Below are analyst updates on our eleven current high-conviction long and short ideas. 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.
After a monster run from Red Rock Resorts' (RRR) 3Q print through late January, shares of our top Regional Gaming play are now 20% off their highs partly due to declines in the leveraged names from rising LIBOR. 2018 Locals revenue growth through February is slightly weaker than recent trend but we expect it to still grow 4% in Q1, a healthy growth rate. Low sports book hold negatively affected February’s GGR and we expect a rebound in March, with the benefit of an extra Saturday. We see plenty of opportunity for shares of RRR to outperform over the near term and long term. Macro drivers continue to inflect higher (construction spend, construction jobs, home prices, negative equity trending towards zero, GDP acceleration, etc…), which keeps us positive on the SS GGR outlook in the market. SSS is key given that Nevada is the highest flow through (to earnings/cash) gaming market in the country.
HST
Click here to read our analyst's original report.
Host Hotels (HST) trades at 11x our 2018 EBITDA #’s, which is a multiple that actually implies a RevPAR decelerating environment, despite the fact that we are actually in a RevPAR accelerating environment. Separately, HST has the catalyst of additional capital return (or other corporate action e.g. splitting up the company) later this year and a potential guidance hike on the 1Q print. Similar to MLCO, HST will be a ‘show me’ story, and once we start hearing more consistent language from management teams regarding accelerating business travel trends (which we think is already happening) we could see HST really start to work again. All potential catalysts considered, we see 20%+ upside in HST.
TWTR
Click here to read our analyst's original report.
Below is a brief excerpt transcribed from this week's Social Media webcast between Internet & Media analyst Hesham Shaaban and CEO Keith McCullough. In it, Shaaban and McCullough discuss Twitter (TWTR). Click here to watch the entire webcast. CLICK HERE to access the associated slides.
Keith McCullough: We’re going to talk about some stocks that are getting absolutely pounded today, the social media and internet stocks. I’m here with Hesham Shaaban, who’s our Internet & Media analyst. He’s known as a bear, so he’s definitely got some short ideas for you. But he does like Twitter right now.
Hesham Shaaban: That’s actually a good place to start. Twitter is a name that’s getting pounded on a lot of conjecture right now. Everything that’s going on with Facebook is starting to hit Twitter, even though they’re two completely different animals.
KM: Just so everyone knows. Hesham used to be ‘The Bear’ on Twitter. Hated it with a passion but now you like it.
HS: Twitter disappointed a lot of investors dating back to the IPO all the way through call it mid-2016. Because of that it’s taking a long time for the Street to wake up to the fact that Twitter self corrected.
What we saw off the last print is Twitter ripped off 4Q 2017 earnings. It was essentially a short squeeze because the entire Street was positioned long Facebook, short Snap, short Twitter.
That being said when you looked at what happened to Twitter versus where they are today it’s two completely different stories.
KM: Your short call used to be very straightforward. You said they’re not going to hit revenue or top line metrics. It was a big top-line short. Now it’s based on revenue acceleration.
HS: Well, there’s obviously a difference between a good product and a good business model. That was the whole premise of our short from 2015 through 2016. Since then, they’ve been right sizing the model that is 1) easier to monetize and 2) revenue per thousand impression (so how much revenue they get per unit of ad load).
Come 2018, they’re now in a position where their previously core product is now less of a focus so it’s less of a drag on their model. Meanwhile, their newer product this autoplay video product is growing like a weed and allowing Twitter to return to revenue growth, which we saw in the most recent print.
KM: So the bad news is getting less bad.
HS: Exactly. That’s what we saw off this last print, where revenue not only turned positive but it accelerated by 14 percentage points in their core advertising segment.
Ultimately, what we see when you get into 2018 is the legacy cost-per click model not mattering as much because it’s a smaller percentage of the pie. And they don’t need that much autoplay growth to return to double-digit total ad revenue growth in 2018. That’s why we think they can get into the +20% range pretty easily.
HCA
Click here to read our analyst's original report.
