Below are analyst updates on our thirteen current high-conviction long and short ideas. We will send Hedgeye CEO Keith McCullough's refreshed levels for each in a separate email.
Please note we removed Cheesecake Factory (CAKE) and Tesla (TSLA) from the short side and added Wynn Resorts (WYNN) and Host Hotels (HST) to the long side of Investing Ideas this week.
IDEAS UPDATES
EXAS
Click here to read our analyst's original report.
We recently updated our Exact Sciences (EXAS) Cologuard-Tracker that monitors the number of providers prescribing Cologuard on a monthly basis, which is a key driver in our model. As of the beginning of June, our tracker is projecting more than 11K sequential provider adds in 2Q17 which translates into ~$51.5M in sales compared to consensus of $49.6M.
Google Trends activity for Cologuard in the U.S. supports our tracker, projecting greater than 11K provider adds in the quarter. Additionally, we believe Cologuard's test per provider ratio and average selling price (ASP) will continue their upward trajectory, providing additional leverage to the business model as the benefits of guideline inclusions and commercial coverage decisions materialize. We also expect repeat test orders to drive increased test volume in the back half of 2017, with more meaningful upside in 2018.
EXAS’ short interest is down substantially from its highs a year ago, but remains high at 20.3% as of 6/12/2017 despite the recent rally. The next short interest update will be on 7/12/2017 and will reflect short interest as of 6/27/2017.
TWX
Click here to read our original analysis on why we think the AT&T/Time Warner (TWX) deal will be approved.
Last week we updated Investing Ideas subscribers about a letter to Attorney General Jeff Sessions from a handful of Senate Democrats who attacked the AT&T/Time Warner deal. (Click here to read that update.) This week, we provide some additional analysis about that letter. Below is the most recent update from Telecom & Media Policy analyst Paul Glenchur:
The top Democrats on Judiciary (with legislative oversight of the Justice Department) did not contribute to this letter. The lead Senate Judiciary Committee Democrat, Sen. Dianne Feinstein (D -CA), is noticiably absent as is the ranking member of the Senate Antitrust Subcommittee, Sen. Amy Klobuchar (D -MN). The former Chairman of the Judiciary Committee, Sen. Patrick Leahy (D -VT) is another "dog that did not bark" when yesterday's letter arrived at the Justice Department.
The absence of key Judiciary Committee Democats hints that deal opponents are fighting an uphill battle. At times, lawmakers can smell blood in the water and will forcefully oppose a deal in anticipation of an adverse regulatory or enforcement decision. The low profile and relative silence of top Senate Democrats suggests a lack of conviction the deal can be derailed.
The new head of the Antitrust Division, Makan Delrahim, should soon be confirmed and, unless there is a surprise recusal, take control of the DOJ investigation of the deal. We continue to believe a challenge would be difficult to win in court and expect the transaction to be approved. There is no concurrent review of the deal at the FCC (no regulated Time Warner licenses will transfer to AT&T).
WMT
Click here to read our analyst's original report.
We get the 'sell Wal-Mart (WMT) because AMZN is taking over the world’ call. But we absolutely don’t agree with it. This is becoming a 2-horse race between AMZN and WMT. One needs stores the other needs new online platforms – and WMT is investing in a more shareholder-friendly way. Take advantage of the price drop two weeks ago.
- The share gain gap between AMZN and WMT is narrowing, and should continue to do so. AMZN needs stores, WMT needs e-comm presence.
- WMT has been investing for new e-comm platforms (not just guys in a basement writing code) in a way that is underappreciated. “It’s simply too small in the grand scheme of WMT”.
- Remember when Nike bought Hurley [Skate/Surf] in 2004? “It’s too small to scale for Nike…blah blah…” We all hear what is usually nonsense in that “We’re going to learn from the new company.”
- The difference is that great companies actually do learn and they invest behind what they learn.
- Today, Nike Skate is nearly 20x the size of Hurley. Why, Nike is a great company, and it learned.
- #fact, Wal-Mart is a greater company than Nike. Don’t ignore its strategy here. Be Long WMT.
MIC
Click here to read our analyst's original report.
No update on Macquarie Infrastructure (MIC) for this week's Investing Ideas but Hedgeye Energy analyst Kevin Kaiser reiterates his short call on the company.
RLGY
Click here to read our analyst's original report.
Below is an update on the U.S. housing market and Realogy (RLGY) from our Housing team:
Pending Home Sales in May declined sequentially and YoY … or they rose and accelerated across both measures depending on your SA (-0.8% M/M, -1.7% Y/Y) or NSA (+4.6% M/M, +0.5% Y/Y) preference.
May Pending Home Sales suggest moderate downside to Existing Home Sales for June. Note, however, that while EHS have typically converged to the trend in PHS, the converse occurred following the Easter distortion last year.
Home prices increased across the housing complex in April, with the Corelogic Home Price Index leading the way at +6.9% Y/Y, followed by the FHFA HPI increasing +6.8% Y/Y and with the rear being brought up by the Case-Shiller 20 City Index, which increased +5.7% Y/Y. In aggregate, Home Prices increased +6.46% year-over-year in April, as tight inventory continues to push home prices to the upside.
DE
Click here to read our analyst's original report.
