prev

Our Healthcare Analyst Thinks athenahealth Has Over 50% Upside From Here | $ATHN

This past Thursday our Healthcare Sector Head Tom Tobin held a conference call updating his team’s bullish thesis on athenahealth (ATHN) ahead of the print with institutional subscribers. ATHN continues to be one of his team’s Best Long Ideas.

 

Our Healthcare Analyst Thinks athenahealth Has Over 50% Upside From Here | $ATHN - z athn 1

 

The stock has risen over 15% since Tobin’s call.

 

According to Tobin, there was little for bears to hang onto coming out of the quarter in this battleground stock – lower revenue per physician due to higher enterprise client mix.

 

Among the many positives include record bookings, a second straight quarter with the financial component of the balanced scorecard above 100% at 115% (proxy for bookings), and Collector physician adds that beat estimates (2k vs. 1.6k), which is the product that matters.

 

In addition, while profitability is currently masked by high levels of investment to drive growth, ultimately, we think they will be a mid-70% gross margin (63% currently), high-20% operating margin business (10% currently).

 

At around +30% short interest, we think this recent move higher is just the beginning. We still think this is a $200+ stock, and have greater confidence in ATHN tracking to our long-term adoption forecast model toward 15% share of the ambulatory physician market.

*  *  *  *  *

 

(Send an email to sales@hedgeye.com if you would like access to our latest ATHN Black Book)


Retail Callouts (7/28): BTS Outlook = Weak | KER Luxury Read-throughs

Takeaway: Flat BTS forecasts, as chain store comps remain difficult. Kering luxury read-throughs to NA and Japan.

ICSC - Chain Store Sales

 

The ICSC trend line is a bit noisy but what is clear is, we've seen a deceleration in the 1yr number from the mid to high 3's to the low to mid 2's since we exited May. We don't see that reaccelerating anytime soon as comps remain elevated and BTS forecasts from 3 sources now (see below) are less than optimistic.

Retail Callouts (7/28): BTS Outlook = Weak | KER Luxury Read-throughs - 7 28 chart1

Retail Callouts (7/28): BTS Outlook = Weak | KER Luxury Read-throughs - 7 28 chart2

 

 

Deloitte & Brand Keys Back To School Forecasts - Looking For Flat Growth YY

(http://www.retailingtoday.com/article/deloitte-back-school-shoppers-taking-their-time)

(http://wwd.com/retail-news/specialty-stores/b-t-s-spending-expected-to-be-flat-brand-keys-survey-10193173/)

 

Another bleak outlook for BTS this time from Deloitte and Brand Keys. While not as sour as the NRF forecast which called for a 5.8% decrease in spending per family, the flat number published by the two sources mentioned above are not overly optimistic. If we look at the ICSC numbers, comps remain difficult throughout BTS and that synchs with what we are seeing from these initial reads. We'll be interested to see what inventories look like headed out of 2Q in the face of this. Especially after inventories built across the industry headed out of the first quarter. That tells us that if the retailers put up a decent comp, it's likely going to come at the expense of gross margin. 

Retail Callouts (7/28): BTS Outlook = Weak | KER Luxury Read-throughs - 7 28 chart3

 

 

KER - Luxury Read Throughs

 

Comparable growth in NA Luxury retail segment was up 9% -- a 600bps acceleration from 1Q and ~700bps on the 2yr trend line. On the call management noted that tourist traffic remained pressured, but the underlying demand looked strong as evidenced by the acceleration in comparable growth. Japan put up a +27% against negative comps following the sales tax hike in 2Q14, that’s up from -4% in 1Q which is right in line with the number KATE printed in 1Q15. While not the exact same consumer segment as KATE, KORS, and COH -- the sales trends reported by KER's Luxury Segment look much healthier than the broader market sentiment would otherwise suggest.

