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Cartoon of the Day: Liftoff!

Cartoon of the Day: Liftoff! - Helicopter money 05.20.2016

 

After Quantitative Easing and NIRP (negative interest-rate policy) have failed to deliver economic growth, central planners are now talking about helicopter money. Delusional? Yes.


ATHN | REMOVING FROM BEST IDEA LIST

Takeaway: We are removing athenahealth (ATHN) from our Best Idea List, but staying long in the Position Monitor.

ATHN | REMOVING FROM BEST IDEA LIST - 20160520 PositionMonitor

removing from best idea list; less conviction 

We are removing athenahealth (ATHN) from our Best Idea List, but staying long in the Position Monitor.  The recent CFO and other high-level employee departures, combined with negative anecdotes related to the Streamlined rollout and what looks like an early slowdown in our tracker reduces our conviction over the intermediate term.  Over the long-term, we continue to believe athenahealth is well positioned to take share in ambulatory and the recently entered inpatient market.  What will get us out of the position completely, and possibly pivot short, is if the athena-Tracker continues to slow over an extended period.  

 

The other high-level employee departures include Senior Financial Officer, Parth Mehrotra, who left in March 2016 for a COO position at Brighton Health Group and Director of Enterprise Sales, Ian Ha, who left in December 2015 for a similar role at Flatiron Health.  We suspect that the Florida Cancer chargeback was related to Ian Ha's departure, as Florida Cancer currently uses Flatiron for their Oncology EMR solution.

streamlined concerns; NPS worse before it gets better

We are becoming increasingly concerned about the disruption that the Streamlined rollout is having on users. We have observed a growing outcry of dissatisfaction both from our outreach using the tracker data, and through various social media and software review websites.  We also witnessed several users discussing their dissatisfaction with Streamlined at the New England HIMSS conference earlier this month.  The reviews are fairly consistent, complaining about "too-many clicks", poor workflow design and lack of responsiveness from account managers, with some even comparing the new EMR to Allscripts.  While we understand that docs don't like change, we would be remiss to ignore the negative and potentially lasting impact this type of disruption can have in such a highly referential industry. As a result, we expect the Net Promoter Score (NPS) to get worse before it gets better and continue to be a headwind to small and group bookings as the Streamlined rollout continues through year-end. 

 

ATHN | REMOVING FROM BEST IDEA LIST - 20160520 Streamlined Reviews 

cfo departure is for the best; repairing damage to culture

While it is never a good sign to see a CFO leave, in this situation, we believe it is for the right reasons and a net positive for the company. As we had expected, the departure was the result of Jonathan Bush needing to step back in as the direct report to oversee and manage the culture, which had been changing for the worse under Kristi Matus's leadership and the dual CFAO role.  The management change is in response to employee comments, such as those on glassdoor.com, as well as a struggle to balance rapid growth and maintain the important employee culture.  This is an issue they have been dealing with for some time and a decision that was not made in haste, but came to in a mutual realization recently (Jonathan Bush/Board and Kristi Matus) that they needed to separate roles and Jonathan Bush, CEO, needed to step back in.  As there was not another suitable EVP level position available, Kristi Matus decided it was best to leave for other opportunities.  

 

Karl Stubelis, CFO and previously Controller for 3-years, reiterated 2016 guidance, and both he and Jonathan Bush emphasized that Kristi Matus's departure was not due to financial or accounting misconduct. 

 

ATHN | REMOVING FROM BEST IDEA LIST - 20160520 Glassdor

 

Please call or e-mail with any questions.

 

Thomas Tobin
Managing Director 

@HedgeyeHC

 

Andrew Freedman

Analyst

@HedgeyeHIT 


McCullough: If You Don’t Do Macro, Macro Will Do You

 

In this brief excerpt from The Macro Show earlier today, Hedgeye CEO Keith McCullough responds to a subscriber’s question about whether he thinks there will be a “20% or more” drawdown in the S&P 500 from here. Spoiler Alert: He does.


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FL | Cohones

Takeaway: This was the most beared-up we've seen FL management on Nike in 14 years. Still one of our top Shorts.

This was the most bearish that Foot Locker management has been on Nike in roughly 56 quarters. Yes, that’s 14 years…but who’s counting? No this is not a clash of the two 800lb gorillas like in 2002 arguing over FL’s order cuts in the wake of the Vince Carter Shox appealing to virtually nobody except Carter himself (not even in the Raptor’s home market of Toronto). But at least to us, FL management was super cautious on Nike. At first it was the discussion about how Basketball was down mid-single digits in the quarter. And mind you, basketball is 40% of the revenue, and Nike has a 95%+ share of FL basketball. That’s about 38% of FL revenue base that was under pressure.  But then we heard CEO Johnson talk of the ‘big turn’ at Adidas, and how he would like more product from both Adidas and UnderArmour. 

 

Then one thing became abundantly clear to us…

 

As FL took its ‘Nike Ratio’ (the % of product it sells that is Nike) from 40% to 73% over this economic cycle, it lost the ability to think and act on its own. You heard it in management’s tone “we WANT more Adidas and UnderArmour, but Nike won’t let us.”  Our sense is that FL wants maybe 50% of its store to be Nike, but unfortunately it has to take a lot of Nike’s junky product (yes, Nike makes some junk) and excess inventory in order to be assured premium allocation of the good stuff.

