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Long: AMN, POAHY, PLBY, PSA, FWONK, ROK, PCAR, V, MTCH Short: PLUG, BBY, BGFV |
Below are updates on our twelve current high-conviction long and short ideas. We have removed The Children's Place (PLCE), Butterfly Network (BFLY), Crown Holdings (CCK), and iHeart Radio (IHRT) from Investing Ideas and added Visa (V) and Match Group (MTCH) to the long side and Big Five Sports Group (BGFV) to the short side. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
AMN
AMN Healthcare's (AMN) numbers were very strong - the stock remains a Best Idea Long. The reopening plus COVID is leading to crazy upside in temp staffing, and the most concerning thing might be the lack of supply for both AMN and their clients. Staffing shortages are accelerating in Florida, and from AMN’s perspective, this leads to premium pricing – almost perfectly inelastic.
We expect the supply demand gap to persist through 2022. We’re expecting extended benefits and a return to in-person school to release some labor supply into the market over the coming months. And we are expecting pent-up demand to boost patient volume for several more quarters and perhaps longer.
The return of COVID with the delta variant is unlikely in our view to significantly limit access to care for patients as it did in 2020 when we saw a shutdown of hiring across most of the health systems in the country. Rather, what we are seeing now is the acceleration in hiring across our data sets, from individual systems up to the industry level.
On a reasonable 2x-2.5x revenue basis, the stock can head toward $150, in our opinion, and 2H21 will likely remain strong with facilities remaining open. COVID was hitting jobs boards last year, things closed, now everything is accelerating, including demand.
It’s a very positive setup “from here" because headlines like "This Arkansas hospital is so short on nurses in this newest Covid-19 surge, it's offering a $25,000 signing bonus" (CNN) and "Florida hospital CEOs to governor: Staffing biggest challenge to handle flood of COVID-19 patients" (Becker's) will continue to cross the wires over the remainder of this year.
This quote is worth noting and thinking about, especially if you're immunocompromised or suppressed in any way: "A vast majority of those vaccinated individuals in our hospital are folks who got COVID but end up hospitalized because they are immunosuppressed anyway," said John Couris, CEO of Tampa (Fla.) General.
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.
PLBY
Playboy (PLBY) is reporting its 2Q results on August 10th. The stock has been trading poorly, and hit the low end of the Hedgeye Risk Range this past week. We’re ahead on revenue and EBITDA, and think that the Street is mismodeling (underappreciating) the impact of the Honey Birdette acquisition on 3Q and more importantly 4Q numbers.
We think that the stock is trading at a critical level right now, as a fundamental break could send this name much lower. Fortunately our research shows that the 2H growth drivers are fully intact, which should result in a good guide by the company.
PLBY management is also hitting the road for investor roadshows after the print (including with us) so it should drum up incremental buyers. All it takes is a small handful of institutions to get this stock headed higher, as the majority of the float today is retail. This week’s earnings event will likely result in some pin action, and we think we’ll be on the right side.
PSA
Best Idea Long Public Storage (PSA) reported a solid beat-and-raise for 2Q21 as expected, with revised FY21 guidance coming in essentially on top of our revised expectations. Core FFO of $3.15 topped Hedgeye by $0.20/share (+7%) and the Street by +7.5%, with SSRev and and SSNOI up +10.8% and +21.7% respectively (see Figure 1 below). It is hard to find something not to like in this print, some thoughts as follows:
- 2Q21 marked the first quarter of positive roll-up up +2.7% (i.e. move-in rates above rates for customers moving out) since 2Q15, speaking to the degree and speed with which street rates have accelerated.
- This is an extremely bullish metric - move-in rates up +47.6% y/y (!!!) dramatically outpaced the increase in average move-out rates up +11.6% y/y, hence the positive roll-up. Annual contract rent PSF up +8.8% y/y points to high-single-digit to low-double-digit revenue growth over 2H21
FWONK
Formula 1 (FWONK) 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.
ROK
Cyclicals often ‘feel’ or ‘look’ expensive at the start of an upcycle. Oil & gas, automotive, mining, and building materials market demand has begun to recover but capital investment in production capacity impacts ROK on a lag. Valuation multiples also lag. Rockwell Automation (ROK) enjoys one of the strongest structural positions in the Industrials sector, with a robust, segmented market position and high customer switching costs notable factors.
ROK’s organic revenue growth recovery will lag the already V-shaped rebound in industrial orders, as capacity utilization remains depressed even as backlogs swell and inventories tighten. As investors see the turn in factory investment with still low estimates and easing compares into 2022, we expect ROK shares to outperform by 60% to 80%.
ROK “beat” 2Q21 expectations and sold off sharply, only to rebound over the next week. Instead getting distracted by press releases and starred headlines, we try to review the broader set of new information…a sentence we write as much to remind ourselves as readers.
PCAR
PACCAR (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.
v
Hedgeye CEO Keith McCullough added Visa (V) to the long side of Investing Ideas this week. Below is a brief note.
The latest 3-day correction (into options expiration, again!) in US Equity Beta has to do with ... drumroll... variant covid narratives, again!