 

 

OTHER NEWS

 

UA - Stephen Curry’s New Under Armour Curry One Sneakers Drop Friday

(http://footwearnews.com/2015/focus/athletic-outdoor/stephen-curry-under-armour-curry-one-sneakers-46644/)

Retail Callouts (7/28): BTS Outlook = Weak | KER Luxury Read-throughs - 7 28 chart4

 

W - Wayfair Partners with Mattress Firm to Offer Online Shoppers Same-Day Delivery and World-Class Customer Service on Top Mattress Brands

(http://investor.wayfair.com/investor-relations/press-releases/press-releases-details/2015/Wayfair-Partners-with-Mattress-Firm-to-Offer-Online-Shoppers-Same-Day-Delivery-and-World-Class-Customer-Service-on-Top-Mattress-Brands/default.aspx)

 

Shipt is giving Instacart, Deliv a run for their grocery money

(http://www.retailingtoday.com/article/shipt-giving-instacart-deliv-run-their-grocery-money)

 

WMT - Walmart takes a White House pledge

(http://www.chainstoreage.com/article/walmart-takes-white-house-pledge)

 

SVU - SUPERVALU to Explore Separating Its Save-A-Lot Business

(http://www.supervaluinvestors.com/phoenix.zhtml?c=93272&p=irol-newsArticle&ID=2071635)

 

COLM - Columbia Sportswear angling for new shoppers

(http://www.chainstoreage.com/article/columbia-sportswear-angling-new-shoppers)

 

EBAY - eBay continues to clean house

(http://www.chainstoreage.com/article/ebay-continues-clean-house)

 

Jailed Chinese Billionaire Huang Guangyu Boosts Stakes In Gome

(http://www.forbes.com/sites/ywang/2015/07/28/jailed-chinese-billionaire-huang-guangyu-boosts-stakes-in-gome/)


WYN Q2 2015 CONFERENCE CALL NOTES

Takeaway: Better WVO segment as higher VPGs offset lower tours but REVPAR guidance was soft and it wasn't all FX/Parc 55 sale related

  • Rental transaction volume is growing for the summer
  • Lodging  
    • Strong growth in Wingate brand (highest customer satisfaction)
    • Microtel brand - leadership in economy/budget segment
    • Migrating 4,500 franchisees to new revenue mgmt system.  Full implementation of new mgmt system in late 2016.
    • New revised loyalty programs:  7% increase in loyalty bookings. Reward redemptions are up 60% YoY
    • $4m benefit in increase in licensing fee rate paid to Wyndham 
    • Strong Pacific/Atlantic performance
    • Weak occupancy in oil-producing regions
    • SS managed NA REVPAR increased double digits YoY
    • Excluding China and FX, global REVPAR grew 4%
  • Rental
    • Launched niche brands in UK
    • 2Q: Included $3m loss due to sell of  Canvas Holidays in 2014 
    • Had some mix impact as a large portion of membership was from timeshare club which generates lower revenues
    • Denmark Days, UK Cottage, Wyndham Rentals in US were strong
  • Vacation Ownership
    • Favorable product mix which resulted in higher yields
    • Modified sales approach to owners with a hybrid model
    • 60% tours in specialist presenter/group format
    • Opened 6 new sales centers (e.g. NYC, St. Thomas Las Vegas)
    • Sees tremendous upside in timeshare business
  • FX reduced revs by $48m and $12m in EBITDA
  • FCF 2Q: $428m (flat YoY), expect 1st 9 months FCF to be lower YoY in 2015 due to inventory shifts and FX headwinds
  • FX headwinds: $25m for FY 2015 EBITDA  
  • Lower WAAM fee-for-service (1.0) - continued to shift to WAAM 2.0 (just-in-time model).  Expect this to continue
  • FY GUIDANCE:  
    • 25bps reduction in FY tax rate 36.5%
    • 2015 REVPAR: 2-4% (down from 4%-6%) - will be at lower end of range and FX issues and the sale of Parc 55 to Hilton. - But this sale closed in February 2015. Should've been known when they last gave guidance
    • WVO:  1-3% 
    • 3Q EPS: $1.65-1.68 
    • Rental: Canvass brand had $18m EBITDA contribution in 3Q 2014. Credit card transaction of $4m in 3Q 2014
    • 3Q Interest expense: $32m (early termination of interest rate swaps in 2Q)
    • May issue some more debt for the rest of the year
    • 3Q: $13m FX headwinds

 

