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Long: PLBY, FWONK, AMH, PCAR, SBEA, AVB Short: RRGB, EXAS, CURV, BGFV, DDS, WRBY, AXP, RVLV |
Below are updates on our fourteen current high-conviction long and short ideas. We have added Warby Parker (WRBY), American Express (AXP), & Revolve Group (RVLV) 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. |
One of the challenges we think with PLBY is that this company simply has too many initiatives, and is almost falling victim to its own success from an investor communication perspective.
However, we still think that at the current share price, Honey Birdette, CENTERFOLD, and the NFT opportunities are being valued at ZERO (if not negative), and that the market is assuming that management flat-out fails to grow this portfolio of brands across consumer categories.
We continue to believe that PLBY is one of the most fundamentally mispriced securities in all of Consumer Discretionary.
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. |
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.
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. |
Like AVB the next catalyst for Best Idea Long AMH is 4Q21 results on 2/24. A week ago the company announced a 23 million common share offering, with 10 million shares sold current and an additional 13 million shares to be settled through year-end 2022, causing near-term dilution in the stock.
We expected this and had assumed 20 million shares issued this year in our model, as AMH needs to raise external capital to fund its accretive development program. Investors will recall a similar raise in May of last year, and what did the stock do over the next 9 months?
The simple math is as follows: trading at a ~4.4% unlevered cap rate (~23x multiple) and using that capital to acquire ~6.5% or higher yielding (~15x multiple) assets is value-accretive before leverage, so a sound capital allocation decision by AMH. If you have the ability as a capital allocator (which is what REITs are at the end of the day), you pull the trigger on that trade all day.
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. |
PCAR management has been reticent to give any real operating details for at least a couple of decades. When they say something like positive price relative to cost, they mean it. The call broadly moved the share price because the market knows that PCAR has good visibility into pricing. Costs should stabilize or improve along with volume.
We’d also note that market share was flattish in the quarter. We don’t ‘know’ but we’d bet PCAR management is trying to signal to Daimler Truck (and others) that market share is less important than prices. It would be very irrational for this consistently rational management team to signal anything else. While not confirmation of our thesis on industry pricing in the wake of the Daimler Truck spin, it is supportive and not disconfirming. It looks like one of the leaders is saying they want to ‘play nice in the sandbox’.
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! |
The next catalyst for Best Idea Long AVB will be 4Q21 earnings results to be released on 2/2. We look for a modest beat on the quarter, but more importantly an above-consensus guide with the Street at Core FFO of $9.39, including SSNOI growth likely to shake out in the low-to-mid-teens range.
It is possible that all of SSRev, SSNOI and Core FFO earnings growth show RoC acceleration throughout 2022 and into the final quarter of the year, and likely that both AVB and peer EQR post the highest SSNOI growth numbers in each of the companies’ histories.
One of the biggest advantages for the Coastal Gateway Apartment REITs is the relative lack of supply, which is much easier to develop across the Sunbelt where rental rate RoC is already rolling over. AVB’s large representation in the XLRE index is important in Quad 4.
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 only has a few outposts that have been operating for a couple of years. The revenue and returns from the stores have been attractive, as seen in the charts below.
A small section of the store featuring merchandise including apparel and drinkware in addition to bagged coffee provides a boost to the average ticket compared to other coffee stores. The returns have encouraged the company to greenlight an acceleration of outpost openings in 2022.
The outposts have also boosted DTC sales in the area as brand awareness grows with a physical location. 2022 will see Black Rifle Coffee Company grow its third revenue segment – stores, complementing wholesale and direct to consumer.
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). |
The restaurant industry posted its best sales growth in the last four weeks ending January 16; however, sales were not positive. Even with some sales improvement, traffic growth dropped to the worst levels since February of 2021.
Fine dining experienced the most significant decline in traffic growth compared to the previous week, followed by casual dining and family dining. Quick service and fast-casual were the only two segments able to improve traffic growth compared to last week.
Only limited-service segments (quick service and fast-casual) achieved positive sales growth for the last two weeks. A sharp downturn in dine-in sales occurred across all segments as concerns for new Covid cases continues to be a big negative for Casual Dining. Only 30 states posted positive sales growth during the week.
The best performing regions were the Midwest, Florida, New England, and the Western region based on sales growth. The worst was Southeast, Mid-Atlantic, Southwest, and California (-2.3%). Red Robin is a poorly positioned, undifferentiated Casual Dining concept.
