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Short: MPW, EWCZ, MCD, ULTA, DE, CRM, ALGN Long: DKNG, XYL, TTD, PINS, NEM, DGX, PM, EXPD, EAT, VIK, ULS, PSA, XOM, CPT, AVB, IRT, T |
This week we added Independence Realty Trust (IRT) and AT&T (T) to the Long side. We added Align Technology (ALGN) to the Short side. We removed Warby Parker (WRBY) from the Long side and Tesla (TSLA) from the Short side.
See below for updates on our 22 current high-conviction Long and Short ideas. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
DKNG
Sector: Gaming, Lodging, and Leisure
Sector Head: Sean Jenkins
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THESIS SUMMARY: Investors should be bullish on DraftKings (DKNG) due to its impressive growth metrics, market dominance in online gaming and sports betting, and a clear pathway for future expansion and profitability in a rapidly evolving industry. Read full DKNG stock report, "DraftKings (DKNG): A Standout Investment in the Booming Online Gaming Market." |
WEEKEND UPDATE: DraftKings (DKNG) - This week our GLL team hosted a presentation reiterating their bullish stance on DKNG. They continue to believe that there is significant upside in iCasino, and that DKNG will benefit. The second act of prior catalysts is set to return, and plenty of new catalysts are emerging. Most of the negative narratives on the online space can be debunked (hold %, user growth, market share, margins, taxes). There's more gas in the tank.
XYL
Sector: Industrials
Sector Head: Jay Van Sciver
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THESIS SUMMARY: Xylem Inc. (XYL) is poised for growth as a leader in global water infrastructure, benefiting from increased awareness, legislative support, and strategic positioning in sustainable water management amidst rising demand for water treatment and infrastructure upgrade. Read full stock report, "The Rising Tide of Water Tech: How Xylem Inc. (XYL) is Pioneering the Future." |
WEEKEND UPDATE: Xylem (XYL) - The company is committing $50 million to support emerging companies and water service providers addressing critical climate challenges like water scarcity, quality, and decarbonization. By investing directly in startups and specialty venture capital funds, Xylem aims to accelerate the availability of innovative water solutions. These investments focus on advanced treatment, digital technology, and services for managing complex water systems. Sivan Zamir, VP of Xylem Innovation Labs, emphasizes the importance of entrepreneurial founders and disruptive technologies in tackling global water challenges and believes collaboration with venture capital firms and startups will bring essential innovations to market quickly.
TTD
Sector: Communications
Sector Head: Andrew Freedman
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THESIS SUMMARY: The Trade Desk operates in a large and expanding global digital advertising market, gaining traction with increasing shares from programmatic advertising. The company is well-positioned to benefit from ongoing industry consolidation, aiming to capture more market share as the DSP industry continues to evolve. Read full TTD stock report, "The Trade Desk (TTD): Benefiting from Network Effect Expansion" |
WEEKEND UPDATE: The Trade Desk, Inc. (TTD) - Fox Corporation and The Trade Desk have expanded their partnership to enhance advertising capabilities and performance measurement. Paul Cheesbrough, CEO of Tubi Media Group, emphasized their commitment to premium content and a more open internet through their AdRise technology platform. This partnership extends Tubi's adoption of Unified ID 2.0 (UID2) and OpenPath technologies across FOX's portfolio, enabling precise addressable inventory transactions and easier access to premium inventory for advertisers. AdRise, part of FOX's 2020 acquisition of Tubi, is a purpose-built ad technology platform for CTV and linear inventory, now an enterprise-wide platform under Tubi Media Group, offering direct access to FOX's entire brand portfolio.