Q & A

  • VPG - not a consistent metric, can be volatile. 
  • Hybrid - Specialist-presenter model - targeted towards in-house customers (who have already own a timeshare)
    • 60% of tours is the right balance
  • WVO:  Breakout: 2/3, 1/3 - new owner/existing owner
  • Citycenter hotel to Hilton: worth a little under 100bps in REVPAR
  • VPG:  will be positive going forward.  Constantly changing marketing programs
  • Vacation rental pricing seasonality:  summer is highest 
  • Rentals:  European booking shorter stays? Have not seen that.
  • Acquisition:  constantly looking for Rentals and Lodging opportunities
  • Pipeline a little stronger than in the past but expectations are pretty high
  • No reset button on brands. Franchisees are reinvesting in their properties.
  • Domestic REVPAR vs STR underperformance:  feel they performed in-line with economy segment
  • Exchange rev/member:  Change in composition of exchange membership:  going to clubs and transact less   
  • New yield mgmt system:  will take time to roll out since these owners are new to this technology.
  • Health of consumer:  saw an improvement in close rate in timeshare sales.  Don't know if consumer will feel stronger in 2H 2015.  Hotel/timeshare and European rental business seeing good reaction from consumer in July.
  • Summer European rental pricing has been healthy 
  • Sales team:  may be providing too many tours

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

Durable Goods, Reflation and China

Client Talking Points

DURABLE GOODS

The sequential gain in June was largely a function of wholesale negative revisions to the May data.  Headline New Orders were down -2.8% year-over-year, marking a 5th consecutive month of negative growth, and growth across the various sub-aggregates were not much better. Indeed, Durables Goods Orders Ex-Defense & Aircraft (i.e. the stuff the average Household buys) declined -2.0% year-over-year (vs. -0.7% prior) while core Capital Goods orders declined a notable -6.6% year-over-year.  In short, the 13% of Household Consumption and 9% of GDP that is Durable Goods remains in anti-escape velocity mode. 

REFLATION TRADE UNWIND

The “reflation-trade”, “global growth is back” crowd is getting smoked again as everything levered to inflation expectations underperforms. The Energy (XLE), Materials (XLB), and Industrials (ITB) sectors are down -9%, -8%, and -3% in July vs. a flat S&P 500 as widening risk ranges and heightened volatility premiums manifest in commodities markets. These markets may look oversold, but given the awful Q1 Q/Q SAAR GDP print, Q2 may look like a notable acceleration on Thursday for the Q/Q SAAR navel-gazers. If rate hike expectations are pulled forward, strap your seatbelts and look out below (again) in the short-term for commodities and their related sectors.  

CHINA

Following yesterday’s -8.5% plunge, the Shanghai Composite failed to take advantage of several pledges of continued support out of the Chinese brass to close down -1.7% on the day. After rallying +17.6% off the lows on the back of heavy-handed policy intervention, the mainland’s benchmark equity bourse has dropped -11.2% over the past three days. Looking eerily similar to the chart of the NASDAQ in 2000, we continue to think the A-Shares have a healthy degree of downside from here amid margin calls and asset class re-rotation risk.

Asset Allocation

CASH 48% US EQUITIES 7%
INTL EQUITIES 9% COMMODITIES 0%
FIXED INCOME 22% INTL CURRENCIES 14%

Top Long Ideas

Company Ticker Sector Duration
GIS

General Mills (GIS) remains on the Hedgeye Consumer Staples Best Ideas list as a LONG. Key segments across the company are turning the corner and improving performance. Specifically GIS has figured out the yogurt category, after 3 years of struggling with Greek and losing on the core business, management has turned the Yogurt division into a growth segment. Cereal has obviously been a struggle for all companies participating. Although still down, the trend is looking better, in FY16 we hope to see the switch to Gluten Free Cheerios and other improvement, turn performance around.

PENN

Penn National Gaming reported Q2 profit of $16.9 million on Thursday. The company's profit of 19 cents per share beat analysts' expectations.  PENN posted revenue of $701 million in the period, which also beat forecasts.  Shares have climbed 40% since the beginning of the year and 58% over the last 12 months, obviously much higher than the S&P 500. Gaming, Lodging and Leisure Sector Head Todd Jordan was at Penn National Gaming's investor day on July 24th. He will provide a detailed update this week.

TLT

Those long of #LowerforLonger enjoyed another solid week of 2%+ gains for TLT and EDV. VNQ followed up last week’s gains with a pullback of equal size, but we received a positive sloth of data this week that confirms our long housing theme. A positive housing outlook within a bearish rate environment should be positive for VNQ.