Deere (DE) did report an uptick in Retail troubled debt restructurings (TDRs) and write-offs, though neither big enough to move the needle. While not a big number, the count may be worth noting. Higher TDRs and write-offs tend to lower delinquencies. Farm credit is not getting better from what we can see, it is getting worse.
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"During the first six months of 2017, the Company identified 226 financing receivable contracts, primarily retail notes, as troubled debt restructurings with aggregate balances of $5.2 million pre-modification and $4.2 million post-modification. During the first six months of 2016, there were 46 financing receivable contracts, primarily wholesale receivables…”- DE F2Q 2017 10-Q |
GEL
Click here to to read our analyst's original report.
No update on Genesis Energy (GEL) for this week's Investing Ideas but Hedgeye Energy analyst Kevin Kaiser reiterates his short call on the company.
SNAP
Click here to read our analyst's original report.
Regarding Snap's (SNAP) longer-term prospects, we estimate that the company has already captured the lion's share of the low-hanging fruit in terms of NA/EU DAUs, and there are structural headwinds (both internal & external) to broader adoption, especially on a daily basis. That also means it's longer term revenue prospects are in question since the highly-touted monetization delta b/w SNAP and FB isn't nearly as wide as the ARPU metrics suggest. Using North America as a proxy, we estimate the monetization delta is roughly 6x-7x vs. the 12x suggested by the ARPU metrics (calculated on a DAU basis).
RRR
Click here to read our analyst's original report.
After presenting our longer term forecast on the Las Vegas Locals market and the implications for Red Rock Resorts (RRR), on Wednesday, we did get some monthly Gross Gaming Revenue (GGR) data for the state in May. The Locals market posted growth of 1.8% YoY, slightly ahead of our expectations.
Though we suspect there might be shorter term volatility for RRR under the new CFO, over the course of the next 12-18 months we expect GGR to continue trending higher as the positive wealth effect is realized and felt by LV citizens, and discretionary spending power is lifted. We recommend RRR as a best idea from current levels and see it as the best opportunity out of all domestic focused US gaming companies
KATE
Looking at the detail around the timeline/disclosure of KATE/COH communications, it shows just why Kate Spade (KATE) flubbed this negotiation – because management had no skin in the game. Levitt and Lloyd only get paid with change in control – whether the deal got done at $8 or $80.
They acted to try to come to an agreement to sell, rather than strategizing the best price for KATE shareholder.
As an update, COH delayed the share tender deadline for KATE shareholders, but It seems very likely this deal will get done, and it’s getting less likely a different bidder will step in and try to swoop up KATE.
CERN
Click here to read our analyst's original report.
We remain convinced Cerner (CERN) will not be able to grow new client bookings (~30% of total bookings) over a multi-year duration due to a saturated EHR market with limited replacement opportunity. Cerner's inability to grow new client bookings has materially negative implications for their licensed software and services model where 80% of same contract revenue can disappear after year 3 of an installation and the associated capital payments. With new client bookings down in 2016 for the first time in a decade and revenue from strong 2015 bookings rolling off, we expect Cerner's revenue trajectory to face mounting downward pressure from 2018-2020.
Our updated forecast model based on the HIMSS Analytics Database suggests commercial new client bookings peaked in 2015 and will decline at a 5-10% CAGR through 2020.
WYNN
Below is a note from Hedgeye CEO Keith McCullough on why we added Wynn Resorts (WYNN) to Investing Ideas earlier this week:
"Looking for 4-letter ticker that are signaling immediate-term TRADE oversold today that are not in the FAANG?
How about buying some Macau #GrowthAccelerating exposure via one of Gaming, Lodging & Leisure analyst Todd Jordan's favorite names right now? That would be Wynn Resorts (WYNN)."
The below is an excerpt of Jordan's recent Institutional Research note on Macau revenue growth accelerating:
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"With the segmental trends in mind, WYNN and Galaxy are the major beneficiaries of the VIP explosion and could post the biggest upside to Q2 estimates. We’re not anticipating that the current VIP growth rate will be sustained but our 2017 GGR forecast does remain higher than the Street. More importantly, favorable conditions are in place for long term mass revenue growth in Macau, as we outlined in detail during our recent conference call and presentation, “MACAU | THE SOUND BEYOND THE NOISE." |
HST
Click here to read our analyst's original report.
"I’m looking to broaden our exposure to US #GrowthAccelerating and one sub-sector of the market that has sold off this week is Hotel REITS (as they're rate sensitive and rates popped back to the top-end of my risk range this week)," writes Hedgeye CEO Keith McCullough earlier this week. "One of Gaming, Lodging & Leisure analyst Todd Jordan and his research team's fav hotel REITS remains Host Hotels (HST)."
Here's an excerpt from Jordan's recent Institutional Research note on Host:
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"Reiterating our positive stance on the hotel REIT space in general and HST in particular, despite some near term choppiness in the Smith Travel (STR) weekly RevPAR data and the Hedgeye room rate survey. June faces the 2nd most difficult ADR comp in the YTD, yet, 2Q RevPAR seems to be tracking above most company estimates and certainly above HST guidance. More importantly, our leading indicator macro model continues to suggest RevPAR acceleration through well into 3Q. Finally, the crack Hedgeye Macro Team remains firmly in the growth acceleration camp for the US economy." |