 

Well…that’s all fine and good if FL is comping high single digits, EPS is growing 30%+, AND as a kicker, minimal SG&A investment and capex are needed given that Nike is giving them the growth for free. As such, ROIC went from 5% to 28%, and the stock went up by 5x.

 

But, Nike stuffing FL with swooshes is absolutely NOT ok, when comps decelerate, FL’s most profitable business is down, it’s missing out on hot product from other brands that are gaining momentum, expenses pick up – causing FL to delever SG&A in a 1Q for the first time since the Great Recession, and EPS growth slows to the lowest rate since 4Q09.

 

Even though we think FL is a solid short, we absolutely believe that the company has a good management team. A good management team, however, will look at its brand portfolio, and take action when 72% of its business belongs to a brand that is changing up the footwear distribution paradigm. It’s got to be clear to FL management that this dependence on a single brand is no longer working – at least if it wants to accelerate growth and returns. The risk there is that FL cuts 2-3% of expected sales, and then Nike responds by cutting 10% -- and giving the increment to DKS in order to stabilize that part of the wholesale channel.

 

All in, we give FL all the credit in the world for its comments. But the reality is that it sticks with 70%+ Nike and faces an eroding earnings algorithm, or it diversifies away from Nike and faces potential business risk. Sure, FL is down today in an up tape. But this short call is far from over. Estimates remain too high, and we think we’ll see multiple compression repeatedly over the next year.

 

FL remains on our Best Idea list as a Short.


The Good Stuff: Reports and News Articles you May Have Missed This Week

Takeaway: The best of the best : our favorite reading material from the week of May 16 and a tribute to the King of the Texas Troubadours.

 

Happy Friday! In case your attention was turned toward, say The Fed for example, and you missed some of the more interesting health care articles/videos/podcasts, we have listed our favorites here:

 

Health Care Services

Fighting for Assisted Living Centers, The Hill, May 17, 2016 (Includes discussion of Nursing Homes) - <KND> <GEN> <DVCR>

You Mean I Don't Have to Show Up? The Promise of Telemedicine. NYT, May 16, 2016 <TDOC>

Mental Disorders Top The List Of The Most Costly Conditions In The United States: $201 Billion, Health Affairs, May 2016 <AAC> <ACHC>

 

Clinical Labs

Theranos Plans Bold expansion Even as it Reels From New Setbacks, Stat News, May 19, 2016

 

Health Insurance Coverage

Health Insurance Coverage: Early Release of Estimates From the National Health Interview Survey, 2015, Centers for Disease Control, May 17, 2016 <All Health Insurers>

 

Durable Medical Equipment

Providing Quality, Affordable Durable Medical Equipment for Beneficiaries, The CMS Blog, May 17, 2016 (with links to recent accessibility data) <IVC> <MDT> and others

 

HCIT

Health care data as a public utility: how do we get there? Brookings, May 18, 2016 <CERN> <ATHN>

 

Pharma

When Drugs Don't Work, The Economist, May 21, 2016 <All Pharma>

Growth in Specialty Drug Spending from 2013 to 2014, Blue Cross and Blue Shield Association, May 2016 See esp Hep C treatments <GILD>

Columbia's Battle with a Cancer Drug Company Could Set A Global Precedent for Generic Meds, Vice News, May, 19, 2016 <NVS>

Actions by Congress on Opioids Haven't Included Limiting Them, New York Times, May 18, 2016

How Big Pharma Uses Charity Programs to Cover for Drug Price Hikes, Bloomberg, May 19, 2016 <All Pharma>

 

 

Shameless Self-promotion -Hedgeye Health Care Notes/Calls/Musings:

 CY 2017 End Stage Renal Disease Annual Reimbursement Update Sent to White House for Approval, May 19, 2016

REPLAY Q & A (HCA, AHS, ILMN, MDRX) | #ACATAPER, EARNINGS RECAP AND TRACKER UPDATES, May 19, 2016

ILMN | PLAYING   ALONG AT HOME | HDM DATA DOWNLOAD AND FORECAST TOOL FOR CLINICAL SEQUENCING   ADOPTION, May 19, 2016

CY2017 Home Health Annual Payment Update & Changes to Medicare CoP Sent to White House, May 18, 2016

The Hospital Lobby Making Progress on Site Neutral Payment Fix but it is Still Early, May 18, 2016

 

 

Lastly and having nothing to do with health care policy, regulation or legislation, the King of the Texas Troubadours, Guy Clark died this week. It is Friday, So Let Him Roll...

 

 Follow me on Twitter for more throughout the week


About Everything | Millennials: Are We There Yet?

 

  

In this seventh edition of About Everything, Howe discusses why the Millennial Generation is coming into adulthood, but delaying traditionally big steps like homeownership and family life. Howe explains why and explores the broader investing implications.

 

Click here to read the associated About Everything writeup.


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