Good morning, See below for our usual MicroQuad and other weekly data updates, including the link to the "Sector Distillation" slides. As always, email us if you have any questions on any of the data or our takeaways - .
KEY CALL OUT
As we get closer to the final 1/3 of 4Q21 and new COVID-19 cases tick higher, we're watching the estimate trend(s) and Macro Quads closely to see if/when there's an inflection. As we noted this morning, the biggest wildcard for the outlook from here is probably waning vaccine efficacy, which varies widely from Moderna (most durable) to JNJ (least) and has now been shown in multiple studies. In addition to waning efficacy, booster shots and the approval timing and manufacturing supply of Paxlovid, Pfizer’s oral therapy that prevents hospitalization, will all play intersecting roles in shaping expectations for early 2022. Thus far, the current outbreak looks to be characterized by fewer hospitalizations, although it's too early to tell how durable the trend will be through an anticipated January peak that coincides with a potential uplift in expectations.
We think AMN and DGX are the biggest beneficiaries in the short term, but the model wants to see rising estimates, and we're not getting that, yet. Also, it looks like there's a mid-Macro Quad 2 inflection for Acceleration (the black line) that we need to look into a bit further to see if there's an actionable signal ahead of a potential Macro Quad regime shift (to Quad 4) in 2022. Note, our Macro Team lists Health Care as a relative outperformer in Macro Quad 4.
CLICK HERE for the full weekly update (our Sector Distillation deck).
ESTIMATE REVISION TRENDS
MICROQUADS*
Noteworthy this week:
NEO and DGX remain in the penalty box - aka MicroQuad 4. We must see if cancer testing will continue to be impacted by COVID-19 cases, but we know that new COVID cases benefit DGX. Both stocks could rotate out of the short bin, but we're betting on DGX, which remains an active Best Idea Long. We're more cautious on NEO given the impact that rising COVID-19 cases have had on its revenue in prior waves.
TDOC's outlook as measured by NTM sales worsened a bit following its Analyst Day presentation - we think the transition to EV/EBITDA from EV/Sales is bearish for the stock.
AMN got out of the penalty box a couple of weeks back and now looks like a "stable" MicroQuad 3 long in the model portfolio - we'll have to see if 4Q21 and prevailing labor/staffing issues lead the Street to raise estimates from here.
DOCS - If you were short due to MQ1, it worked; however, it looks like the correlation dropped and we have limited history, so DOCS fell out of the bins this week. We remain interested in the story, which is why DOCS is on the Long Bench.
We have some MicroQuad 3 "potential deterioration" call outs below.
As a reminder, if you have questions about the MicroQuad process, please try to find ~20 minutes to watch our Dec 30, 2020 call replay: Process & Utility of the Hedgeye Health Care #MicroQuads - CLICK HERE for event details (includes video link and materials link).
Position Monitor Stocks**
All data available upon request. Please reach out to with any feedback or inquiries.
Best,
Thomas Tobin
Managing Director
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William McMahon
Analyst
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Justin Venneri
Director, Primary Research
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*Please note, not all Position Monitor names make it into the MicroQuad output - most likely due to a lack of sufficient historical trading and estimate data.
**We may show stocks that we have data for but the correlation fails to meet the criteria for MQ bin inclusion week-to-week.
