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Long: AMN, POAHY, IHRT, PLCE, PLBY, PSA, FWONK, BFLY, ROK, PCAR Short: PLUG, CCK, BBY |
Below are updates on our thirteen current high-conviction long and short ideas. We have removed Boyd Gaming (BYD), Expedia (EXPE), Penn Gaming (PENN), and ATI Physical Therapy (ATIP) from the long side of Investing Ideas and added Rockwell Automation (ROK) and PACCAR (PCAR) to the long side and Best Buy (BBY) to the short side. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
AMN
On our 3Q21 Health Care Themes Call (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 next week.
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
Carter’s reported blowout earnings this week beating both top and bottom line estimates handily as well as increasing guidance for the year on revenue and EPS estimates.
Management noted on the call that third quarter trends have gotten off to a strong start as well and added “We expect to see a very good recovery in our back-to-school sales this year.”
That sentiment might be one of the biggest understatements a company will say during this earnings season. This beat and moreover the trends of the business read directly through to The Children's Place (PLCE) which we expect to absolutely crush it this quarter and then have continued growth with back-to-school and holiday in 2H.
PLBY
One thing we are looking for out of Playboy (PLBY) as the second half of the year rolls around is the launch of its Spirits JV with Angel’s Envy in Asia. The company is planning to make a whiskey through this JV at a time when super premium whiskey is seeing huge growth around the world (chart below).
Is this the thing that gets the stock to $250, no, but it will be an opportunity to show that PLBY can be successful in multiple ventures as the company continues its growth trajectory on the way to broadening this 68-year-ol startup brand meaningfully into new consumer categories.
PSA
Best Idea Long Public Storage (PSA) reports its 2Q21 results after the market closes on Tuesday, 8/3. This past week we had ExtraSpace (EXR) and Cubesmart CUBE), two of PSA’s competitors in self-storage that share many of the same markets, both more than double their expectations for FY21 same-store revenue and NOI growth versus when they last guided three months ago.
We can’t remember another time that REITs have exhibited this degree of positive earnings power acceleration, given that REIT revenue streams are contractual and usually highly predictable.
In the case of storage, however, because the sector “re/price” leases monthly, they are better equipped to maintain pricing power in a tight and/or inflationary environment.
These two earnings reports are VERY positive read-acrosses for PSA, which is starting from a place of low or no expectations and is poised to raise FY21 guidance by a similar degree. We now expect a positive rate-of-change environment on revenue, NOI and earnings growth to continue into 1H22 and expect the stock to to re-rate higher.
FWONK
Looking ahead, we have another round of major broadcast renewals coming up in 2022 – 2024 that should be positive catalysts, including negotiations for U.S. linear broadcast rights currently held by ESPN.
There is also the potential for F1 to sign rights deals with streaming services (e.g., Amazon, ESPN+, Peacock, Paramount+), many of which have been actively bidding on sports rights to drive further engagement and subscriber growth.
As long as the positive momentum we are seeing in the business today continues (we will be tracking it closely), Formula 1 (FWONK) is well-positioned heading into the next round of negotiations.
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.
ROK
Hedgeye CEO Keith McCullough added Rockwell Automation (ROK) to the long side of Investing Ideas this. Below is a brief note.
Looking for LARGE CAP, as a Factor Exposure, and the right SECTOR STYLES (Long Industrials, XLI) for #Quad3? You should be...
And Jay Van Sciver's Best Idea Long in Rockwell Automation (ROK) just corrected towards the low-end of its Risk Range™.
See Jay's Industrials Pro research product for updates on the idea and why he likes the name.
pcar
Hedgeye CEO Keith McCullough added PACCAR (PCAR) to the long side of Investing Ideas this week. Below is a brief note.
Looking for new ideas? #Patience is core to the #process, Jedis...
Just because my teammate (analyst) likes a name doesn't mean I like the time/price he/she pitches it at. Especially with a longer-term, Full Cycle Investing pro like Industrials analyst Jay Van Sciver, I can usually take my time. His process is to “be early.”
In addition to ROK, he's recently added PACCAR (PCAR) to his Industrials Pro Best Ideas list. Here's a summary excerpt on why:
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PCAR looks to us like a straightforward long position in a cyclical recovery… particularly at the ‘on sale’ current share price. A net cash position and reliance special dividends can make PCAR look less interesting at first glance. Concerns on BEV/FCEV seem absurd in a long-term context. We expect shares to outperform by ~50% into 2022. |
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.
CCK
Is the COVID narrative returning? It is possible. That said, the market recovered quite well in 2H20 leading into the seasonal worst of the pandemic. A more likely scenario is that earnings narratives replace COVID narratives in coming weeks, and earnings look likely to be robust. COVID is likely to seasonally ease from the summer peak into September, at least before picking up into the winter.
With pass through cost fluffing up the revenue line and new line launches benefiting can volume, Crown Holdings (CCK) is reporting substantial volume increases.
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.
bby
Hedgeye CEO Keith McCullough added Best Buy (BBY) to the short side of Investing Ideas this week. Below is a brief note.
Looking to sell some names on green as insiders at the company do? Retail analyst Brian McGough has been right on being short Best Buy (BBY)...
Here's a summary excerpt on why from his popular Retail Pro research product:
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This name remains a Best Idea Short, as we think sales slow in 2H and 2022, taking margins down with it – in particular due to lower attachment of warranty rates (which accounts for 40% of EBIT and are tougher to sell with the switch to digital from in store). Consensus margin expectations remain too high across durations, and our earnings expectations for next year are 20% below consensus... |