Three for the Road

TWEET OF THE DAY

The @AtlantaFed model has 2Q growth coming in at +2.4% QoQ SAAR -- 10bps below our est. Will @Hedgeye be closest to the pin 2qtrs in a row?

@HedgeyeDDale

QUOTE OF THE DAY

The word [because] is one of the most dangerous in the world of finance.

Benoit Mandelbrot

STAT OF THE DAY

The most beer-drinking country in the world is the Czech Republic with a per capita beer consumption of almost 40 gallons a year.


CHART OF THE DAY: Pending Homes Sales (Courtesy of Dr. Drake)

Editor's Note: The chart and blurb below are from today's Early Look which was written by resident Hedgeye macro guru and housing analyst Christian Drake. For more info on how you can supercharge your investing prowess click here.

  • Wednesday:  Pending Home Sales for  June – which is the lead indicator for Existing Sales (90% of the housing market) - should be strong from a rate-of-change perspective given the recent trend and easy comp.  Consensus is expecting +11% year-over-year growth and another new post-crisis high in activity.  We’d view that expectation as ballpark correct. 

CHART OF THE DAY: Pending Homes Sales (Courtesy of Dr. Drake) - Z PHS Comps CoD


Slope Surfing

“Do you really want to buy House?  It’s sort of like having a baby … and it’s a headache”

-Robert Shiller

 

Macro profiteering is predicated on forecasting and front-running 2nd derivative inflections in growth and inflation – as well as the causal factor that is Policy which, in turn, carries consequences for the currency which, in turn, has flow through effects on Growth/Inflation.

 

It’s all very #incestuous

 

Anyway, the point is that the appropriate framework for contextualizing macro data is not good/bad, it’s better/worse - and successfully slope surfing those marginal changes through the capsized absolutist debris to the rarified shores of (repeatable) alpha remains the sport of macro kings.    

 

There are, of course, undercurrents of additional complexity. 

 

Divining what’s already discounted by the market and reflected in prices is a ubiquitous challenge.   

 

Equally challenging is the reality that everything is relative.   Not only are the current and forward prospects - & thus investibility - for a given security/sector/economy contextualized relative to their historical selves but relative to the prevailing dynamics and prospects for every other asset class.   

 

Less abstractly, suppose domestic growth goes from Great to Good.  In the conceptual, rate-of-change framework just described, that is Bad. 

 

But what if developed market growth across the rest of the globe see’s a double decrement – going directly from Great to Bad.  Does that re-elevate the read-though on the domestic economy/markets from Bad to Good given the positive relative change?

 

The daily macro dance is difficult and delicate, but certainly not boring ….. 

 

Slope Surfing - z jcvd

 

Back to the Domestic Macro Grind…

 

Keeping with the rate-of-change theme – and continuing the Early Look chronicling of our evolving view on Housing -  we titled our 3Q15 Housing Themes Presentation back on 7/9, IS GOOD, GOOD ENOUGH?

 

The title alludes to the fact that after showing significant improvement and putting up the best growth figures in all of global macro in 1H, reported growth across the preponderance of housing demand data should transition from great-to-good in 3Q.   

 

Our themes deck (ping if you’d like to see it) is over 120 slides of data intensive analysis but the overarching theme can be sufficiently captured conceptually: 

 

The Housing data in 3Q will be “good” but the large-scale positive reversal we’ve seen over the last ~9-months is now rearview, the comps get tougher after the reported June data and we don’t have any discrete catalysts in the nearer-term.   Further, performance seasonality in the stocks is recurrent and pervasive and 3Q has historically been the soft-patch period.   

 

From a longer-term perspective, the mean reversion upside to average and peak levels of activity remains both conspicuous and compelling.  However, the leverage to our expectation for a positive inflection in both fundamentals and investor attitudes following our reversal to bullish back in November of last-year has, in large part, played out.  

 

Again, in absolute terms, we think the data will remain “good”.  Indeed, with Purchase Application demand flat sequentially in 3Q (but holding near 2Y highs) and New Home Sales declining in the latest month (but still above the TTM ave) “good” is proving an apt characterization.