PINS
Sector: Communications
Sector Head: Andrew Freedman
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THESIS SUMMARY: Pinterest has capitalized on a recovery in user engagement and monetization efforts post-COVID, with growth in mobile user metrics and enhancements in ad technology and content personalization. Read full PINS stock report, "Pinterest (PINS): Pin the Tail on a Winner" |
WEEKEND UPDATE: Pinterest (PINS) - Freedman maintains we are in the "reallocate" phase of the ad cycle, where incremental ad dollars are still flowing into the digital economy, but efficiency declines at large ad platforms like META and GOOGL have caused those incremental dollars to go to more experimental platforms like Pinterest (PINS) and Snapchat (SNAP), among others. Advertisers are looking for lower CPMs / CPAs / CPCs and higher returns, leading them to try new channels and take new approaches. During the reallocate phase of the ad cycle, experimental platforms benefit from an increase in incremental ad dollars coming their way - this has led to estimates for both companies to tick upwards slightly for Q2 and 2H24 and we remain bullish on PINS
NEM
Sector: Industrials
Sector Head: Jay Van Sciver
WEEKEND UPDATE: Newmont Corporation (NEM) - Newmont is strategically investing in growth projects such as the Tanami Expansion 2 in Australia, the Ahafo North expansion in Ghana, and the Cadia Block Caves in Australia, which will boost production capacity and extend mine life. The acquisition of Newcrest Mining Limited has enhanced Newmont's portfolio, offering a multi-decade gold and copper production profile in favorable mining jurisdictions. This merger is anticipated to deliver significant shareholder value and synergies, with expected annual pre-tax benefits of $500 million by 2025. Newmont is also on track to meet its 2024 gold production target of 6.9 million ounces, supported by its managed Tier 1 assets and the newly acquired sites from Newcrest.
DGX
Sector: Health Care
Sector Head: Tom Tobin
WEEKEND UPDATE: Quest Diagnostics (DGX) – The company announced it will acquire select assets of OhioHealth's outreach laboratory services to enhance access to affordable lab services in Ohio. Patients and providers will gain from Quest's extensive test menu, statewide service sites, and lower costs. Post-acquisition, most outreach testing will move to Quest’s Pittsburgh lab, while OhioHealth will retain its hospital labs. The transaction is expected to complete in Q3 2024, pending regulatory approval. Financial details were not disclosed.
PM
Sector: Consumer Staples
Sector Head: Daniel Biolsi
WEEKEND UPDATE: Philip Morris International (PM) - A Bloomberg article said there is a wave of unauthorized nicotine pouches entering the U.S. as the market deals with supply shortages of Zyn. The article said U.S. regulators are having a challenge contending with the new entrants, many of which are coming from China, after dealing with an explosion in unauthorized flavored vapes last year.
We contend that the demand for illicit tobacco products is mostly due to government prohibition. For oral nicotine pouches, the recent growth in demand for unauthorized products is due to temporary supply shortages of Zyn and a limitation of flavors due to a perception of what the FDA would approve. In Q1, when supplies were available, Zyn gained a share within the category. With the Supreme Court recently overturning Chevron deference, the FDA will have more difficulty in banning flavors for oral nicotine pouches. Philip Morris should be able to regain market share when supplies improve later this year. The retail channels that represent most oral nicotine pouch sales have a lot to lose by selling unauthorized products, which differs from the retail market for vaping. BAT has stated that 60% of the U.S. vaping market is comprised of illicit disposables, and another 20% is comprised of open-system vapes. In Louisiana, the first state to implement a directory of authorized vaping products, sales of illicit vapes have been falling by double-digits.
EXPD
Sector: Industrials
Sector Head: Jay Van Sciver
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THESIS SUMMARY: EXPD provides global logistics services, benefiting from stabilizing freight rates and effective volume consolidation, with positive financial performance and strong shareholder returns positioning it for future profit growth Read full EXPD Stock Report, "Expeditors International of Washington (EXPD): Exiting Miserable Part of Cycle" |
WEEKEND UPDATE: Expeditors International of Washington (EXPD) - After over two years of pressure on post-pandemic freight rates, we are finally seeing signs of stabilization in pricing. The sector is likely exiting the worst phase of its cycle, with a bottoming out of freight pricing and improvements in capacity relative to demand growth expected through 2024.
EXPD been successful in consolidating volume in key lanes and leveraging their unique market insights to effectively buy and remarket capacity, serving essentially as liquidity providers to the freight markets through robust asset owner and shipper relationships. As a reseller of others capacity, the downward trend in rates was a significant drag. Rising rates would be a welcome tailwind, especially if prolonged in a more Quad 2/Quad 3 macro environment.
