Below are analyst updates on our eleven current high-conviction long and short ideas. Please note we removed Moelis (MC) and Virtu Financial (VIRT) from the short side and O'Reilly Auto Parts (ORLY) and Costco Wholesale (COST) from the long side of Investing Ideas this week. We also added Foot Locker (FL) to the short side. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
IDEAS UPDATES
RRR
Click here to read our analyst's original report.
No market supply growth and a slew of demand catalysts should translate into a long cycle of GDP beating GGR growth for Red Rock Resorts (RRR) – ~5% same store GGR growth = ~10% EBITDA growth.
Construction disruption ends in 2019 and ROI on Palms will begin to ramp leading to a big step up with EBITDA. This management team has historically generated industry leading returns.
Demand drivers - acceleration of population growth (thanks CA), retiree growth, housing prices, significant ramp in LV metro area infrastructure and construction spend.
Our Sum of the Parts analysis suggest RRR has upside to $42.
HST
Click here to read our analyst's original report.
The latest weekly STR data indicated that Hotel RevPAR growth continued to build off its recent strength, and grew at the high end of its recent and improving range. The high end (Luxury) and Upper Upscale (UUP) led the way. Another solid week of UUP growth of 5.2%, and yes, we've been waiting for an inflection point there. For the week ended 3/24/18, total US RevPAR grew 5.4% YoY.
Encouragingly, the MTD has shown RevPAR growth towards the high end of our expected range, and is tracking up in the mid single digits. We are still anticipating March to post Total RevPAR growth in the 1-2% range - with growth likely coming in at the middle of that range.
Yes, we still like the relative opportunity that the REITs offer, with Host Hotels (HST) among our top picks. We believe that HST is likely to outperform in terms of EBITDA and RevPAR growth in the coming year.
TWTR
Click here to read our analyst's original report.
Data licenses appear to be meta-analysis tools for public tweets. We doubt Twitter (TWTR) is releasing Personally identifiable information.
Data Licensing and Other - Segment description (10-k)
"We generate data licensing and other revenue by (i) offering data products and data licenses that allow our data partners to access, search and analyze historical and real-time data on our platform, which data consists of public Tweets and their content, and (ii) providing mobile advertising exchange services through our MoPub exchange. Our data partners generally purchase licenses to access all or a portion of our data for a fixed period. We recognize data licensing revenue as the licensed data is made available to our data partners. In addition, we operate a mobile ad exchange and receive service fees from transactions completed on the exchange. Our mobile ad exchange enables buyers and sellers to purchase and sell advertising inventory and matches buyers and sellers. We have determined we are not the principal in the purchase and sale of advertising inventory in transactions between third-party buyers and sellers on the exchange. Therefore we report revenue related to our ad exchange services on a net basis."
We reiterate our long call on Twitter.
***We’re hosting a Social Media stock webcast Monday April 2nd at 2:00pm ET (discussion will include Twitter analysis). Use this link to tune in.
In this special webcast, Hedgeye Internet & Media analyst Hesham Shaaban will explain to CEO Keith McCullough what most investors are missing about social media stocks, how they make money and what developments investors should keep a close eye on.
HCA
Click here to read our analyst's original report.
HEALTH CARE JOB OPENINGS -0.6% IN JANUARY | BLS released the Job Openings and Labor Turnover Survey (JOLTS) for January 2018 last week. Health Care & Social Assistance Job Openings accelerated to -0.6% in January but remains negative and well below its most recent peak of +56.9% in December of 2014. We have found a strong relationship between job openings in Health Care to overall medical consumption generally, and hospital same-store admissions specifically.
However, as we outlined last month, a worse flu season, improving maternity trends and higher acuity led to a divergence in the fourth quarter. Historically, demand for labor follows growth in the insured population and medical consumption demand. Health Care Job Openings improved to -4.0% YoY on a rolling 3-month basis through January 2018, below its peak of +38.1% in December of 2014. As a percentage of Health Care Employment, Health Care & Social Assistance Job Openings increased to 6.5%. We reiterate our short call on HCA Healthcare (HCA).
DPZ
Click here to read our analyst's original report.
Global unit growth for the Domino’s Pizza (DPZ) system has accelerated from 5% in 2012 to 8% in 2018 and is expected to grow 8% for the foreseeable future. We don’t see this playing out this way. As evidenced by the performance of DMP-AU and DOM-LON, the case for those two businesses to slow unit growth is more than self-evident. As a greater number of non-pizza restaurants increase delivery capacity and DPZ sees a continued slowdown in same-store sales, the 3-4% capacity growth in the USA will also become a source of concern for the investment community.