Now, since we aren't chasing charts on green when that's not the narrative, we get to buy our fav #Quad3 names with they are red at the low-end of their risk ranges on that...
Vis a vis the Square (SQ) “news”, buying more Visa (V) was reviewed by Josh Steiner on The Call @Hedgeye today. Remember, we’re looking to add larger cap names that back-test strongly in #Quad3.
MTCH
Hedgeye CEO Keith McCullough added Match Group (MTCH) to the long side of Investing Ideas this week. Below is a brief note.
#Patience remains my largest Asset Allocation...
Waiting for names that we like to correct towards the low-end of my Risk Range is what I do. The Question is, is that what you do?
A good example of a stock that has the #Quad3 SIZE (large cap) and QUALITY (balance sheet) Factor Exposures that we like is Match Group (MTCH). It's at the low-end of my range today.
Here's a chunky excerpt from Freedman's Communications Pro research product that explains why the patient Full Cycle Investor has a buying opportunity here today:
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So then why is the stock down? There are a couple of things. The first is Hyperconnect. Management's guidance includes $125-$135M of revenue in 2021 from Hyperconnect. If we annualize the mid-point of $130M we get $260M in revenue, which implies growth of only 19% this year (using $219M reported in public filings CY20). This growth rate is below the 40-50% growth rate management guided to when the deal was announced in February. Management also guided Hyperconnect to EBITDA breakeven in 2H21. While this is the first time they are giving us formal guidance for Hyperconnect, back in February, they told investors they thought 20-30% EBITDA margins LT were achievable. I think most (including us) were baking in too much EBITDA contribution too soon from Hyperconnect in our expectations. The second was the flow-through to EBITDA this quarter and the year, which was less than I (and am sure others) anticipated… partly due to $15M in increased govt relations costs and legal matters in the 2H21. The EBITDA guidance for FY21 of $1,045-$1,060M compared to the Factset consensus of $1,066M going into earnings. If we add back the $15M in incremental legal expenses that are more one time in nature, they would have guided in-line. Pre-Earnings Call Conclusion: It looks like expectations need to be reset on Hyperconnect. What is more important is the core business is doing well, and Tinder is reaccelerating with new product rollouts ahead. Meanwhile, the Non-Tinder portfolio continues to grow nicely with Hinge revenue +150% YoY in 2Q21 (Bull case on MTCH continues to depend on Hinge). |
PLUG
From what we can see, Nikola (NKLA) is in absolute crisis. Most of the senior leadership stood by as alleged securities fraudster Trevor Milton engaged in his (alleged) misbehavior. Production guidance was cut and isn’t even quite ‘production’ on component shortages.
But management is still getting paid exceptionally well for running (badly) such an early-stage company, a factor that won’t look so great should it come up in court.
Our questions are less about NKLA – a company that is likely doomed by the absence of a national dealer network and, well, products – but what it means for other promotional, product-is-the-stock companies. Will Plug Power's (PLUG) be more cautious in the next quarterly report? Possibly.
BBY
Best Buy (BBY) was a big demand winner from the spending shift to all things home entertainment, home appliances, and work/school from home during the pandemic and that environment combined with stimulus it was able to deliver a new peak sales and margin result.
However, as we start to see consumer shopping behaviors mean revert towards services and experiences, we expect wallet share to shift away from the home electronics/appliance category.
Then on top of that reversion BBY also faces the fact that many of the products which were bought in abnormally high quantities this year (TVs, laptops, routers, monitors, appliances, etc.) have very long replacement cycles.
Ultimately all the factors will lead to an air pocket for BBY demand in late '21 into 2022 which is where the company will start missing numbers and paying off on the short side. If our model is right, BBY will trade at 10x on a downward earnings revision cycle – which suggests 30-40% downside based on our numbers.
BGFV
Hedgeye CEO Keith McCullough added Big 5 Sporting Goods (BGFV) to the short side of Investing Ideas this week. Below is a brief note.
If you want to try to play The Game at the highest level, you need to understand Quad Shifts and the Factor and Sector Exposure pivots...
If you're new to this, it will take some time. A LOT more time than it took to panic/puke sell oil this morning on a 50-day Moving Monkey "signal"...
Retail analyst Brian McGough plays The Game at the highest level and is stealth on making what we call Micro Quad and Pod pivots - see The Arena @Hedgeye for user-forums discussing these...
He nailed the topping #process of this Small Cap Big 5 Sporting Goods (BGFV), for example. Here's some detail on the idea from his Retail Pro research subscription:
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Adding Big 5 Sporting Goods Short Side. This stock has been an absolute beast over the past year. It’s a 430-store sporting goods retailer based predominantly on the west coast, and pre-covid had extraordinarily volatile earnings with EPS ranging from -$0.20 to $1.25. It was a ~$4 stock with $0.40 in EPS pre-pandemic. Then it rode the wave of the sporting goods space, and put up a monstrous $3.74 over the trailing 12-months. To be clear, this is not a quality retailer like DKS, and does not have margin drivers like ASO. It’s also by no means a take-out candidate. Beginning in 2-quarters, this company faces huge sales and gross margin compares, and at $30 the market currently thinks that the company will comp the comp. |
