Below are analyst updates on our twelve current high-conviction long and short ideas. Please note we removed Red Rock Resorts (RRR) from the long side of Investing Ideas today. We also added Noodles & Company (NDLS) to the long side and ADT (ADT) to the short side. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
IDEAS UPDATES
HST
Click here to read our analyst's original report.
Per the latest weekly STR release, Hotel RevPAR spiked last week due in part to the comparison - the timing of Easter suppressed RevPAR last year. Though all scales grew, there was particular strength in the business travel scales, Upper Upscale and Upscale. For the week ended 4/14/18, total US RevPAR was up 12.2% YoY.
March printed a big a month and nice finish to 1Q, and building off this momentum, we believe hotel RevPAR is likely to grow in the range of 4-6% for April, probably at the higher end of that range. Next week should also receive a residual calendar boost and we think the month of April and 2Q should be in great shape to exceed expectations.
As we have routinely commented in these weekly RevPAR updates, we still like the relative opportunity that the REITs offer, with Host Hotels (HST) among our top picks. As it currently stands, our top down view is unchanged and we still see better than expected RevPAR growth in 2018. The probability of higher RevPAR guidance from the REITs continues to rise, particular after 1Q RevPAR results were ahead of expectations.
TWTR
Click here to read our analyst's original report.
Hedgeye Internet & Media sector head Hesham Shaaban used to be one of the biggest bears on Wall Street when it came to shares of Twitter (TWTR). Not anymore.
Twitter is now one of Shaaban’s favorite long ideas since the company’s strategic turnaround has revived its business model. Wall Street hasn’t come around just yet.
“Twitter disappointed a lot of investors dating back from the IPO all the way through mid-2016,” Shabaan explains in the clip below.
“Because of that, it’s taking the Street a long time to warm up to the idea that Twitter self-corrected. When we look at what had happened to Twitter and where they are today, it’s two completely different stories.”
Twitter has been diligently retooling its business model since 2016. Most importantly, the company has changed the way ads are presented on its platform. That change should continue to drive revenue growth and boost profitability.
The stock is beginning to reflect these changes. It’s up +19% so far this year.
NDLS
Below is a brief note from CEO Keith McCullough on why we added Noodles & Company (NDLS) to the long side of Investing Ideas earlier this week:
|
Yes, we're sellers of things we don't like at the top-end of the @Hedgeye Risk Range... But we're buyers of things we like at the low-end of the range too! One of the new Best Ideas (long side) that Howard Penney added to his roster in FEB of 2018 is Noodles (NDLS). It's signaling immediate-term #oversold today within a Bullish @Hedgeye TREND quantitative view. Here's an excerpt from a good Penney & Co. summary note: "As we stated in our February 2018 Noodles & Company (NDLS) Black Book the company’s refreshed leadership truly has been a breath of fresh air. The beginning of the new NDLS was the decision in 1Q17 to close 55 underperforming units. This move has propelled the company to new heights, allowing management to focus on driving unit profitability and implementing operational changes." Buy on red stripe, mon. KM |
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.
Domino’s Pizza (DPZ) has operated in a world of their own, dominating the pizza and broader food delivery environment for years. 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. Though we first saw evidence of the competition for share of delivery spending hit the Domino’s UK business, we have started to see this in the U.S as well. The UK is a far more developed delivery market than the US, but domestic players have started to catch up. With the help of GrubHub, UberEats, DoorDash, Postmates, and even restaurants delivering for themselves (Panera), restaurants of all different cuisines are getting into delivery. This dynamic, coupled with a strengthening Pizza Hut (time will tell on what GRUB could bring to the table for them), has started to chip away at DPZ’s number one position.
TSLA
Click here to read our analyst's original report.
The Brand Is The Market Cap: Why does Tesla get so much coverage? The company manufactures relatively few cars, and mostly for wealthy buyers devoted to the Tesla (TSLA) narrative. The most exceptional thing about Tesla, by far, is its market valuation. Without it, Tesla is a niche car maker that excels at selling a dollar for eighty cents. It is very hard to know how many lease/down payments and outright purchases were directly funded through Tesla share price appreciation. We know of several dozen, and it certainly matters with billions in share price appreciation on the table. Regardless, expect weaker demand to follow a weaker share price in 2Q18 and beyond.
