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Long: PLBY, PSA, FWONK, ROK, AMH, CUBE, PCAR, WYNN, SBEA, AVB Short: RRGB, COLD, EXAS |
Below are updates on our thirteen current high-conviction long and short ideas. We have removed Coinbase (COIN), Rivian Auto (RIVN), & Allbirds (BIRD) from the Investing Ideas. We also added Exact Sciences (EXAS) to the short side. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
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. |
PLBY has launched its creator platform Centerfold. We’ll see how the early days go, but it already has a mix of heavily followed creators and notes a waiting list to add new creators. Given the success of Onlyfans and the move to take share from it by PLBY, this initiative alone could be worth multiples of the current PLBY market cap. It could be a rapid contributor to revenue and EBITDA.
PSA & CUBE
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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. Long Thesis Overview: This is a "keep it simple and straightforward" type of call: (1) the subsector is highly correlated internally given the submarket overlap and works well in an inflationary environment, (2) CUBE backtests well in each of Quads 2-4, (3) upward earnings revisions are extremely likely and a positive catalyst, and (4) CUBE's balance sheet is a huge strategic and style factor advantage. |
Nothing new to report this week, except that we have detected a more bullish sentiment on PSA in our recent conversations with institutional investors. Investors (and ourselves as well) prefer the value-add deals PSA has executed on vs. buying stabilized deals at full prices.
The next catalyst for both names is FY22 guidance delivered in February. Winners win into year-end, and it is notable that bellwether PSA backtests well in both Quads 1 & 4 with a ~76% batting average in Quad 4.
FWONK
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Long Thesis Overview: 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. 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. The most significant area of improvement for F1 is their sponsorship and partner agreements. We believe there is ample opportunity in sponsorship with only 17 races out of the record-breaking 23 race calendar having a title sponsor and F1 lacking many low-hanging partnerships such as fuel and hospitality providers. |
Getting Miami on the circuit was a major accomplishment and will help drive additional awareness in the U.S. ESPN has F1 broadcast rights through 2022. We wouldn’t be surprised to see F1 sign an expanded broadcast deal in the U.S. that includes streaming rights (ESPN+ or Amazon?), or hybrid that contemplates F1TV (e.g., authenticated by pay-TV subscription… similar to Sky in Germany).
ROK
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Long Thesis Overview: We expect this to be an unusually good cycle for ROK as developed market automation investment benefits from less ‘offshoring’ of production amid higher emerging market labor costs and other considerations. The capabilities for automation technologies, from machine vision to software to 5G and the like, broaden the market opportunity substantially. Despite being one of the best businesses in our coverage, shares of ROK don’t yet sport the premium valuation we’d expect them to receive as organic growth accelerates through 2H21. |
Higher inflation and rising wages increase the value of factory automation investment. EVs are a good example of the rebound in ROK's markets. In Rivian’s first earnings call as a public company, it announced a plan to build a $5 billion vehicle plant outside of Atlanta.
The investment should double the size of Rivian'a vehicle production capacity by 2024. Rockwell is Rivians factory automation supplier.
We see shares of ROK as offering favorable exposure to a number of key trend from tightening capacity utilization and supply chain challenges to higher emerging market wages and increased developed market manufacturing. ROK is typically a Quad 1 beneficiary, which we see as a tailwind into 2022.
AMH
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Long Thesis Overview: On balance, we see the data as very supportive of the long-term SFR long thesis in general, but in particular AMH with its captive "bank" of lot inventory and unique development program set against an extremely tight supply environment. As the space matures and grows more competitive given the outsized yield opportunities, operators with pre-sourced inventory to control, build and deliver have a massive advantage. |
We remain very bullish on Best Idea Long AMH and struggle to find any REITs (other than INVH) with more potential to meaningfully increase earnings power in the near-term.
AMH’s 4Q21 results are the next catalyst where the company will provide its FY22 outlook which should surprise to the upside. Concerns on slowing against “tough” comps are overblown, and the company is likely to deliver ~$1.70 per share of Core FFO earnings power in short order versus ~$1.35/share currently.
