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Long: AMN, PLBY, PSA, FWONK, ROK, PCAR, AMH, RH, FISV Short: PLUG, PK, RRGB |
Below are updates on our twelve current high-conviction long and short ideas. We have removed Visa (V), Big 5 Sporting Goods (BGFV), & Porsche (POAHY) this week and have added Red Robin Gourmet Burgers (RRGB) to the short side. We have also added Restoration Hardware (RH) and Fiserv (FISV) to the long side. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
AMN
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Long Thesis Overview: We expect prolonged wage inflation across the US Medical Economy as a result of widespread provider burnout and medical consumption pent-up demand remains significant for many types of care. We expect these trends to continue to benefit hospital staffing company AMN Healthcare (AMN). |
This past week, we got ADP and BLS data updates. On Thursday, our Morning Brief - GDRX Says In-Person Ramping (+), Healthcare Hiring a New Bloodsport (open access for II readers) covered the ADP data. On Friday morning, in response to the BLS data, we wrote: “The gap between Health Care jobs and the pre-COVID trend widened in August to 1M jobs. We think the gap represents pent-up demand from delayed care and the associated acuity that will result from missed diagnoses. With both national and regional COVID hospitalizations receding, August will likely be the inflection point into the post-COVID rebound. Lots to do on both the long and short sides here. As crazy as the lockdown period was in 2020, the full reopen is likely going to be crazier.”
This setup is potentially problematic for Health Care providers to varying degrees, as we continue to hear about staffing challenges and huge signing bonuses being offered to nurses. However, it is, in our opinion, quite bullish for AMN, which continues to be ideally positioned so long as supply and price do not become problematic for them too (i.e., that they can’t meet demand or must pay up for talent themselves).
Given a backdrop of prolonged wage inflation across the US Medical Economy resulting from widespread provider burnout and the most recent surge of COVID-19 hospitalizations due to Delta Variant, it is not surprising that AMN hit another new 52-week high (~$116) this past week and remains a Best Idea Long on the Health Care Position Monitor.
PLBY
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Long Thesis Overview: We think that the upside here is simply massive. 10-bagger over TAIL duration. Ideas like this come along once every few years. I know that it’s too thinly traded now for a lot of institutions to get involved, but that dynamic should change dramatically over the next 1-3 years while the P&L, Cash Flow, Balance Sheet and float characteristics catapult themselves worlds head of the consensus. |
Playboy (PLBY) has finally been getting a bid lately. At the same time we’ve seen sales from the PIPE investor Drawbridge/Fortress. It’s a near term drag to have the sales, but it’s a good thing to have those shares getting out into the float as improving float and trading will make other institutions more willing to get involved.
Taking a step back from the near term trading dynamics, we think investors need to remember the power, relevance, and awareness of this brand. On a global level Playboy does over $3bn in licensing retail sales which makes it the 17th largest licensing retail sales company in the world (chart below). To replicate it’s brand position and global scale alone would cost billions.
As the company improves its strategy for monetizing the brand power and consumer connection we think there is significant valuation upside from here.
PSA
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Long Thesis Overview: We can keep this short - all that really matters for Best Idea Long PSA is that the company inaugurated FY21 FFO guidance with full ranges for all the key drivers (SSRev, SSExp, SSNOI, Development, Acquisitions, etc). Not only does this bring PSA up to par with the other four peers in the space, but it signals management's ongoing commitment to address long-time shareholder gripes regarding engagement with the street, governance, capital deployment, balance sheet efficiency, etc. All of these items are core to the long thesis for accelerating earnings growth and a positive re-rating of the stock. |
Public Storage (PSA) priced a EUR 700 million bond issue (~$840 million USD at current FX rates), increasing the investment capacity on the balance sheet to go out and acquire storage facilities as well as fund the remaining ~$411 million of its $661 million development pipeline.
We took up our acquisitions assumption for FY21 by $200 million to $3.3 billion (versus the company's guidance for $3.1 billion), and we are now +3.5% above the Street on FY22 Core FFO approaching $14/share. PSA now has ~$10 billion of unsecured debt and preferred equity outstanding including its share of PSB, or roughly ~4x net debt + preferred on annual run rate basis adjusting for ultimate NOI contribution from facilities under development.