EXAS
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Short Thesis Overview: We kept Exact Sciences (EXAS) on the Best Ideas Short list late in 2020 after getting run over by back-to-back press releases on liquid biopsy data and the acquisition of Thrive Earlier Detection. Why? Because the thesis hadn’t changed, and if anything, the optimism seemed misplaced. Core Cologuard volume appeared to be topping out, and at the end of the day, that’s EXAS’ primary source of revenue. Oncotype DX is still there, but at this point in time (January 2022), there’s nothing but competition for everything EXAS does on the horizon, and we think Thrive’s contribution will be expensive and take a long time to come to fruition. Now, EXAS seems more like a follower than leader, and its hiring of Pfizer’s primary care sales force and entry into the hereditary cancer testing market make it seem like a “less special” lab that doesn’t deserve a growth multiple. |
Exact Sciences (EXAS) shares remain under pressure and on the Health Care team’s Best Ideas Short list. No change to our overall thinking as of Friday, 1/28, with the stock in the high $60s. The only thing we considered this week was There’s a new frontier in detecting cancer: blood tests (Boston Globe).
There are going to be some great stories around early detection, and this article includes one related to Thrive (EXAS), but then there's also this point of view: "Dr. H. Gilbert Welch, a general internist and senior investigator at the Center for Surgery and Public Health at Brigham and Women's Hospital, said researchers haven't held large randomized clinical trials to determine if liquid biopsies would save lives. While it may be counterintuitive, he said, earlier cancer detection and treatment doesn't necessarily prolong life with aggressive forms of the disease - it often just lengthens the time between diagnosis and death." The science is advancing rapidly, and Exact’s/Thrive’s CancerSEEK is a clear leader/contender, but it's not yet clear how long it'll take to prove this out or for clinical pathways/guidelines and reimbursement to follow.
Also, we still can't get our arms around Exact hiring the whole Pfizer primary care sales team after talking about wellness visit trends and office access issues being headwinds for Cologuard sales. How will they fare when this Omicron wave recedes? We also wonder if Guardant’s, Geneoscopy’s, and others’ clinical trials in this space are having an impact on Cologuard volume. At the same time, there’s innovation on the colonoscopy side (AI, prep-free, etc.), which remains the Gold Standard for CRC screening.
CURV
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Short Thesis Overview: We first shorted Torrid on 9/12 at $22 calling for 40%+ downside in a name where the PE sponsor and the Bankers were selling the Street a false bill of goods. The stock is now down 55% from our call 3.5 months ago, and no longer has the downside worthy of Best Idea designation. Taking this one down to Short Bias list. We still think sales and earnings expectations re too high in FY22, and Sycamore is still squatting on 75% of the shares outstanding that will likely be sold on any pop in the stock. Our bias here is still to the downside. |
This was actually a special model a decade ago (when Sycamore bought it for ~$50mm as part of Hot Topic) when no one served the plus-sized consumer. But now EVERYONE is selling plus sizes – with the two biggest threats this year and next being Old Navy and Shein.
The question now is how low can this thing go. We question who in the world will step up and support this stock in this market while Sycamore is sitting on ~75% of shares outstanding. We’ve said all along that they would end up selling closer to $12.
On a lower earnings base and a deflating multiple as the bull case being pitched by the bankers is proving to be punk, we could actually be looking at a selling event in the single digits that will continue to push this thing even lower.
BGFV
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Short Thesis Overview: This name remains a huge covid beneficiary as the Sporting Goods space became white hot, sales and margins surged, and earnings went up by a factor of 10x. Yes, the company earned $0.43 per share pre-covid, and this year should clock in at ~$4.30. But the major factor that people are forgetting is that Nike fired Big Five as a customer – and Nike accounted for ~20% of BGFV soft goods business, and was a major traffic driver. So BGFV earned $0.43 pre-covid WITH Nike, what do you think happens when it LOSES Nike? We think that next year this company will be lucky to earn $1.50 per share – suggesting that it’s currently trading at almost 20x earnings. This name should probably trade at about 10x. |
BGFV pre-announced 4Q ahead of street expectations. Though it means little as the company is about to lose Nike as a vendor and face significant earnings risk. BGFV earned $0.43 pre-covid WITH Nike, what do you think happens when it LOSES Nike? We think that next year this company will be lucky to earn $1.50 per share – suggesting that it’s currently trading around a mid teens multiple. This name should probably trade at about 10x, and we might be underestimating the earnings reversion risk with $1.50. The CEO was dumping stock last fall for good reason.
