Keith's PM view:
- I was looking for another correction in the US stock market (since my risk management #process was signaling lower-highs and volatility was signaling higher-lows), so now that we’re getting one towards the low-end of US Equity Beta’s (SP500) immediate-term @Hedgeye Risk Range, I’d book some alpha on a longstanding short idea (HBI) and add a longstanding longer-term Best Ideas LONG (Institutional Research Product) in RRR
- While Brian McGough remains The Bear on HBI, that doesn’t mean we have to have it in our Top 10 at every price; timing obviously matters on the short side – it does on the long side too – and now that RRR has reported earnings, Todd Jordan is getting the correction that I’ve been waiting on. RRR is signaling Bullish @Hedgeye TREND and is a good way to play our Quad 1 US Consumption Growth #Accelerating Macro Theme
- Remember this is a Top 10 Ideas product where I have at least 50 high quality ideas to choose from and I want to keep the Top 10 fresh. After big market moves (up or down) is when I like to reset my positioning
Todd Jordan's Analyst View on Red Rocks Resorts Inc. (RRR):
- "RRR missed in Q4 due to greater than anticipated disruption at the Palms and Palace Station. Sellers beware: a slight quarterly shortfall to consensus EBITDA is hardly material considering that unpredictable construction disruption was the culprit. Rather, we focus on same-store metrics during this period of construction on 2 major properties. Same-store revenues and EBITDA grew almost 5% and 8%, respectively, in Q4.
- Excluding both the Palms and Palace Station, Q4 casino revenues were in-line with our estimate. Q4 Same-store revenue growth was solid, growing almost 5%, excluding both the Palms and Palace Station. Flat Vegas margins overall was a positive surprise as opex/SG&A growth were more contained vs previous quarters, but same-store margins expanded.
- RRR upped their Palms capex again by $135m to $620m as it plans to accelerate Phase 3. While Phase 3 pushes out the Palms growth story to 2020, we do expect to see some improvement in the property’s operations before construction starts on Phase 3 sometime in late 2018/early 2019. We estimate Palms will fully ramp by 2022, generating +15% ROI or close to $110m in property EBITDA."
Brian McGough's Analyst view on Hanesbrands Inc. (HBI):
- "HBI’s problem isn’t the lack of a clear and defined plan – it’s that this management team actually believes it. I think 2018 is finally the year when 10-years’ worth of misaligned incentives (stemming from Sara Lee spin-out circumstances) results in REAL cash flow generating power of $500mm or less becomes a reality.
- We’re looking at a meaningful—if not visceral – re-rating on lower numbers. 5-6x EBITDA on this business = a $5 stock.
- Bearish HBI reads from GIL print: Branded Apparel (the HBI threat) is missing management’s expectations and is being restructured. So…the very business that went from 0% share to 12% and 3-4 points from HBI over four years is ‘missing long term plan.’ That’s the same business that went from an 1100 door test at WMT to a full 4655 store rollout."
Since being added to the Hedgeye Top-10 Best Ideas list on 2/14/18 as a Short, HBI has traded down -7.71%, underperforming the benchmark S&P 500 by 706bps.
***Stay tuned for Todd’s 3-page summary of his long thesis on RRR.***
Kind regards,
- The Hedgeye Research Team