EAT
Sector: Consumables
Sector Head: Howard Penney
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THESIS SUMMARY: The parent of Chili's and Maggiano's demonstrates resilience and strategic agility with strong financial performance and competitive positioning, making it a compelling investment in the casual dining sector. Read full EAT Stock Report, "Brinker International (EAT): Strategic Mastery in Chain Restaurants" |
WEEKEND UPDATE: Brinker International (EAT) - The Beastie Boys have filed a lawsuit against Brinker International, the owner of Chili's, in New York federal court. The group claims that Brinker used their 1994 song "Sabotage" in Chili's social media ads without permission, falsely implying their endorsement. The lawsuit highlights that the ads featured characters resembling those in the song's famous music video. The Beastie Boys, who do not license their music for commercial purposes, are seeking at least $150,000 in damages and a court order to stop Brinker from using their work. The group previously won a $1.7 million verdict against Monster Beverage for a similar issue in 2014.
VIK
Sector: Gaming, Lodging, and Leisure
Sector Head: Sean Jenkins
WEEKEND UPDATE: Viking Holdings (VIK) - The company announced that its newest ocean ship, the Viking Vesta, has been floated out, marking a major construction milestone. After a two-day process, the ship will be moved to an outfitting dock for final construction. The Viking Vesta, a small ship with a gross tonnage of 54,300 tons and 499 staterooms for 998 guests, is set to debut in July 2025, sailing in the Mediterranean and Northern Europe. CEO Torstein Hagen looks forward to welcoming the Viking Vesta and her sister ship, the Viking Vela, next fall.
ULS
Sector: Industrials
Sector Head: Jay Van Sciver
WEEKEND UPDATE: UL Solutions (ULS) - has acquired TesTneT Engineering GmbH, a Germany-based leader in hydrogen component and system testing, to enhance its expertise in alternative fuels and support global decarbonization efforts. TesTneT, with locations near Munich and Vancouver, serves the automotive sector and top-tier manufacturers. This acquisition strengthens UL Solutions' position in the hydrogen industry by adding advanced testing capabilities and deep industry knowledge. Jennifer Scanlon, CEO of UL Solutions, emphasized the importance of hydrogen in sustainable energy transition. TesTneT, founded in 2009, offers comprehensive hydrogen testing services. The acquisition was completed on July 8, 2024, with financial terms undisclosed.
PSA
Sector: Real Estate Investment Trusts (REITs)
Sector Head: Rob Simone
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THESIS SUMMARY: PSA maintains by far the most conservatively levered balance sheet, proving it with the greatest ability among storage REITS to supplement internal “same store” growth with accretive “external” growth via acquisitions and developments. Read full PSA Stock Report, "Public Storage (PSA): Safest In Self-Storage" |
WEEKEND UPDATE: Public Storage (PSA) - Store Space Self Storage has promoted David W. Collins from Chief Marketing Officer to President and Chief Operations Officer. Collins, with over 17 years of experience, will oversee daily operations, expand the company’s footprint, and increase investor value. Since joining Store Space last year, he launched a new website, property-management system, and the Speed-e-Rent e-sign platform. Previously, he was with Public Storage Inc., where he developed the mobile website, eRental, and mobile app.
XOM
Sector: Energy
Sector Head: Fernando Valle
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THESIS SUMMARY: Exxon Mobil Corporation stands at the forefront of the energy sector’s evolution, poised for significant growth and value creation. With premier assets in Guyana, the Permian and Qatargas, a strategic focus on core hydrocarbon operations, and a forward-looking approach to the energy transition, Exxon represents a compelling investment opportunity. Read full PSA Stock Report, "Exxon Mobil (XOM): Impending Energy Inflection Point" |
WEEKEND UPDATE: Exxon Mobil (XOM) - Chevron Corp and Hess Corp expect the U.S. Federal Trade Commission (FTC) to review their proposed $53 billion merger in the third quarter of this year. Bloomberg News reported that the FTC's decision might be delayed until after an arbitration case with Exxon Mobil is settled, possibly extending into the fourth quarter. Chevron and Hess aim to resolve the arbitration dispute by the end of 2024, though Exxon anticipates it could extend into 2025. The deal has stalled due to Exxon's March arbitration filing, claiming preemption rights over Hess' assets in Guyana. A review panel for Exxon's claim has not yet begun, but proceedings are expected to be scheduled soon. Hess owns 30% of Guyana's Stabroek block, operated by Exxon with a 45% stake, and China's CNOOC Ltd holds the remaining 25%. The companies plan to double production to 1.3 million barrels per day by 2027.