HPA leads leasing spreads by 3-4 quarters, which in turn lead actual results and earnings by another 2-3 quarters.
The trend in HPA for AMH’s markets shows an acceleration in the RoC on leasing spreads and earnings likely through FY22. We do believe the buyside is catching up.
PCAR
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Long Thesis Overview: The truck industry should undergo a major structural change this quarter with the spin-off of Daimler Truck. We expect Daimler to seek higher margins via pricing. Hints of that are seen in the delays for opening build slots for 2022. If we are reading that correctly, we think PCAR and Volvo are straightforward beneficiaries. |
Daimler Truck separated from parent Daimler AG. We suspect that this independent company will change the industry focus toward high margins and prices. While North American Class 8 orders for November came in at only 9,500.
While this is the lowest intake since May 2020, long lead times and record backlogs limit the value of the build slots on offer. Full order books combined with easing supply chain bottlenecks should allow for higher revenue in early 2022, particularly as the macro environment brightens in 1Q22.
WYNN
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Long Thesis Overview: If history has taught us anything, it’s that BIC makes a great lighter and in the casino world, BICs catch fire during recoveries and generally outperform the competition. Per our math, WYNN is indeed outperforming in the USA. Macau is the wildcard, and with all the fits and starts it’s impossible to discern a trend. However, we’re optimistic that WYNN will outperform there as well when the market stabilizes and recovers. |
The Macau government did something ahead of schedule? Stop that, they’re giving gov’t a good name. The DICJ released their consultation review earlier this AM and after reading through a translated version of the document, we think overall, there should be a sigh of relief.
There were plenty of narratives out there regarding the fate of Macau and admittedly we didn’t have answers. While we still don’t have a final operating structure, the initial read is positive and certainly better than feared. There’s still a degree of ambiguity and uncertainty around certain standards and details but generally, we view the language around key items like the concession Grant Period, the Distribution Policy, Employee Protections, Government Representation, and Local Ownership as favorable for the concessionaires. Restrictions on distributions (dividends) or capital returns has been a huge concern of ours and investors but the language suggests that government is not interested in controlling dividend policy, unless capital requirements are not met.
Naturally, we don’t know the capital requirements and thresholds, but Macau operators have historically run at very low leverage levels which has enabled simultaneous capital return and investment – this is more about the signal from the government, and it seems to be a good one.
Still more to learn but this is a good first step in the renewal process for the concessionaires. We do see some value relative to where we think the market could be in 2023 but for now, we’ll stick with the “BIC” – WYNN, the Best-In-Class operator as our lone Macau stock pick for now.
AVB
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Long Thesis Overview: FY21 Guidance: 4Q21 Core FFO projected in the range of $2.19 to $2.29 on SSNOI +5.5% to +7.5%, so as expected SSNOI growth now definitely inflecting positive after JUST missing the crossover point in 3Q (-0.2%). This compares to Hedgeye at $2.20 and +9% for 4Q21, so we need to (1) take numbers up but also (2) re-work the mix between same store and non-same store contribution. Consensus was at $2.13 on 4Q21 coming into the print - thanks for coming out! |
We are long the Coastal Gateway Apartment REITs (AVB, EQR and ESS) which will likely have the best year in their histories in FY22 from a SSNOI growth perspective, and AVB remains our favorite in the group with the most upside and longest growth acceleration trajectory.
After updating and reviewing our models the MATH shows a SSRev, SSNOI and Core FFO earnings growth acceleration through potentially 3Q22 with the Sunbelt decelerating a little earlier in the year.
We think SSNOI will grow in the mid-teens range overall next year (we model +14%) and are +10% ahead of consensus on Core FFO earnings estimates, implying that the Street is somewhere in the mid-to-high-single digit range on SSNOI growth which makes no sense.
The stock is BULLISH TRADE/TREND/TAIL with among the strongest signals among the REITs we cover.
