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Long: PLBY, PSA, FWONK, ROK, AMH, CUBE, PCAR, SBEA, AVB Short: RRGB, EXAS |
Below are updates on our eleven current high-conviction long and short ideas. We have removed Wynn Resorts (WYNN) on the long side and AmeriCold Realty Trust (COLD) on 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 is scheduled to present at the annual ICR conference next week. Aside from ICR, we do hear that the institutional interest is building regardless as this story and management team continue to execute on their initiatives.
At ICR we expect that Playboy will give a read as to how the CENTERFOLD launch is progressing. We think over the long term CENTERFOLD could be worth multiples of what the current PLBY Market Cap is and in the short term will contribute to revenue and EBITDA in 2022.
This company remains one of the only examples we can find of building a total ecosystem around the consumer that will manifest in multiple high growth revenue streams with increasing profitability over a TAIL duration.
If you want a stock that could double, then double again, then double again, this is the one to pay attention to.
Click HERE to watch Retail analyst Brian McGough discusses the outlook for Playboy (PLBY) with Hedgeye CEO Keith McCullough.
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. |
Last week PSA provided a 4Q21 operational update with data on move-in/move-out contracted rental rates, blended in-place contracted rental rates and occupancy. Interestingly, the blended contractual rate figure for the quarter come in right on target with our numbers despite the first sequential decline in move-in rates observed over the last five quarters.
This means two things: (1) typical seasonality is returning to the business where move-in rates are higher in the “busy” season (2Q/3Q) and lower in the “slow” season (4Q/1Q), and (2) existing customer rate increases (ECRI) are accelerating faster than we expected. I.e., rental rates to existing customers are being pushed upwards towards “street rates,” which is a more powerful driver of growth given a lengthening average stay.
It was a tough first week of the year for self-storage, but we found the fact that the space DID NOT trade lower on Thursday after the first decline in move-in rates for the primary bellwether was a positive for the space.
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. |
Liberty Media Formula One (FWONK) has had a great run since we made it a Best Idea Long in May 2021 in the mid-$40s. Many elements of our thesis have played out nicely as it relates to domestic viewership trends, which were up ~55% YoY in the U.S. in 2021. While the multiple has expanded from low 20s to high 20s over this period, there are multiple catalysts left that make us favor FWONK on the long side to start 2022.
- New sporting and technical regulations kick in starting this year, which should improve competition.
- The Inaugural Miami GP scheduled for May 6 – May 8th
- Renewal of upcoming U.S. media rights (Current F1 rights with ESPN are undervalued), which could see possible bidders from Amazon, Apple and Netflix. ← Most important catalyst
Meanwhile, we expect a material step up in financial performance in 2022 compared to 2019 (pre-COVID baseline). Note that Factset consensus estimates for 2022 partially reflect this improvement, with revenue ~18% higher than 2019 and adjusted OIBDA ~34% higher.
The 2022 Formula1 season kicks off in Bahrain on March 18-20. And while 2021 was an incredibly exciting year for the sport, we wouldn’t discount 2022 being another exciting year. We will continue to track viewership trends closely.
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. |
Whenever there is a new EV auto plant announcement, Rockwell is likely a beneficiary. Take Rivian’s first earnings call as a public company, the company announced a plan to build a 200k vehicle plant outside of Atlanta – doubling the size of its vehicle production capacity by 2024.
An English town, Somerset, has been trying to entice Rivian to build the largest industrial plant in the UK. All this leads to Rockwell being an attractive industrial benefitting from capacity tightening, supply chain concerns, retooling/new plants (e.g. EVs), and rising wages by offering automated solutions. ROK is projecting favorable trends into FY22.
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 annual Core FFO earnings power in short order versus ~$1.35/share currently. On the Macro Show two weeks ago we highlighted perhaps “the most important macro chart in REITs right now.”
