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Short: INVH, HZO, MPW, PEB, TSLA, RVLV, BBY, UHAL Long: PLBY |
Below are updates on our nine current high-conviction long and short ideas. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
INVH
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Short Thesis Overview:
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INVH is REIT analyst Rob Simone's second favorite REIT short. The SFRs just let the world know that we were correct on our call that property taxes, as well as opex generally, will be growing well-above a decelerating top-line in FY23. Margins have already peaked and FY23 numbers need to come down. We do not think that Invitation Homes (INVH) has the "pricing power" the company claims, otherwise there would be no need for discounting to maintain occupancy. In our view SFR should trade at a discounted multiple to seasoned, high quality and more efficient multifamily. The non-permitting whistleblower case remains a tail risk, and we expect to know if the case is allowed to continue by February/March.
HZO
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Short Thesis Overview: This is definitely a play on ‘shorting the rich’. MarineMax (HZO) is a retailer of new and used boats as well as aftermarket parts, maintenance, storage, financing and some other small business pieces. Consensus straightlined peak 32% margin into perpetuity and is modeling that $7 in EPS power holds steady over a TAIL duration. This company has reversion risk all through the P&L from peak revenue growth to peak margins to peak earnings power. A consumer facing high macro level spending headwinds along with a normalization of the inventory position and a mix reset back to normal selling will likely see gross and operating margins fall back to historical levels and presents ~40% downside in the stock – entirely from a massive negative earnings revision. |
For the first time in a couple years the monthly luxury goods consumption went negative for October, after decelerating the last few months. October consumption was down 2.5% YY. The macro environment will continue to worsen the next couple of quarters, so this deceleration will be the new norm. MarineMax (HZO) will continue to see sales and earnings pressure as demand slows over the coming quarters.
MPW
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Short Thesis Overview: Medical Properties Trust (MPW) is not a traditional triple-net REIT, rather an investor in hospital systems ("WholeCos" using the company's own words). In the process MPW removes the arbitrage from a traditional PorpCo-OpCo arbitrage. These investments are structured as loans + equity investments to the operator tenants, which are in many cases distressed and owe significant rent payments back to MPW as landlord. The arrangement is circular and depends on MPW's ability to raise attractively-priced external capital. Assuming all goes perfectly for MPW and there are no tenant issues, and with an updated distressed cost of capital, we estimate the stock is worth no more than $5-$6/share today. |
All eyes are on December 15th, which is the deadline for Medical Properties Trust's (MPW) largest tenant Steward Health to complete its 2021 audit + satisfy other lender requirements to get its ABL credit facility extended, otherwise Steward will face a default. Given that MPW cannot afford to let Steward default, we believe that MPW will likely be forced to lend to Steward on a subordinated basis, refinance a portion of the debt or to guarantee the whole thing. At that point MPW will likely “own” all or a majority of an insolvent operators’ capital stack, leaving MPW with one remaining option: a rent reduction to more sustainable levels, which will destroy MPW’s equity value.
One thing is clear: MPW’s explanation at NAREIT that there is a technical issue holding up the Steward audit makes no sense and should be discounted. With the stock trading at a ~6% cap rate, the market is nowhere close to discounting the very significant tenant credit risk here. We see a stock worth no more than ~$6-7/share, and believe we will know if we are correct by the end of 2Q23.
PEB
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Short Thesis Overview: Pebblebrook Hotel Trust (PEB) has a highly leveraged balance sheet, challenging exposures (heavy urban mix), extremely difficult resort property comps, and rather full valuation as compared to peer set + history. We see regression towards the mean in the cards on valuation + estimate reductions, which makes for a challenging combination over the NTM. |
US RevPAR trends were pretty solid across the board this past week and as always, we’re a lot more focused on the broader trend and the components of RevPAR growth. The way we see it, until the business proxies improve, especially the urban and business market ones, the industry is going to be in a tough spot.
Furthermore, sentiment around service levels and staffing have been of particular interest to us in recent months given the hiring backdrop. Recent survey results show that planners’ concerns around hotel staffing just hit a YTD high as industry group demand recovers well ahead of service levels.
This is going to become a huge problem for many hotel owners (cough: PEB) who have not prepared adequately for the groups they’ve booked when it comes to staffing. We continue to see incremental downside in Pebblebrook Hotel Trust (PEB) and most FS REIT stocks. PEB remains a Best Idea Gaming, Lodging & Leisure Short at Hedgeye.
TSLA
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Short Thesis Overview: Tesla's (TSLA) numbers are messy with far too much inventory, improbable OpEx containment, and flat to lower margins. But Musk’s salesmanship has become increasingly goofy. Tesla is just a ‘pandemic liquidity’ driven bubble stock that is likely already in the midst of a downward revaluation. |
We won’t get our next round of EV survey results back until next week, but there is some evident pressure on Musk’s personal brand that spills over to Tesla (TSLA). It is almost certain that more people have an impression of Musk than have had an opportunity to drive a Tesla. Musk and Tesla are entwined by more than net worth. We’ll ask respondents directly about their view of Musk in the current survey round. If Musk loses his luster, Tesla is likely to as well. Tesla didn’t burn more than about $9 billion as it got underway.