HBI
Click here to read our analyst's original report.
This week Bon-Ton announced it will be liquidating all of its stores. It had previously announced Ch.11 and that the company would close 47 stores, now all 260 will go away.
Hanesbrands (HBI) sells through Bon-Ton and is listed as one of its creditors in the court filings.
Bon-Ton did $2.7bn in sales last year. The question is, was the loss of 260 distribution doors in the plan for HBI?
Losing all Bon-Ton sales should be a 0.5-1.0% hit for HBI. Add that to the loss of the Just My Size brand in WMT doors, and you have about 2 points of growth headwind.
HBI thinks it can grow organically in 2018, yet it hasn’t done so for several years, and is now facing incremental headwinds.
We think the pressure on revenue will lead HBI to miss earnings expectations again in 2018.
UAL
Click here to read our analyst's original report.
United Continental Holdings (UAL) doesn’t provide a balance sheet or cash flow detail, so we will wait for the 10Q. With the early Easter, PRASM doesn’t look so great. UAL also seems to have re-engaged in ULCC price competition after some easing of hostilities, so the outlook on some of our pricing data looks unfavorable in a higher fuel environment. Cash flow may have benefited from additional mileage sales.
SBUX
Click here to read our analyst's original report.
Starbucks (SBUX) continues to boast about its Roasteries initiative, and there is no doubt that the early Shanghai results are impressive. It is difficult to see how Roasteries will have a meaningful financial impact on the business long-term. They are a marketing diversion used to elevate the brand, but we ask ourselves, “How much more expensive can this brand get?” In addition, SBUX’s CPG business is continuing to see competition down the aisle, increasing our confidence that the company will be hard-pressed to find meaningful growth.
TUSK
Click here to read our analyst's original report.
Mammoth Energy Services (TUSK) has caught its fair share of headlines recently due to its role in the on-going blackouts in Puerto Rico (click here). The stock was down as much as ~17% mid-week as a result. We see fair value for TUSK at ~$20, 33% downside from current levels.
Outside of the recent negative headlines, this is likely as good as it will ever get for Mammoth Energy Services due to the size and profitability of its contract in Puerto Rico. Besides its $945MM contract with Puerto Rico’s state-owned utility PREPA, TUSK owns a collection of 2nd tier OFS assets including pressure pumping fleets, northern white sand mines, low-quality drilling rigs, and a lower-48 T&D business.
FL
Click here to read our analyst's original report.
Two negative data points for Foot Locker (FL) this week.
First addressing the competitive threat of JD Sports. JD Sports is a European retailer that has been making waves more recently. The company reported earlier this week a LFL sales increase of 3% and e-commerce growth of 30% in the quarter. It is also notable to highlight the fact that JD is accelerating its domestic store growth initiatives. Let’s not forget that 29% of FL’s sales were derived internationally in 2017 and 20% of FL’s store base is located in Europe.
Second, the extensive management turnover seen at Nike in recent months. We have reports of the release of 9 key executives at Nike over the past 2-months including the President, Trevor Edwards and a Senior Brand Director for Nike Basketball N.A., Vikrant Singh. Although this turnover is unlikely to be a near term headwind at FL with their product pipeline already fulfilled, the turnover leaves our team less convinced in Nike’s ability to operate on its mid-term initiatives with such managerial capacity being allocated towards the inevitable restructuring. Nike taking its eye off the ball in product and marketing, even if just momentarily, will be a negative on the margin for FL.
ADT
Below is a note from CEO Keith McCullough on why we added ADT (ADT) to the short side of Investing Ideas earlier this week:
|
Here's a great example of a stock ADT (ADT) that's bounced on #decelerating volume to lower-highs within a Bearish @Hedgeye TREND view. Here are some other ADT independent research thoughts from a recent Institutional Research note from Ami Joseph: "The company only has ~$127m gross cash on the balance sheet but they just announced ~$115m dividend program. What’s the point? It amounts to a 1.4% dividend yield. No one will buy the stock for that yield, and there goes $115m per year that could have been good for paying down debt. Topline guidance for 2018 implies 4% growth at the mid-point, and is slightly ahead of street at $500m versus $475m. Blah." KM |