Health Care employment growth for March 2018 accelerated +5 bps to +1.94% YoY from +1.89% YoY in February 2018 and remains below the peak of +2.74% YoY in October of 2015, consistent with the peak impact from ACA-related coverage expansion. Hospital Employment continued to improve both in YoY% terms and in rate-of-change terms, which runs counter to our negative consumption thesis.
As we highlighted last month, flu and maternity may be driving short-term improvement in Hospital Employment. Medicaid enrollment continues to deteriorate as expected. Maternity appears to be comping the Zika headwind. ATHN claims trend charts agree with HCA's substantial increase in acuity and the source of their 4Q17 earnings beat.
In the aggregate, though, Health Care employment trends continue to weaken year-over-year, which is consistent with our Insured Medical Consumer model, and our forecast of decelerating medical consumption into 2018.
We reiterate our short call on HCA Healthcare (HCA).
DPZ
Click here to read our analyst's original report.
Despite $1 billion-pluss in pizza chain market share loss by Pizza Hut over the last 10 years to competitors like Domino’s Pizza (DPZ) and Little Caesar’s, PZZA’s market share has remained flat as they continue to focus on premium positioning in an increasingly value oriented category. With over 27% pizza delivery market share, DPZ is undoubtedly a behemoth in the industry. For so long their success has come at the expense of independent pizza shops, Pizza Hut and other restaurants that have not been able to service the delivery market. But this dominance is now over.
TSLA
Click here to read our analyst's original report.
It can be distracting to have a position work, and distraction can lead to poor decision making. We usually ‘cover’ high short interest names when oversold. But Tesla (TSLA) is an exceptionally reflexive story stock with return expectations well outside a 2-sigma relative framework. Shorts are pretty sure it’s a (near) zero. Longs expect a market cap on par AAPL. Neither wants to blink. As our thesis continues to play out, we’ll stay focused on key pillar of the Tesla long thesis: the perceived deep pool of demand for Tesla’s products, largely based on the brand.
At the risk of missing out, we wouldn’t add to/press the short just yet. We’d wait until after a potential buy-the-news horrific 1Q18 print. Mr. Musk et al. will probably spin this 1Q18 period as transitional and an opportunity to be even greater, or whatever. Elon is making fun of those worried about ‘bankwuptcy’. The longs – who still see themselves as winners even though TSLA shares are now flat since 2014 – may cheer. While we are leaving Tesla as a Best Ideas short, we’ll look for a good spot to press in early May, with a staggering number of impactful catalysts over the next year.
HBI
Click here to read our analyst's original report.
Loss of points of distribution has been a drag on Hanesbrands (HBI) since the rise of bankruptcies in 2016.
The company might point out that it is lapping door closures, however we would note that store closures for major retailers are not done and bankruptcies continue.
Bon-Ton filed for bankruptcy in the first quarter and will be closing stores. More will follow.
For old basics brands like HBI, their strategic advantage was manufacturing scale that enabled them to get better/wider distribution. That meant high market shares for the top players. 15 years ago Hanes, Fruit of the Loom, and Jockey owned almost 90% of the men’s underwear market.
Today barriers to entry are broken down, so the best product and best content wins share, while old distribution channels are closing down.
Loss of points of distribution will continue to impact HBI, which will further pressure organic growth.
UAL
Click here to read our analyst's original report.
Sure, other stuff can matter but United Continental Holdings (UAL) did not pass fuel on in domestic economy fares, from what we see. Total Passenger Revenue per Available Seat Mile (PRASM) went nowhere as a key cost input moved higher and major competitors raised fares. In other words, UAL is seeing record post-merger cash burn but market share remains flat.
SBUX
Click here to read our analyst's original report.
We continue to question whether Starbucks (SBUX) CEO Kevin Johnson is the right person for the job. For a Company like this, an operator would be better suited to lead the charge.
TUSK
Click here to read the short Mammoth Energy Services (TUSK) stock report Energy analyst Alec Richards sent Investing Ideas subscribers earlier this week.
FL
Click here to read the short Foot Locker (FL) stock report Retail analyst Brian McGough sent Investing Ideas subscribers earlier this week.