CPT
Sector: Real Estate Investment Trusts (REITs)
Sector Head: Rob Simone
WEEKEND UPDATE: Camden Property Trust (CPT) - We think both FY24 & FY25 Street numbers are too low and so, by definition, have the 2025 RoC on NOI + earnings both picking up and higher than expectations. "Bottoming" is a process, and we think CPT is near the trough on RoC for most of its key metrics. We do not yet model in any development starts in FY24, but obviously they would add "TAIL" earnings power and be accretive IF, with CPT trading at a ~5.4% net effective cash cap rate, it can achieve >$3k stabilized rents on those new assets.
AVB
Sector: Real Estate Investment Trusts (REITs)
Sector Head: Rob Simone
WEEKEND UPDATE: AvalonBay Communities (AVB) - We continue to view AVB as the one name in MF that we are comfortable owning over a TAIL: (1) we see earnings and cash flow accelerating on RoC heading into FY25, (2) the balance sheet is in great shape already, and should naturally de-leverage further as ~$2.5 billion development pipeline delivers (~$1.7 billion already spent), (3) rate growth is outperforming so far in FY24, leading to guidance raises, and (4) AVB is growing NAV, which in our framework is more important vs. absolute premiums/discounts to NAV.
T
Sector: Communications
Sector Head: Andrew Freedman
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THESIS SUMMARY: New dynamics around Fixed Wireless, Fiber Optic Internet, and the end of the Affordable Connectivity Program have caused concerns for traditional cable companies, but AT&T’s consistent results and diverse range of products positions them well to capitalize on emerging trends. The TAIL duration (3 years or less) outlook looks strong. Read full stock report, "AT&T (T): Telecom Giant" |
WEEKEND UPDATE: AT&T (T) - The company announced a significant data breach in which call and text message records of nearly all its wireless customers and customers of mobile virtual network operators using its network were exposed. The breach involved unauthorized access to an AT&T workspace on a third-party cloud platform, compromising data primarily from May 1 to October 31, 2022, and some records from January 2, 2023. The stolen data includes telephone numbers, counts of interactions, and aggregate call duration but does not contain the content of communications, Social Security numbers, dates of birth, or other personally identifiable information. AT&T emphasized that the breach occurred outside its network and that its systems were not compromised. In response, the company has enhanced cybersecurity measures and is cooperating with law enforcement, reporting that at least one individual has been apprehended.
MPW
Sector: Real Estate Investment Trusts (REITs)
Sector Head: Rob Simone
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THESIS SUMMARY: The company 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. The equity is very possibly completely worthless, as we think the assets are worth no more than ~$6.5 billion (updated) to true "arm's length" third-party buyers vs. pro forma net debt of ~$10.5 billion at share. |
WEEKEND UPDATE: Medical Properties Trust (MPW) - There was a story run by CBS reporting that Steward Healthcare is under federal investigation for fraud and corruption; Steward is MPW’s largest tenant; this investigation could take a very long time; throws a major wrench in the Steward bankruptcy; MPW remains a short.
EWCZ
Sector: Retail
Sector Head: Brian McGough
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THESIS SUMMARY: We are Short European Wax Center (EWCZ) due to future negative comparable store sales (comps), an uncertain pricing strategy, high franchise costs, and an increasingly leveraged financial structure. Read full stock report, "European Wax Center (EWCZ): A Profitable Opportunity From a "Failed IPO." |
WEEKEND UPDATE: European Wax Center (EWCZ) - Next week is Amazon’s Prime Day, which will offer promotions on beauty products, at the same time as beauty retailers are increasing promos. Consumers can easily turn to and be persuaded by a good deal to switch to a cheaper and at home alternative to hair removal. Recently, hand-held laser hair removal devices have gained prominence and will be included in Prime Day. The ease of use and cost benefits for substitute products has continued to increase, and with the consumer under pressure it is likely they will take advantage of this. We expect to see continued slowing trends in EWCZ. This stock was on a solid downward trend over the last week. We think the stock will head lower as trends continue to slow.
