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INVITE (MDRX) | BEST IDEA SHORT

Takeaway: We are adding MDRX to our Best Idea List as a Short with 30% downside from current levels

INVITE (MDRX) | BEST IDEA SHORT - 2015 01 06 MDRX INVITE HEADER

 

Allscripts (MDRX) is a tail Short with 30% downside from current levels.

 

ADDING MDRX TO BEST IDEAS AS A SHORT

We've schedule a call to review our short thesis for Thursday January 21st, 2016 at 11 AM ET.  Contact for further information.  An invite with dial-in instructions will be sent to subscribers ahead of the conference call.

 

CLICK HERE TO WATCH VIDEO SUMMARY

 

INVITE (MDRX) | BEST IDEA SHORT - 2015 01 06 EHR Share Gain Loss

#datajourney

We continue to spend a significant amount of time analyzing a dataset that shows us a highly detailed and large list of customers for each vendor down to the physician level.  Our work so far has identified several large Allscripts customers who are at significant risk for replacement in coming years. 


Now that we know who to target, the workflow is to reach out to speak with key people to confirm the data and collect additional anecdotes about current and future plans around vendor selection, a process that we began yesterday.  

 

While we are only at the starting line with this data process, the information we’ve gathered has already given us greater conviction in our short call.  These data sets are huge and we’ll be refining the analysis as we go, so look for more on this as we progress through 2016.

 

 

 KEY THESIS POINTS

  • MARKET SHARE DONOR
    Data continues to show ambulatory and inpatient share losses.  We expect this trend to continue as large health systems consolidate and value based reimbursement drives the need for a single inpatient EHR.  On the ambulatory side (~50% sales), Allscripts will continue to lose business (prospective and current) to peers athenahealth and eClinicalWorks, both of whom surpass Allscripts in interoperability and outsourcing capabilities.  We will be receiving quarterly market share updates from SK&A to monitor our thesis, and will continue update our proprietary trackers.
  • LIMITED ADDRESSABLE MARKET
    While Allscripts reputation has markedly improved since the dark days of 2012-2013, the reality is that the damage is already done.  Many Hospital Executives refuse to include Allscripts in RFPs and estimates of mind share vs. market share do not bode well for bookings growth.  Based on industry ratings and anecdotes, the probability of Allscripts unseating the current acute care EMR vendor at any large IDN is low.  We will continue to collect anecdotes from industry participants, including current Allscripts customers. 
  • ESTIMATES TOO HIGH
    Current valuation appears to be supported by accelerating sales growth in 2018-2019 from low single digits to mid-teens.  In order for this to occur, bookings would need to sustain +25% growth and backlog conversion accelerate.  With system sales in secular decline, new contract lengths ranging from 5-10 years and for the reasons outlined above, we find this unlikely.

 

INVITE (MDRX) | BEST IDEA SHORT - 20150106 MDRX EHR GainLoss

 

INVITE (MDRX) | BEST IDEA SHORT - 2015 01 06 too high

bull/bear summary

Based on our interactions with investors, it is clear that the Allscripts (MDRX) story is a contentious one and is partially reflected in the short interest.  Below is a summary of what we believe to be both sides the debate.  While many elements of the bull case are true, we think the fundamental reality is not accurately reflected in the current stock price.

 

INVITE (MDRX) | BEST IDEA SHORT - 2015 01 06 Bull Bear

 

Please call or e-mail with any questions.

 

 

Thomas Tobin
Managing Director 

@HedgeyeHC

 

Andrew Freedman

Analyst

@HedgeyeHIT 


The Unintended Consequences Of ZIRP On Commodities

Takeaway: We are loudly reiterating our call that the unwind of ZIRP and QE will continue to deflate the easy money credit boom it fabricated.

Editor's Note: Curious about what will happen during the Great Unwinding of the Federal Reserve's zero interest rate policy (ZIRP)? Below is a brief excerpt from a research note written by Hedgeye Macro analyst Ben Ryan sent to institutional subscribers last week. To read the note in its entirety ping sales@hedgeye.com.

 

... And click here to join us on The Macro Show today with Hedgeye CEO Keith McCullough. It's free

 

The Unintended Consequences Of ZIRP On Commodities - money funds

 

According to Ryan: 

 

The excessive amount of capital in play in commodity industries is only beginning to decelerate and inflect.

 

Using a sample of 34 different producers in 4 different sub-sectors, commodity producer debt as a % of corporate credit outstanding has multiplied ~2.5x in 10 years. This group’s aggregate debt level is up ~5x in 10 years. The chart below shows the jump in commodity producer debt as a share of aggregate corporate debt levels.   

 

Click image below to enlarge 

The Unintended Consequences Of ZIRP On Commodities - commod leverage


SPECIAL EDITION of The Macro Show: Why Markets Are Crashing


 

 

 

 

 


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

2 Key Charts Underpinning Our Recession Call

Editor's Note: Want a better understanding of why our macro team thinks the likelihood of a U.S. #Recession in Q2 or Q3 of 2016 is significant? Wall Street is completely missing this. It has to do with the relationship between labor income and corporate profitability.