 

Sure, if we get dealt decelerating global growth, global deflation and transient US decoupling on the Flop with continued employment gains on the Turn and sub-2% rates on the River, the investibility of Housings’ transit from Great to Good is probably still good relative to the seven-high hands held by high beta, inflation leverage exposures.   When growth gets scarce, whatever growth does exists gets bid (see yesterday’s Early Look).

 

But, as it stands, we think the prospect for aggregate homebuilder outperformance in the near-term carries a diminished probability. Indeed, the modest builder underperformance QTD (ITB down -1.31% vs. the SPX +0.22) is largely in-line with our expectation for the group.    

 

If you need to maintain some housing related exposure, the Title Insurers and Mortgage Insurers – where seasonality is more muted - offer some tactical cover while moving upstream towards larger cap/lower beta/liquidity/quality style factors make sense in terms of direct builder exposure.  

 

So, summarily, that’s our tactical view of the quarter.  What else do you need to know across Housing/Macro for the balance of this week:

 

  • Today:  Case-Shiller HPI will probably show further re-acceleration in Home prices.  It’s important to remember that while investors still anchor on the Case-Shiller release it is, in fact, the most lagging of the home price series.  It’s calculated as a three month moving average, released on an almost 2-month lag with today’s release for May representing average price data across the March, April and May period.  In contrast, we’ve had the CoreLogic price data for June for almost a month already.    

 

  • Wednesday:  Pending Home Sales for  June – which is the lead indicator for Existing Sales (90% of the housing market) - should be strong from a rate-of-change perspective given the recent trend and easy comp.  Consensus is expecting +11% year-over-year growth and another new post-crisis high in activity.  We’d view that expectation as ballpark correct.

 

  • Wednesday:  FOMC Announcement:  No Presser, No Dots – expect no hard-line commentary from the Fed ahead of 2Q GDP on Thursday.  The Fed messaging team has done their best to keep Sept/Dec lift-off optionality on the table.  They’ll keep their head (or mouths) in the sand as long as they can before acknowledging the non-transience in the data and explicitly shifting expectations around the path for policy normalization.

 

  • Thursday:  GDP – This one could be good.  Not only will we get the advance estimate for 2Q but we will get the annual revision to the GDP data which will  cover the 2012-1Q15 period.  This year’s revision will also include statistical changes designed to reduce the much talked-about residual seasonality  in the data (i.e. the marked & recurrent 1stquarter softness).   A significant, positive revision to 1Q15 data would, to some degree, come at the expense of reported growth for 2Q.  Further, the BEA will launch the reporting of 2 new series:  Gross Domestic Income (GDI) and Final Sales to Private Domestic Purchasers. 
    • GDI:  GDI takes an income approach to measuring economic activity and should be the same as GDP but due to data source and measurement differences the two series differ in practice.  GDI has shown less residual seasonality and has offered a more stable and sanguine view of growth over the last few years.  The BEA will begin releasing a composite GDP/GDI, representing a 50/50 mix of the two series, alongside the 2Q release on Thursday.
    • Final Sales to Private Domestic Purchases:  This measure represents the sum of Consumer Spending + Private Fixed Investment and excludes changes in inventories, net exports, and government spending.  The reading excludes the most volatile components of GDP and provides perhaps the cleanest read on aggregate private sector demand.  Economists already calculate this measure independently and the BEA already reports a slightly different measure which includes Government Purchases but for a modern, consumption economy like the United States, private domestic demand (ie. total demand for both domestic and foreign produced goods) is a telling and relevant metric.   

 

There are compelling and justifiable reasons for updating the measurement and calculation methodologies. Still, I can’t help but feel that the latest attempts at “refinement” will primarily serve to further muddle Janet’s mosaic reading of her “data dashboard” while affording policy makers further runway to baffle with quantitative B.S..  After all, if you have enough “indicators”, one will always comport with the prevailing (or fabricated) narrative. 

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.22-2.33% (bearish)

SPX 2047-2096 (bearish)

VIX 12.88-16.22

USD 96.11-98.30

Oil (WTI) 46.69-49.89

Gold 1063-1112 

 

Best of luck out there today,

 

Christian B. Drake

 

Slope Surfing - Z PHS Comps CoD


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

next