MCD
Sector: Consumables
Sector Head: Howard Penney
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THESIS SUMMARY: The company is facing economic pressures due to inflation on top of shifting consumer preferences, causing them to modify pricing strategies among other changes being made. Read full stock report, "McDonald's (MCD): McSlowing" |
WEEKEND UPDATE: McDonald's (MCD) - McDonald's has faced challenges this year as consumer spending shifts towards cooking at home. CEO Chris Kempczinski noted in February that the chain saw fewer transactions from customers earning $45,000 and below, a key demographic for McDonald's. This trend is expected to continue through 2024. According to data from Placer.ai, McDonald's experienced negative year-over-year traffic comparisons for nine of the 27 weeks measured this year. Only three weeks showed traffic increases above 3%, specifically the weeks of January 29 (up 7.6%), February 5 (up 3.5%), and July 1 (up 3.1%).
ULTA
Sector: Retail
Sector Head: Brian McGough
WEEKEND UPDATE: Ulta Beauty (ULTA) - The traffic data for ULTA over the last few weeks has looked relatively steady up YY. The stock hit one-month highs this week. We still think this company has risk to the downside. It just launched a new brand in Naturium which is owned by Elf. It will drive some sales, but will struggle to help the company comp the comp vs its bigger prestige launches of last year. ULTA may be able to put up top line growth but it will certainly come at the expense of margins and as margins come down, the multiple and earnings estimates will likely come down with. A fair price for the stock is morel like something starting with a 2-handle rather than the $400 of today.
DE
Sector: Industrials
Sector Head: Jay Van Sciver
WEEKEND UPDATE: Deere (DE) - The company will lay off 345 workers at its Waterloo operations on September 20, 2024, due to reduced demand and rising costs. This adds to nearly 2,000 job cuts since last fall, affecting multiple locations. Deere has reported declining sales and lowered its 2024 profit forecast. The U.S. Department of Agriculture forecasts a 25.5% drop in net farm income, further reducing equipment demand. Despite moving some operations to Mexico, Deere remains committed to U.S. manufacturing, employing over 30,000 people in more than 40 facilities. Laid-off employees will receive benefits including supplemental unemployment pay and extended health care coverage.
CRM
Sector: Software
Sector Heads: Andrew Freedman, Felix Wang
WEEKEND UPDATE: Salesforce (CRM) - Last week, Salesforce investors voted against the company's compensation plan for their CEO, Marc Benioff, with concerns about the additional equity awards. In January, the board’s compensation committee proposed giving Benioff a second long-term equity award worth $20 million. Benioff is already among the largest holders of Salesforce, with a stake of over 2% valued at close to $6 billion. A shareholder advisor committee stated that the additional performance-based restricted stock units and stock options were “unwarranted” because his interests were already aligned with that of shareholders. The resolution to approve the compensation received 339.3 million votes in favor and 404.8 million against at the annual meeting held on Thursday. Benioff made roughly $40 million in total compensation in FY2024, up 32% year over year.
ALGN
Sector: Health Care
Sector Head: Tom Tobin
WEEKEND UPDATE: Align Technology (ALGN) - This week we added ALGN to Investing Ideas. Below is commentary from Hedgeye CEO Keith McCullough within "Real-Time Alerts"
Looking to hedge and/or SELL names that are A) Bearish @Hedgeye TREND Signals and B) nearing the TRR (top-end of their RISK RANGES)?
Coaching Notes:
1. If you execute YOUR #process like I do mine, you're always looking for those Similar Sets
2. Tom Tobin has had plenty of Institutional Investor interest on this SELL idea and it's one that signals it should continues to work
3. SPX Refreshed Risk Range = 5, i.e. another higher-low and hgiher-high, which remains Bullish in #Quad3,
KM
