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Long: AMN, POAHY, PLBY, PSA, FWONK, ROK, PCAR, V, MTCH, AMH Short: PLUG, BGFV |
Below are updates on our twelve current high-conviction long and short ideas. We have removed Best Buy (BBY) from Investing Ideas and added American Homes 4 Rent (AMH) to the long side. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
AMN
AMN Healthcare (AMN) remains a Best Idea Long on the Health Care Position Monitor. The delta wave across the south/southeast plus the reopening has stoked demand for labor, and health systems may end up dealing with elevated costs and tightness into 2022.
We continue to believe that the risk for AMN is a potential lack of supply for both itself and AMN’s clients. Staffing shortages accelerated in Florida, and we just read Missouri to spend $30M for temporary hospital staffing, antibody infusion stations (Becker’s). “Funding will go toward healthcare staffing for Missouri-licensed or CMS-certified critical access, acute care and long-term care hospitals.” Governor Mike Parson said, "We've consistently heard from our healthcare partners that staffing is one of the biggest challenges we continue to face."
While we do expect the supply demand gap to persist into and through 2022, we think extended benefits and a return to in-person school will 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. We’re monitoring the delta waves closely, and it looks like ED visits and cases in Alabama and Mississippi are improving already. Florida is still in trouble, but we believe the situation can improve as vaccinations accelerate, and SARS-CoV-2 works its way through the state.
At least domestically, we are thinking the delta variant wave, still largely restricted to unvaccinated populations, will be the last major wave for COVID-19, and what follows should be the reopen we've been looking for. Health systems likely see things similarly, thus 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. The sell side reacted positively to earnings last week, as multiple analysts reiterated “Buy” ratings and upped price targets (several of the new targets are in the $114 - $130 range).
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) reported earnings on Tuesday and management came on pure offense. We got everything we wanted out of this PLBY print with a revenue beat – though slight, and I mean de minimis, but a $200k EBITDA miss. EPS is messy due to $0.22 per share in charges around M&A, first year public costs and other one-offs.
The key takeaway is that the revenue trajectory in this transformative model is simply firing on all cylinders. On the call management doubled the 2025 revenue outlook of $300mm to $600mm citing the potential of Honey Birdette as well as all the other growing revenue streams the company is currently trafficking in.
Few companies have the long term juice over the long term, and now management just needs to execute. We think this team will consistently deliver.
PSA
Public Storage (PSA) noted it expects a reduction in hours worked over the balance of the year at the property level but higher headcount rolling up to centralized management costs, and it would take an enormous "overhead" increase to offset reductions in property payroll and marketing spend and turn SSExp positive for the year. Share-based comp allocated to the same-store pool likely is not large enough a line item to move the needle. More info is needed and hopefully provided on the call, however, our view is that it is likely a conservative stance, which makes some sense given that this is the first year PSA is providing guidance
We love the ~$400 million increase in expected acquisition activity for the year - PSA should be flexing its sector-best balance sheet and taking advantage of its cost of capital to drive external growth. The current trend in street rates and NOI growth likely will result in higher stabilized yields than underwritten, well-above the ~4% needed to make the deals "pencil"
FY21 Core FFO guidance was revised up +4.8% at the midpoint to a range of $11.90 to $12.30 vs. Hedgeye at $12.20 and the Street at $11.88 coming into the 2Q21 print. Our first cut at revising FY21 estimates has our model above $12.40, but more to come.
FWONK
Formula 1 (FWONK) is still amid a turnaround after Liberty Media acquired the asset from private equity group CVC Capital and Bernie Ecclestone in 2016 and IPOing under the FWONK ticker in 2018. The previous management's lack of long-term focus left F1 with poorly constructed race agreements and very 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 will meaningfully improve the economics of a race. 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).
We believe there is more grease on the wheels. Liberty can maximize its efforts to increase interest in the sport, continue to go after underpenetrated markets, and use its SVOD service to capitalize on its content more efficiently.
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 “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
Our long view of PACCAR (PCAR) is supported by an expectation that the North America truck market will experience better pricing, in part on strong supply/demand and structural changes (Daimler Truck spin prep, NAV acquired by PCAR). Both JBHT and Volvo earnings are out with favorable commentary in relation to PCAR:
“And furthermore, we have then a positive price effect on Trucks, whereas the positive mix effect was related then what Martin was saying to Construction Equipment, where we have increased sales of heavier machines and also especially then in Europe and North America, and that impacted positively. These items are in the gross income, and that impacted, of course, the gross income favorably.” – Volvo July 20, 2021
We see the report as supportive for our take on truck demand and pricing, with a positive read through for PCAR into next year.
V
Visa's (V) outperformance of the broader recovery in consumer spending gives us confidence in the company's growth prospects beyond the pandemic, especially with respect to the pull forward of the secular migration to card and digital payments.
Despite the waning effects of stimulus and the recent correction in cryptocurrency prices, we view the remainder of the year positively with travel-related cross-border activity poised for a meaningful resurgence; e-commerce growth, including cross-border demand, proving resilient; and accelerating credit card usage.
Moreover, Visa is, historically, a strong absolute and relative performer in Quads III and IV, thus integrating well with our Macro team's call for the domestic economy through the back half of the year.
MTCH
Per the Wall Street Journal, a bipartisan bill entered into the Senate that would seek to increase the competition within AppStores by "boosting competition and consumer protections by placing new restrictions on how the stores operate and what rules they can impose on app developers."
This legislation comes after Apple and Google have been to anti-trust hearings in April regarding their practices in their App Stores, notably around the 30% "App Store Tax" they place on in-app transactions.
The legislation would "bar the companies from certain conduct that would tend to force developers to use their app stores or payment systems. It also would obligate the companies to protect app developers' rights to tell consumers about lower prices and offer competitive pricing. It would effectively allow apps to be loaded onto Apple users' devices outside of the company's official app store."
This legislation could very well lead to lower Appstore take rates or "taxes" on in-app purchases, which would greatly benefit companies like Match Group (MTCH) who really on in-app purchases for large portions of their revenue. If the app-store fees are reduced to any capacity, these companies would see margins increase on in-app purchases services (subscriptions and ala carte purchases) as their costs associated with those products would be decreased.
AMH
Hedgeye CEO Keith McCullough added American Homes 4 Rent to the long side of Investing Ideas this week.
There's nothing quite like a buying opportunity born out of a "downgrade" from ye Olde Wall!
American Homes 4 Rent (AMH) is not only a great way to be long of TRENDING (not "transitory") Inflation in US Rent, but to be long of REIT Rob.
Here's an excerpt from REITs analyst Rob Simone's latest note on the name:
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Takeaway: Rates to new customers STILL accelerating Key Takeaways: Best Idea Long AMH topped consensus by +$0.03/share (+10%) and Hedgeye by a penny (+1.8%) (see Figure 1 below), and as expected took the same store and Core FFO guidance ranges up essentially to where we were heading into the quarter. We have no idea why the Street was and remains so low, but this one just seemed to have a bright red bullseye painted on the side given the math underlying rental rate growth. But alas, we will take the ball and run with it! |
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.
BGFV
Credit where credit is due, this stock was a monster over the past year as it sells goods in a category that saw outsized demand with COVID. However, that is the end of the credit we give Big 5 Sporting Goods (BGFV) as pre-pandemic this was a ~$4 stock with EPS ebbing and flowing between -$0.20-$1.25.
The market thinks this company will comp the COVID comp but we think that just won’t happen. Nike announced it is completely cutting off BGFV in the fall as it faces these tough comps, good luck trying to grow without Nike. The name is priced for perfection and without Nike it won’t get that.