DDS
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Short Thesis Overview: Dillard’s (DDS) | Upping to Best Idea Short List. Two weeks after going short DDS, we’re adding to our Best Idea list. We were long DDS earlier this year, and got off too early, but think it’s time to go the other way. Bulls will make the argument that the company is slowly taking itself private. But then why did it just pay out ~50% of its cash balance in the form of a special dividend instead of buying back its stock. |
Bulls will make the argument that the company is slowly taking itself private. That’s been the argument on this name for the last decade. But then why did it pay out ~50% of its cash balance in the form of a special dividend instead of continuing to buy back its stock?
Net cash on the balance sheet today is only $54mm, when we’re heading into a big mean-reversion year for apparel spending – especially in the secularly-challenged department store space.
We’d hardly call DDS cheap at 12x earnings – especially with earnings clocking in at an unsustainable 10x pre-covid levels and only 10% of the float is short today vs 40% pre-pandemic. In the $200s we definitely like this name on the short side.
WRBY
Hedgeye CEO Keith McCullough added Warby Parker (WRBY) to the short side of Investing Ideas. Below is a brief note.
What makes stocks bounce to lower-highs in bear markets? Lots of things. And, yes, the Russell and Small Caps are in a #Quad4 bear market...
This Barron's bounce in Warby Parker (WRBY) is as old as ye Olde Wall itself.
On the fundamentals, subscribers to real research (not Barron's journo articles) can read content like this from Retail analyst Brian McGough's Research Pro subscription:
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Warby Parker – WRBY, New Short Idea. (Note: We’re co-covering this one with Tom Tobin and our Healthcare research team.) Warby Parker, the trendy glasses store, came public via Direct Listing at $40/share back on Sep. 29th, traded up to about $55 and is now back in the $45 range. While we buy-in to the top line growth opportunity for WRBY in the highly fragmented glasses space, we think that the profitability expectations laid out in the S-1 and company roadshow are far too aggressive. The name currently gets a disruptor-esque 8x EV/Sales multiple... |
AXP
Hedgeye CEO Keith McCullough added American Express (AXP) to the short side of Investing Ideas. Below is a brief note.
Nice job selling the Financials (XLF) when you should have...
I should have sent you this American Express (AXP) SELL signal at the same time, but I had to strap on the ole feed bag and have some lunch post RTA Live!
Here's a good summary excerpt from Financials analyst Josh Steiner's Financials Pro research product on reiterating the sell on AXP:
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Takeaway: We maintain our negative outlook based on the market's extrapolation of reflationary dynamics for AXP amid a current and persisting Quad 4. Recap: AXP reported 4Q21 EPS of $2.18 vs. expectations for $1.86, with the company beating estimates broadly across its top-line and posting a higher-than-expected reserve release flowing through the P&L as lower-than-expected provision expense. Domestic and international billed business came in at +33% y/y (+16% vs. '19) and +32% y/y (-1% vs. '19) versus expectations for +27.5% y/y and 24.2% y/y, respectively. In total, billed business meaningfully accelerated against 2019 levels from +4% in 3Q21 to +12% in 4Q21, driven by strength in goods and services spending, and led by domestic strength. |
RLVL
Hedgeye CEO Keith McCullough added Revolve Group (RVLV) to the short side of Investing Ideas. Below is a brief note.
Waiting on bear market bounces is a big part of The Game...
Most people who have neither accurately called for a crash nor been able to risk manage one have no idea how to do this. You do.
During a bear's bounce here are 3 things to look for:
- The color green
- Bearish @Hedgeye TRADE and TREND Signals
- Bouncing on #decelerating volume
Revolve Group (RVLV) passes that 3 factor test. It's also another one of Retail analyst Brian McGough's beauties, on the short side.
Here's a quicky on why from his Retail Pro research product (subscribe!):
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Revolve (RVLV): Taking Higher on Best Idea Short list. Putting this one ahead of Best Buy in the #3 spot (behind Wayfair and Etsy). The short has worked by 15% thus far in the month since we added it to our Best Idea short list, but there’s much more downside to come. We think this is as close to the next SFIX (which we shorted from $80 to its current $19) as we can find in apparel retail. |