 

See below a brief excerpt from a research note written by our U.S. Macro analyst Christian Drake explaining this relationship. To learn more about how you can subscribe to our institutional research email sales@hedgeye.com.

 

... And click here to join us on The Macro Show today with Hedgeye CEO Keith McCullough. It's free

 

2 Key Charts Underpinning Our Recession Call  - recession cartoon 12.22.2015

 

According to Drake:

Labor Income ↑ = Profitability ↓

With labor rising, topline (GDP & Corporate Profit estimates) decelerating and inventories spiking (see the recent wholesale inventory data), the probability that positive hiring perpetuates continued margin contraction is more likely than not.  

 

Take a closer look at the charts below.

 

2 Key Charts Underpinning Our Recession Call  - labor income

 

2 Key Charts Underpinning Our Recession Call  - profit


[UNLOCKED] Keith's Daily Trading Ranges

Editor's Note: We've made some new enhancements to Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers weekday mornings by CEO Keith McCullough. Click here to view a brief video of McCullough explaining how to use it most effectively.

 

Subscribers now receive risk ranges for 20 tickers each day -  the last five are determined by what's flashing on Keith's radar screen and what tickers subscribers are asking about. Click here to subscribe.

 

  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
2.16 2.03 2.10
SPX
S&P 500
1,865 1,950 1,921
RUT
Russell 2000
991 1,059 1,025
COMPQ
NASDAQ Composite
4,440 4,614 4,615
NIKK
Nikkei 225 Index
16,804 17,905 17,240
DAX
German DAX Composite
9,507 10,022 9,794
VIX
Volatility Index
22.17 28.98 23.95
DXY
U.S. Dollar Index
98.66 100.12 99.14
EURUSD
Euro
1.07 1.10 1.08
USDJPY
Japanese Yen
116.41 118.99 118.06
WTIC
Light Crude Oil Spot Price
28.41 32.99 31.21
NATGAS
Natural Gas Spot Price
2.02 2.31 2.14
GOLD
Gold Spot Price
1,068 1,098 1,078
COPPER
Copper Spot Price
1.91 2.02 1.98
AAPL
Apple Inc.
93 101 99
AMZN
Amazon.com Inc.
564 616 593
GOOGL
Alphabet Inc.
704 748 731
MCD
McDonald's Inc.
113 119 116
FB
Facebook Inc.
92 100 98
INTC
Intel Corp.
30.06 33.07 32.74


Recessionary Data Pending...

Client Talking Points

VOLATILITY

The biggest tell yesterday was volatility – i.e. no change – it remains in what we call a Bullish Formation with an immediate-term risk range of 22.17-28.98. #Deflation’s Dominoes end with massive volatility and a breakout in credit spreads.

CHINA

China was hammered another -3.6% overnight in Shanghai after Trump reminded the world he wants to eviscerate Chinese trade – that would have to be super bullish for macro markets, no? #GOPDebate .

OIL

After every high profile pundit tries to call the bottom, Oil takes another leg down – this is #Deflation and it is not “transitory.”  Oil is crashing again this morning down -5.2%, this ensures Producer Prices in America are in a #Recession.

 

*Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 65% US EQUITIES 2%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 21% INTL CURRENCIES 12%

Top Long Ideas

Company Ticker Sector Duration
MCD

McDonald's boasts style factors that are best in class for turbulent times in the market, big cap and low beta and it has handily been outperforming the market and its competitors as of late. One of the biggest aspects of competing in their space is value offering.

 

McDonald’s has ceded share in the value category primarily to Burger King over the last two years. Now that they are launching a national value platform with a full slate of media support, MCD will recover the value customer.

GIS

General Mills' business seems to be starting to pick up steam, as the company is working to improve merchandising and advertising on core business.

 

In addition they have executed a few small, but meaningful M&A deals showcasing the change in managements thinking. The divestiture of Green Giant to B&G Foods, for instance, although a profitable business, was a good move for them given their lack of focus/investment in the brand (they have more opportunities like this throughout their portfolio, in addition to SKU rationalization).

 

GIS continues to look for more sizeable acquisitions in emerging markets, but the string of pearls approach may remain most effective domestically.

TLT

After the worst start to a year literally EVER for U.S. equity markets, TLT caught a bid in the first week of trading as the centrally-planned Chinese stock markets traded limit down earlier in the week. It was the largest central bank liquidity injection from Beijing since Chinese markets crashed in September.

 

TLT remains one of our strongest long idea calls heading into 2016 as junk bond markets begin to crack.   

Three for the Road

TWEET OF THE DAY

VIDEO | Here's what we really think about the #Fed and QE

https://app.hedgeye.com/insights/47754-what-qe-actually-did-was-pay-the-few-and-crush-the-many?type=video… cc @KeithMcCullough @HedgeyeDDale

@Hedgeye

QUOTE OF THE DAY

Impatience never commanded success.

Edwin H. Chapin

STAT OF THE DAY

According to an analysis by Bloomberg Intelligence, Apple Inc. could owe more than $8 billion in back taxes as a result of a European Commission investigation into its tax policies.


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