Home price appreciation (HPA) leads leasing spreads by 3-4 quarters, which in turn lead actual rent results and earnings by another 2-3 quarters. Leasing spreads lagged against HPA growth shows a very high correlation. If the relationship holds and spreads accelerate into the low-single-digit or mid-teens range, it is conceivable that FY23 Street earnings estimates could be 20-25% too low.
This is exceedingly hard to find in the REIT sector, stay long.
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.
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 wrote last week that the Apartment subsector my may be a “tale of two cities” in 2022, with a potential divergence in performance between the Sunbelt names (MAA & CPT) underperforming and the Coastal Gateway names (AVB, EQR, ESS and UDR) outperforming.
At the very least there is an interesting funding short opportunity against a Coastal long, with Best Idea Long AVB remaining our favorite name on the long side. We see the potential for RoC acceleration throughout the year with SSNOI growth finishing up in the mid-teens range, initial FY22 guidance coming in ahead of expectations, and upward earnings revisions likely throughout the year.
Also, it is important to consider that AVB is a top-10 holding in the XLRE, so our bullish stance on REITs in a Quad 1/narrow Quad 4 regime + a Quad 4 in 2Q bodes well for AVB.
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 is making its first presentation at a large consumer conference next week. Although the conference is going to be virtual it should be well attended as the largest consumer conference of the year.
There are few consumer companies that have visible drivers to generate 30% growth. BRCC is coming public at a discount to the small group of companies that have the market potential and demand to target that level of growth.
Compared to food and beverage companies BRCC has multiple channels to drive growth and minimal penetration compared to the TAM. BRCC’s multiple will expand as investors gain conviction in the brand’s appeal and management’s ability to execute on their strategy.
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). |
Restaurant sales growth experienced a sharp downturn during the week of Christmas, but this was affected by the holiday falling during the weekend. Christmas fell on a Wednesday during the comparable week in 2019.
Beyond the effect of the calendar shift, there was some pullback from consumers, likely in response to heightened concerns from the spike in cases of Covid driven by the new Omicron variant. Sales growth was negative for the first time since March 14.
It was also the worst week for restaurant traffic during the same period. Sequentially, sales growth declined for all full-service segments compared to the previous week. The most significant drops were in casual dining, upscale casual, and fine dining.
Fast-casual experienced a significant improvement in sales growth, while quick-service only experienced a slight increase. The downturn in sales growth was widespread throughout the country, with 24 states plus the District of Columbia posting negative sales growth during the week. Only four states had negative sales growth the previous week. Sales growth performance worsened during the week in all regions of the country.
The top performers were the Southeast, Texas, Southwest, and Mountain Plains. The worst performing regions were New England, New York-New Jersey, the Mid-Atlantic, and Midwest.
EXAS
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Short Thesis Overview: 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! |
Exact Sciences (EXAS) shares have had a rough start to 2022 following a terrible 2021. As the Health Care team has explained, the late 2020 rip higher following a) the Cowen Liquid Biopsy Summit (a surprising response to positive liquid biopsy data) and b) acquisition of Thrive Earlier Detection hurt pretty bad (the stock ran to $130); however, nothing had changed with the core thesis. Cologuard, Exact’s main source of revenue, still has limited upside from here, and the competitive threats are coming from every direction.
We hosted Geneoscopy management (an RNA-based FIT test with data expected this year) back in Sept ‘21, Guardant and everyone else are racing to bring a liquid biopsy (blood-based) test to market for colorectal cancer screening/detection to the market, they are late on MRD, and EXAS just hired the Pfizer reps, taking on a boatload of cost/overhead to build out its primary-care focused sales team.
We’ve seen a positive trend in our claims data, but at the end of the day, management has complained about wellness visits and access to physicians’ offices for multiple quarters in a row, re-screening revenue seems underwhelming, and with Omicron being disruptive to start the year, we don’t see any reason to adjust our thinking. Growth is not likely to run away from us, and at ~$76, or 7.1x 2022 Street revenue estimates, we continue to see downside risk.
We remain Short EXAS on the Hedgeye Healthcare Position Monitor.