TSLA
Click here to read our analyst's original report.
“Tesla (TSLA) is an objectively terrible manufacturer,” Industrials analyst Jay Van Sciver said in a recent Hedgeye webcast on Tesla, pointing to the chart below.
This chart show Model 3 production tracked using registered vehicle identification numbers. “Production was supposed to be an exponential ramp. But this is cumulative production. They are supposed to be making 5,000 to 10,000 Model 3’s per week. They’ve made 5,000 to 10,000 since November.”
“They’re trying to sell a mass production car. But they’re really bad at that and they’ve bet their life on it. This was a prediction we made in June 2017, that they wouldn’t be able to mass produce the Model 3. And they haven’t.”
**Hedgeye Industrials analyst Jay Van Sciver hosted a webcast discussing his Tesla (TSLA) short thesis recently. Click here to watch the entire 52-minute presentation.
HBI
Click here to read our analyst's original report.
Amazon’s ambitions in apparel have grown over the years to include private label brands. Private label brands are more profitable for the retailer while also being cheaper for the consumer, because it is sourced directly from a manufacturer who does not spend on marketing. The label is created and owned by the retailer.
Currently Amazon is focusing on eight private label brands for apparel. One of the company’s larger private label apparel brands is amazon essentials. Currently amazon essentials is selling six men’s white t-shirts for $16 compared to five Hanesbrands (HBI) white t-shirts for $17.20 on Amazon.com. Since Amazon controls search results, ads, and recommendations it is a particularly difficult retailer to compete against for a brand in a commodity sector like basic apparel.
Unlike brick and mortar retailers Amazon can personalize the offer for the customer by time, price, personal shopping history, and preferences. Competition from Amazon is one of the reasons Hanesbrands is unlikely to grow organically in 2018 and at 3.25x NTM EBITDA. We are confident that their current playbook does not leave room for a meaningful acquisition this year.
UAL
Click here to read our analyst's original report.
What A Time To Be Alive…As An Airline: If one’s airline can’t generate cash with these…
- Antitrust level consolidation among big players
- 7 years of economic expansion
- A halving of the unemployment rate
- A near halving of oil prices
- Lucky fuel hedges
…then one’s airline equity just isn’t worth much. These have been exceptional times for airlines. We reiterate our short call on United Continental Holdings (UAL)
SBUX
Click here to read our analyst's original report.
Starbucks (SBUX) like many others before them, is in the midst of spending too much capital on new unit openings, when they should be reducing unit growth in order to fix the fundamentals of their current 4-walls.
Pushing the gas on unit growth while SSS accelerates rarely works out in the company's favor – no brand is impervious to the restaurant capex cycle!
TUSK
Mammoth Energy Services (TUSK) is a small cap oilfield services company that has recently been awarded a highly-profitable yet controversial $945 million contract from Puerto Rico’s bankrupt, state-owned utility to repair the damaged grid in the wake of Hurricane Maria.
Since first announcing the contract and its foray into electrical T&D work on October 19, 2017, TUSK’s stock price is up close to 130% while the oilfield services index (OIH) is about flat. TUSK’s market cap has increased by more than $800MM over that time.
In our view, the market’s optimism over this contract and new line of business for TUSK has gotten out of hand, far overestimating the true value added and underestimating the risks associated with the Puerto Rico contract.
FL
Below is a note from CEO Keith McCullough on why we added Foot Locker (FL) to the short side of Investing Ideas earlier this week:
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"Looking to make some sales on green? Sure beats freaking out on Friday and selling on red! How about a newsy name this morning that Brian McGough still does not like: Foot Locker (FL)? Per Brian's early morning notes to our Institutional Research subscribers on the Finish Line (FINL) takeout: "FINL being acquired by JD Sports cracks me up. No meaningful change to the competitive landscape in the US, though we might see greater leverage against vendors – i.e. Nike. Also not a signal to me that the space has bottomed, though there’s risk to FL more so than FINL whether it bottomed or not. Mike Ashley – CEO of Sports Direct and arch enemy of JD – had been acquiring FINL shares and has built a 9.9% position – and SPD had full 35% interest. Ashley will make money on this deal, but not the way he wanted to, and without the empire-build factor. JD Sports is majority owned by Pentland 58%. Sports Direct owned an 11% stake in JD Sports, its rival in the UK, but sold it in 2016." Sell green, KM" |