FWONK
Per Formula 1 (FWONK) and French broadcaster Canal+ have agreed to extend their broadcast agreement to 2024. No financial details were disclosed, but the previous contract (2018-2020) was valued at €120m or €40m a year. The deal will see Canal+ "Every Grand Prix, plus all Free Practice and Qualifying sessions, live." The agreement also features four Grand Prix weekends that will be free-to-air, including the French Grand Prix. The new deals come after French Driver Esteban Ocon won his first race last month at the Hungarian Grand Prix, and French driver Pierre Gasly claimed his first career win at the Italian Grand Prix last year.
- The agreement extends the contract to 2024, with no fins disclosed.
- The expanded agreement is no surprise as Gasly and Ocon have won races over the current and past seasons.
- The deal also includes Free-to-air races despite it being a PayTV deal.
ROK
While a certain ‘not-an-auto company’ held an A.I. day rolling out a dancing ‘robot’, Rockwell Automation (ROK) remains the robotics. You can be long the company that supplies the machines to make the machine to Tesla, Rivian, and other manufacturers.
After decades of manufacturing in low labor cost regions, geopolitical challenges, logistics disruptions, and technological advances promise to bring more manufacturing back to developed markets. As that happens, ROK and its automation peers should see a rising tide of more advanced factory investment.
PCAR
Despite an earnings report that was received less well by markets than it might have been, we continue to believe that PACCAR (PCAR) will benefit from stronger industry pricing amid a new competitive dynamic.
Daimler Truck and Navistar have historically not pushed industry margins and are now positioned differently, with Navistar acquired by TRATON and a portion of Daimler Truck trading separately. North American order books are filled out for 2021 and into early 2022, as truck companies add capacity amid high truck rates and freight demand.
The Daimler truck spin-off + the Traton/Navistar tie-up has shifted the focus of the management teams from a volume business to growing margins to industry standards which will come through price increases – a change that is vastly underappreciated in our view.
AMH
On Thursday, 8/26 the U.S. Supreme Court struck down the Biden administration’s eviction moratorium to the detriment of tenants, but opened a window for institutional residential landlords including the REITs to “churn” their portfolios.
Recall that American Homes 4 Rent (AMH) (1) has been collecting high-90% of its cash rent billed to tenants, (2) has been running at well-above average occupancy levels near 98%, but (3) also booking above-average bad debt for the non-paying portion of their tenant base unable to be evicted. This has resulted in a ~150bp drag to revenue growth. All else the same, the overturning of the moratorium accelerates the normalization of bad debt (our base case was for 2022) and creates a now ~150bp tailwind to revenue growth earlier than we expected.
This comes on top of already record asking rental rate growth. We continue to see the need for significant upward estimate revisions.
RH
Hedgeye CEO Keith McCullough added Restoration Hardware (RH) to the long side of Investing Ideas this week. Below is a brief note.
Patience remains your largest Asset Allocation...
When you have that (and a lot of places you can invest in a Go Anywhere #process) embedded in your research & risk management #process, that is.
Wait and watch for buying opportunities and be indifferent to buying Cocoa (NIB) or RH!
Today, RH is for sale for whatever reason to the low-end of my Risk Range. Here's a good fundamental research excerpt from Brian McGough's Retail Pro subscription on the name (he's been The Axe on RH for years):
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Moving RH to our Best Idea Long List. This might seem like an odd move, because we’re already the biggest long-term RH bulls on the Street, having ridden the stock since $26 (it’s now at $662), and a TAIL value of $1,700. But we were waiting for an appropriate time with more controversy, perhaps around the complexity of its move into Europe or a slowdown in the US to ‘pound the table’ and move this name back to our Best Ideas List. But we think estimates are low in 2H, and think that the Street is materially undermodeling the impact of RH’s move outside the US – with the opening of RH England in 3Q (i.e. next month). |
FISV
Hedgeye CEO Keith McCullough added Fiserv (FISV) to the long side of Investing Ideas. Below is a brief note.
