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Long: EXPE, BYD, AMN, POAHY, IHRT, PLCE, ATIP, PLBY, PENN, PSA, FWONK, BFLY Short: PLUG, CCK |
Below are updates on our fourteen current high-conviction long and short ideas. We have removed GameStop (GME) and Blade (BLDE) from the long side of Investing Ideas. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
EXPE
Mix shift within hotel distribution channels hasn’t been a widely discussed topic in the recovery to date, but the performance of more standard Hotel channels (GDS, Group, Voice) vs OTAs suggests that it should be more of a topic in the coming months. Regarding distribution mix, the data seems straightforward that as traditional demand channels fail to make up their normal share of hotel demand, and OTAs and Brand.com (mostly leisure) are picking up the slack.
Property direct (walk ins) are still doing some heavier lifting as well, but the OTAs appear to have gained and held close to ~400-450bps of incremental channel share thus far in the recovery (green line below), at least that’s Kalibri Labs read on the US market. Ultimately, we think the share could tick even higher or at bare minimum believe the share gains will prove to be very sticky.
The pie chart below expresses the normal distribution make up and the line chart expresses the recovery to date trends by channel – OTAs have gone from ~16% share to 20%+ share over the last year, while Brand.com’s share is up +300-350bps vs pre-Covid. The OTAs have outperformed more traditional travel peers during this recent multi-week sell off, but they’re still way off the highs and present tremendous values from here.
We like Expedia (EXPE) and BKNG heading into earnings as they should be able to drive both hotel and alternative accommodation demand through their platforms, which should be a nice benefit as we look into ’21 and ’22.
BYD | PENN
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.
AMN
On our 3Q21 Health Care Themes Call (July 15th, Notes & Replay available to HC Pro Subscribers), we ran through several 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. We see no reason to move the name down prior to 2Q earnings (August 5, 2021, after the close).
The labor market within health care remains tight, therefore pushing wage inflation higher throughout all aspects if care. What we can see from our own trackers is that demand for COVID ICU nurses is fading, but localized/regional outbreaks create “spot” issues, and there remains ample room on the OR (operating room) side to recover. Additionally, JOLTS and other wage data suggest that AMN will likely continue to see upside on either wages or FTE’s.
Last for now, there’s been no shortage of strike news of late, with USC, McLaren Macomb, and PA nursing home workers topping the list this past week alone. Labor is the number one cost driver for hospitals and health systems, and that’s not going to change any time soon. The level of sustained demand and shortages of available supply across specialties make for an unfavorable situation for anyone on the bid side, and a favorable situation for anyone with supply and the knowhow to manage staff, such as AMN.
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) is scheduled to report 2Q21 earnings on 8/5/2021. We expect another strong quarter, with upside to broadcast and digital revenue. As a reminder, 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%). Looking ahead to the second quarter, we believe broadcast revenue could reclaim its pre-pandemic run rate given strong economic growth in Q2.
If we are right, this would be a positive surprise, with revenue growth coming in closer to 75%. Our only hesitation is that IHRT doesn’t meet the style factors for Quad 3. IHRT is small cap value and has a lot of cyclical exposure. Therefore, we are going to keep this one on a short leash and will evaluate post-earnings.
PLCE
Starting on July 15th the Child Tax Credit as part of the American Rescue Plan went into effect. The plan increased the Child Tax Credit from $2,000 to $3,000 per child over the age of six and from $2,000 to $3,600 for children under the age of six.
While direct stimulus checks are no longer being distributed, this form of government assistance plays right into the hands of The Children's Place (PLCE). As we enter back-to-school season PLCE can capitalize on what will perhaps be one of the biggest back-to-school seasons ever with a consumer that has more money to spend on their children’s clothing.
ATIP
ATI Physical Therapy (ATIP) shares seem to be showing a little life ahead of earnings (as of mid-day Friday, the stock is up ~7% to $8.60). The stock has been under pressure since the de-SPAC, and we’ll find out how 2Q21 went on Monday morning, July 26th, before the market opens (call scheduled for 8:00 AM ET). As a reminder, Tom presented ATIP on The Pitch on July 14th, and while the small cap factor exposure has likely been a considerable headwind, we have found ourselves more convinced of our thesis with more work that we do on the name and the #reopening.