Criticism of Musk on Twitter is risky, and we’ll increasingly refrain from tweeting about Tesla. We likely aren’t the only ones. But the asymmetric catalyst lists – DOJ investigation(s), angry CCP re: twitter’s coverage of COVID protests, further Musk share sales to fund twitter, or Musk’s own politicized associations with less broadly attractive characters, etc.
RVLV
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Short Thesis Overview: Revolve Group (RVLV) has a problem with rising returns and rapidly building inventories. The company notes it has high quality inventory, and that it will retain its value, but because of softening demand, and the desire to reduce that inventory, there will be some measured promotions. Maybe this is possible in a normal environment, but EVERY APPAREL COMPANY HAS TOO MUCH INVENTORY. Good luck moving inventory in a measured fashion when every company is trying to clear product at the same time. |
Revolve Group (RVLV) management was at the Credit Suisse Technology Conference this week. Didn’t really say anything new. Addressed the down trend in gross margins in the last quarter from the prior quarter, while talking out of both sides of their mouth saying they have more inventory than they would like but then also that they’re “disciplined when it comes to inventory”.
With excess inventory, margins will continue to erode, especially since management said they don’t mind holding onto excess inventory. Probably not the best idea since, in apparel, fashion trends shift very quickly and it’ll probably result in steeper markdowns and lost sales when they don’t markdown a product and a competitor does. Reiterating what we’ve been saying, gross margins are and will continue to take a hit in the upcoming quarters.
Also, management out-right said that comps are going to be tough for the next few quarters and the macro environment is uncertain. We think comps are going to be even worse than what management is guiding to, but investors don’t believe management or aren’t paying attention to what’s going on since the stock is still trading at 32.2x multiple.
BBY
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Short Thesis Overview: Category demand is weak, inventories high, and we think the US consumer will continue to weaken as we face multiple Quad4. |
Traffic trends for both electronics stores and Best Buy (BBY) specifically have trended better this last week, but are still negative YY. BBY traffic trends have been slightly below the category as a whole over the last couple of months – a more bearish sign.
On the flipside, it may seem bullish that Google Insights this last week shot up to positive 20% YY, which is a big acceleration from the prior six weeks of hovering around down 20%. This uptick in Google searches isn’t anything to cling to since it was the week of Thanksgiving with Black Friday sales. BBY has been and still is running promos, with “Deal of the Day” and “20 Days of Deals”.
Anything to increase traffic and purchases as demand slows. We don’t expect 4Q to beat expectations, and still see a short play here.
UHAL
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Amerco (UHAL) is a great company, with a horrible RoC profile at the worst part of the cycle. It's a "value trap" that only appears cheap on peak earnings. We do not like the recent stock split with a new series of non-voting stock + a name change (finally!) at an inflection point in the cycle. This is another "over-earner" amidst COVID that needs to revert past the mean and return to "normal" earnings power. |
Two weeks ago Amerco (UHAL) executed a 9:1 stock dividend, issuing shareholders 9 shares of new non-voting “UHALB” for every share of UHAL. This was a very non-shareholder friendly transaction which increased the total float of shares but preserved the voting interest of the controlling family. We believe market participants have been selling the non-voting shares on the margin and bidding up UHAL.
In the end we see a company that is over-earning by about 40% and carrying a value trap multiple. Longer-term we think the company probably is not long for the public markets, but in the interim is a really interesting short opportunity for a cyclical business at peak earnings power and at the wrong point in the cycle.
PLBY
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Long Thesis Overview: One thing we see Playboy (PLBY) doing more now is its ability to tier product by price, channel (although PLBY leans into its own DTC channels), and consumer. The two products PLBY does this for are its lingerie and its ready-to-wear apparel. On the lingerie side, from highest price/consumer to lowest, the company has Honey Birdette with price points in the $100s, Playboy lingerie in the $50s, and Yandy in $20s. On the apparel side the company has, from highest price/consumer to lowest, its BigBunny brand in the $100s, Playboy Collaborations in the $70s, and Playboy Apparel in the $50s. This is a strategy that many of the best apparel brands, like Nike, execute to perfection. If Playboy can continue to execute on this strategic initiative, the apparel/lingerie offering will have years of profitable growth ahead |
It appears that PLBY Group closed down its CENTERFOLD Instagram site. Not a complete surprise, given that it’s changing the name and folding it under the core Playboy (PLBY) brand. The stock caught a bid this week, as we think that sentiment on the name has found a bottom, and we think fundamentals have as well.
We’d expect to see what was formerly known as CENTERFOLD to re-brand and re-launch in the coming months. The market is not paying one red cent for the initiative with the stock trading at a 40% discount to liquidation value, but it remains a HUGE call option if the initiative succeeds.