I guess its asymmetric buying opportunity day @Hedgeye!
I've been waiting on Fiserv (FISV) to correct post its recent ramp towards the low-end of its Risk Range™ Signal... and it's doing that today.
Here's a good excerpt from Josh Steiner's Financials Pro subscription on the name:
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Takeaway: We continue to favor FISV based on solid performance in key digital payments verticals and an array of positive catalysts through 2021 Review of the Quarter: Fiserv reported adjusted EPS of $1.37, up +47% y/y and coming in ahead of the top-end of the 29-analyst estimate range of $1.18-$1.34. The beat was driven by the top-line, namely better-than-expected performance in the company's merchant acceptance segment. Fiserv's Merchant Acceptance segment, composing ~40% of total revenue, posted organic growth of +41% y/y in 2Q21, greatly outpacing the -15% organic revenue decline in 2Q20. Growth in the Merchant Acceptance business, while broad-based, was led by a +33% y/y increase in North America volumes. Moreover, Clover volumes rose +96% y/y to $184 billion annualized, while Clover Connect, the company's ISV-focused offering, saw volumes grow +122% y/y in the quarter. |
PLUG
The enthusiasm for shares of Plug Power's (PLUG), after a couple decades of consistent losses and equity issuance, is just stunning. No one on the earnings call even asked for the efficiency of their fuel cells and electrolyzers.
For PLUG, neither the big stuff nor the small stuff makes much sense. To the extent that a hydrogen economy emerges in coming years, PLUG is unlikely to be a relevant part of it. It would make vastly more reasonable for Air Products to buy electrolyzers from Ceres Technologies – a more efficient offering than the PLUG PEM electrolyzers on last check – and dominate the industry with the other industrial gas companies.
PK
CBRE was out with its latest review of the real estate acquisition market and naturally we looked at the latest pricing expectations for full-service hotels. On a relative basis, it’s still very clear that pricing for hotels in the private market still have a long way to go relative to pre-pandemic pricing and valuations.
There have been some one-off purchases and deals that were done at strong valuations, and not surprisingly, those deals occurred in leisure destinations like Las Vegas and South Florida. Other than that, pricing for hotel assets has been sluggish across much of the US with 75% of respondents suggesting that pricing is down 10-30%+ in their respective markets.
We suspect these %’s are actually an improvement from a year ago, but the expectations are still well below what we think is reflected in the stocks. Investors are looking ahead towards improving times, but when we hear mgmt. teams discuss NAV and how their assets are trading at a discount to “replacement cost” we put little stock into the commentary as it won’t matter much if RevPAR is decelerating.
Our bearish bias towards much of the hotel ownership (REITs) industry is unchanged – including Park Hotels & Resorts (PK).
RRGB
Hedgeye CEO Keith McCullough is adding Red Robin Gourmet Burgers (RRGB) to the short side of Investing Ideas. Below is a brief note.
Thankfully we aren't choking on 10-20 SELL ideas here in RTA during this #Quad3 US stock market melt-up...
But here's a new one for you that is similar to the CAKE short idea by Howard Penney (yes, I'd short more of that oinker on green): Red Robin (RRGB).
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Here's a good summary excerpt from Howard's Consumables Pro research product on the name: RRGB is a Short. RRGB is significantly lowered after the company posted EPS of -$0.22, misses by $0.22, and total revenue of $277.0M, misses by $3.0M. Restaurants that we could operate at total capacity saw comparable restaurant revenue increase 7.0% from the pre-pandemic comparable quarter. In addition, margins at these restaurants reached 19.5%, a 180 bps increase. However, overall comparable restaurant sales are still down 2.4% compared to 2019. "Overall performance in the second quarter was below our expectation," said CEO Paul J. B. Murphy III. "Contributing factors included ongoing jurisdictional restrictions and challenging labor availability which resulted in reduced operating hours." The rollout of Donato's will ultimately fail when national advertising does not deliver the intended results. |