We continue to view ATIP as having a favorable risk-reward under ~$10, which is where we added it to our Best Ideas list prior to the de-SPAC, and recent updates to our Google Trends and other claims data have shown PT volume strengthening in recent weeks. When we combine the data with the potential we see in ATIP Frist, its value-based direct-to-employer offering, and positive comments from the field and management teams this past week on surgical trends during 2Q earnings calls (JNJ, ABT, ISRG, HCA), it all adds up to ATIP remaining our top pick on the long side of the Position Monitor.
The business model is levered to the re-opening and direction health care is heading (value- based contracting), and there’s an added “kicker” in that M&A is not baked into expectations.
PLBY
Some large Playboy (PLBY) blocks were sold during the week. Unfortunately, there could be lots of chop in the near term around trading dynamics, but this call is not a near term story. We think PLBY is a huge TAIL opportunity which will be a $10bn company in 3-5 years.
The company reports 2Q results on August 10th, and we think the quarter will be good, though the catalyst that will really start ramping the fundamentals will likely be the closing of the Honey Birdette acquisition in 3Q.
Also this week, Victoria’s Secret had an analyst day highlighting some changes in the brand positioning to appeal a wide audience. That in part includes a shift away form the core “sexy” and narrow body type it once had within the brand identity.
We think this is actually opening up a market opportunity for Honey Birdette in the US to penetrate the consumer segment looking for the premium sexy image that was the historical core of the VS 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
British GP: The British Grand Prix saw the first-ever Sprint Qualifying, a 17 lap race to decide the starting grid for the race on Sunday. Red Bull’s Max Verstappen claimed pole position, with Mercedes’s Lewis Hamilton and Valtteri Bottas taking second and third. The opening lap saw Hamilton and Verstappen fighting tooth and nail to first place until contact between the two resulted in Verstappen crashing into a tire barrier and a red flag to stop the race. Verstappen ended up taking a 51G hit into the tire barrier and was taken to a local hospital as a precaution but was cleared to go home. Post-race restart Hamilton had a ten-second penalty, which he served in a pit stop, resulting in Ferrari’s Charles Leclerc leading the race. Hamilton was in rare form, making up the time deficit to ultimately pass Leclerc on the second to last lap to take home the victory at his home GP.
US viewers for the British GP came in at 1.02m (up 62% YoY), making it the second most-viewed race of the season behind the French GP, which had 1.05m viewers. The average viewership for the season now stands at 924.5k or up 61% YoY. We remain long Liberty Media Formula One (FWONK).
BFLY
Butterfly Network (BFLY) continues to push its handheld ultrasound into both human and veterinary health care end markets. 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, as well as positive feedback on the use case in animal hospitals.
The Butterfly iQ’s attractive pricing relative to the 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 are all factors we’ve considered in our salesforce-driven model.
Recently, the company has added to its management team (David Ramsey, CIO, and Dr. Andrei Stoica, CTO), and we saw another sell-side shop place a buy rating with a $20 price target on the name at the end of June.
The multiple remains untethered for the time being, and small cap factor exposure is a risk to manage, but we continue to believe there is a logical path to $26/share by executing on an improved business model. 2Q21 earnings will be reported on August 9, before the market opens (8:30 AM ET).
PLUG
As we see it, Plug Power's (PLUG) largest business is issuing shares of its own stock. The sales pitch has shifted to a ‘hydrogen future’ because the current business – unprofitably selling fuel cell driven forklifts/materials handling equipment that can operate indoors – is being disrupted by lithium ion battery options.
PLUG issued warrants for over 100 million shares to incentivize its two largest customers to take materials handling products; the value of the warrants now exceeds the value of all sales. Were those real ‘sales’ if PLUG aggressively incentivized customers to take the product?
Further, PLUG had a sizeable restatement just seven weeks after completing a $2 billion secondary offering…not a classy move in capital markets. The company faces resulting class action suits.
Importantly, PLUG’s PEM fuel cell offerings fall well short of the efficiencies offered by top shelf competitors and typically come with loss making (gray) hydrogen supply contracts, so the 2024 outlook gives us a used car salesman vibe after decades of operating losses funded by equity sales.
CCK
With pass through cost fluffing up the revenue line and new line launches benefiting can volume, Crown Holdings is reporting substantial volume increases.
The company is claiming 20% volume growth on a 5% down compare, but we haven’t able to make those numbers pencil out when adding in substantially higher pass through aluminum & other costs and currency.
We assume there will be additional clarification on the call (we’re writing before that) but “aluminum beverage can” management teams have evolved to be vastly more promotional. Margins have come in a bit, but part of that is higher pass through costs that naturally depress incrementals as costs increase. Still, that’s a problem with incrementals in a materials conversion business. investments.
