcement from a number of their competitors. Despite the schedule continuing with proposed cuts to Physical Therapist Assistants, we see ATIP’s model as having enough upside to hurdle the impact relative to their forecasts.
Recent updates show PT volume is strengthening in recent weeks alongside comments from the field. Based off these incremental updates, ATIP remains a top pick given their business model’s leverage to the re-opening and value- based contracting exposure, as well as the long-term opportunity for physical therapy consolidation. We remain long ATIP on our Hedgeye Health Care Position Monitor.
PLBY
A tough week for Playboy (PLBY), there are likely some market dynamics of a move out of Macro Quad2 dragging on this high beta small cap stock.
However we think the fundamental call has actually strengthened post the announcement of the Honey Birdette acquisition. That deal, which is expected to close by late 3Q, will be highly accretive and drive material upward revisions of consensus revenue and EBITDA estimates.
Also, last week the company announced a second NFT art drop this time on SuperRare called The Miami Beach Collection which includes some artist collaborations, as well as and NFT of an official Playboy Archive photo that comes with a limited edition, framed print. We think these NFT art events are brand enhancing, create buzz around Playboy’s resurgence, and kick in some extra high margin revenue at the same time.
Additionally, PLBY announced partnership for a mobile Rummy game in India. PLBY has very directly called out India as an important international growth market for the company and has already signed a JV to bring PLBY branded apparel to the market, but now is expanding its I-Gaming footprint in the country. There is simply a huge and long-lasting runway for growth in monetization of the Playboy brand.
PSA
Public Storage (PSA) will report 2Q21 earnings in three weeks after the close on Tuesday, August 3rd. At that time we expect an update to FY21 guidance following the company’s first ever guidance provided along with 1Q21 results, with the company most likely narrowing the ranges on SSRev (+4-5.5%) and SSNOI (+4.8-7.3%) and moving the midpoints up.
In the end we expect SSNOI to wind up near or above the +7.3% high-end for the year, and it is possible that SSRevs are raised outright given the recent strong pricing across the self-storage industry. If this were to happen it would be a catalyst for further upside as expectations reset higher, it becomes clear that SSNOI growth could continue to accelerate into FY22 and the stock narrows a discount to best-in-class peer EXR.
While we don’t publish official price targets, we saw a justified value approaching the mid-$300/share level when we added as a Best Idea Long in April, with several catalysts remaining to propel shares in that direction.
FWONK
Liberty Media Formula One (FWONK) is one of the most popular premium sports globally and is considered the pinnacle in motorsport. We believe there is more grease on the wheels. Liberty can maximize its efforts to increase interest in the sport (especially in the U.S.), continue to go after underpenetrated markets, and use its SVOD service to capitalize on its content more efficiently. Since we presented our Black Book in May 2021, we are tracking well against our key thesis points:
- New Race Formats Support Broadcast and Promotion Revenue: We anticipated the new sprint qualifying would attract advertisers and the potential for a title sponsor, along with increased fan engagement. Last week, F1 announced that Crypto.com had become the official title sponsor for their sprint qualifying format race. The deal with Crypto.com is estimated to be worth ~$100M over a five-year period, which represents ~30% of F1’s 2019 Sponsorship and Advertising revenue of $309M, or an incremental 7% lift assuming ~$20M revenue recognized per year.
- Sponsorship and Advertising Rebounding Post-COVID: We initially flagged how impressive it was for F1 to attract title sponsors for 18 of the 23 races in this year's calendar due to COVID restrictions (reminder Monaco doesn't get a title sponsor). Since our presentation, there have been two new title sponsors, increasing the number of races with sponsors to 20 and Sprint Qualifying now getting a title sponsor with Crypto.com. On 6/16, BWT, a water treatment supplier, became the title sponsor for both races in the Austrian GP doubleheader. As a part of the agreement, BWT received both the naming of the G.P. and trackside advertising.
- U.S. Momentum Building w/Miami on the Circuit 2022: Our main way to track U.S. momentum for the sport has been the U.S. viewership data for each G.P., which has surprised meaningfully to the upside. So far, the average U.S. viewership of the current F1 season is up over 50% compared to last season, with multiple races reaching over 900k viewers (metrics typically reserved for the most premier races of the season, such as Monaco). Below is a snapshot of our U.S. viewership tracker we have been publishing weekly.
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.
In Hedgeye CEO, Keith McCullough’s RTA Signal yesterday, he stated that “This was obviously a name that got swallowed up in the #Quad3 Small Cap Factor Exposure storm we saw in the hedge fund community in the last week into options expiration” and placed a BUY on the stock given “the Russell (IWM) approaching the low-end of the Risk Range and, more importantly, Russell Volatility failing to breakout.”
Recently, another sell-side shop has placed a buy rating with a $20 price target on the name, but the multiple remains untethered for the time being. 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.
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.