SBEA
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Long Thesis Overview: Black Rifle Coffee Company (BRCC) is a veteran-founded coffee company. The company was founded in 2014 by Evan Hafer, a Green Beret. BRCC is a mission-focused company committed to supporting veterans, active-duty military, and first responders. BRCC has targeted the $28B coffee category as its serviceable addressable market. Our military is the most respected institution in the country according to Gallup polls. Veterans are 7% of the population while the active-duty military is less than 0.5%. Half of the company’s employees are veterans. BRCC also gives preference to veteran-owned businesses as vendors and suppliers. The company's three-pronged growth strategy is driving 30%+ top-line growth. |
Black Rifle Coffee Company (SBEA) has seen 20x growth over the past four years in the Direct To Consumer (DTC) channel to 270,000 current coffee club subscribers.
The next engines for growth will be wholesale and outposts (stores). Management is projecting 30%+ growth through wholesale expanding to 5,000 doors by the end of 2023.
Black Rifle Coffee Company has a database of 1.9 million customer addresses to pick the best real estate locations for its store growth plans. Coffee is a large $45B category that is consumed habitually.
Brand awareness is growing and the company is growing by getting closer to its customers. Two prongs of its growth strategy are just getting underway as seen in the chart below.
RRGB
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Short Thesis Overview: 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. Nothing exciting to see with Red Robin Gourmet Burgers (RRGB). |
Darden Restaurants (DRI) was the first casual diner to report October and November month results because of its different year end. While SSS were up 34.4%, it decelerated from 47.5% sequentially.
Despite raising its sales outlook for Fiscal 2022 wage pressure received more attention: "Given the strength of our performance, we are accelerating a commitment we announced earlier this year to increase the minimum hourly earnings for restaurant team members to $12, which includes income earned through gratuities, effective 1-Jan-22. With this change, we expect our restaurant team members will earn, on average, approximately $20 per hour."
Red Robin is further challenged by its lower average check and less differentiated menu compared to other casual diners.
COLD
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Short Thesis Overview: Simply put, COLD is uniquely vulnerable given (1) its position in the “cold chain,” (2) the structure and mix of its revenue agreements, (3) the composition of its cost structure and high labor component, (4) the risk of integrating recent large acquisitions materializing at exactly the wrong time, and (5) consensus numbers that, in our view, were far too high both in FY21 but especially FY22 and beyond. |
This past week on 12/22 the USDA reported its most recent cold storage commodity level data, which showed that November ending levels stayed flat sequentially at 93% of prior year ending levels versus a longer-term average of ~99%.
Stock levels remain in a downtrend due to supply chain disruptions and showed no meaningful build ahead of the key holiday period. As a reminder, throughput levels directly impact Best Idea Short COLD’s top line results in the services business and there has been no change yet in the second derivative.
We continue to look for a “kitchen-sinking” of FY22 guidance in February to set a very low and hopefully achievable bar and remain short at least until then.
EXAS
Hedgeye CEO Keith McCullough added Exact Sciences (EXAS) to the short side of Investing Ideas this week. Below is a brief note.
Well that was a nice intraday squeeze in US Equities, eh?
Getting net LONGER on the market open was the right portfolio positioning play. Now we can go hunting for some @Hedgeye Bear TREND setups that are bigly green here on the day.
Up first is a name that is in what we call #MicroQuad4 (or MQ4 as Tobin's team explains in his Healthcare Pro research product): Exact Sciences (EXAS).
Here's how we write and talk about weaponizing your Macro Quads with Micro Quad setups (yes we think this is the way of the Quantamental Research future):
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All that said, consensus estimate trends continue to reflect near-term weakness for our universe and the potential for a late 1Q22 bottom, which looks like it's in sync with the Macro Team's call (whether it's MacroQuad 1 or 4). This week, NEO rotated out of MicroQuad 4 and into 1, which is still a short position but lower exposure (the outlook looks better from a NTM revenue perspective, but we've got to find out what's happened in 2H21 that drove that weak guide). Also, EXAS slipped back into MQ4 from MQ1, which we've been expecting. Last, we've got some work to do on the estimate trends for XHS, XHE, and ARKG, so keep an eye out for that! |
