Below are analyst updates on our twelve current high-conviction long and short ideas. Please note we removed Host Hotels (HST) from the long side of Investing Ideas this week. We also added Kohl's (KSS) to the short side. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
IDEAS UPDATES
TWTR
Click here to read our analyst's original report.
Heightened revenue acceleration across the board: Well above our expectations and consensus. Total revenue growth accelerated by 19 percentage points. Both Advertising and Data Licensing segments accelerated double-digits, with ad revenues 10% above consensus and core O&O ad revenue growth accelerating by 21 percentage points. Autoplay video ads remained its largest growth driver, but we also estimate that legacy CPC ad revenue also returned to y/y growth (more in 3rd bullet).
Twitter (TWTR) also reported that revenue per impression increased: Despite declining CPEs across most major ad formats, which collectively confirms our original thesis that Autoplay monetizes at a higher effective CPM, and that TWTR's model is now built for sustainable growth as ad mix continues to shift toward Autoplay.
NDLS
Click here to read the Noodles & Company (NDLS) stock report Restaurants analyst Howard Penney sent Investing Ideas subscribers earlier this week.
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.
We're still dissecting Domino’s Pizza (DPZ) first quarter 2018 results but reiterate our short call on the company.
Why? The core short thesis still holds. Increasing competition will be the bane of DPZ’s existence in the long term as the US delivery space continues to mature. We are beginning to see the early stages of a changing of the guard in the delivery space as the home delivery occasion is no longer just a pizza occasion. Other players in the QSR space are taking delivery seriously, as perennial powerhouse MCD most recently launched delivery at more than 4,000 units in the US and Australia, and still has much more capacity to add delivery going forward.
TSLA
Click here to read our analyst's original report.
Tesla (TSLA) Competitive Entry, Advertising, Tax Credits: Tesla’s brand has not yet endured withering assaults from OEM marketing. Longs should assume that no expense or effort will be spared to undermine the consumers’ view of Tesla’s brand, quality, availability, service, and cult-like affection. Competing new entrant vehicles like the I-Pace & e-Tron will have a full U.S. tax credit. Tesla vehicles will not. Consumers may well buy into marketing narratives that match purchase economics. Familiar brands may well seem lower risk than Tesla, with its whacky CEO and long delivery delays. Traditional OEMs will be motivated given the cost of entering EVs and the desire to offset the margin impact of tighter emissions regulations. This is more of a 2H18 catalyst, but we’ve seen some initial jabs.
HBI
Click here to read our analyst's original report.
Don’t ignore this stealth increase in cotton prices. A 10% change in cotton price translates to about a 50-75bps gross margin headwind for Hanesbrands (HBI). We’ve seen a 25% increase – steadily grinding higher – since the bottom in August. There’s a 9-12 month lag from cotton buys until when it hits the P&L. Count forward – your 9 months starts in May.
The company reports earnings next week, we’re not expecting fireworks (i.e. we're only slightly below the street this Q and next), but the cotton price pressure and increased store closures means there is the potential for softer than expected guidance.
UAL
Click here to read our analyst's original report.
United Continental (UAL) is a high cost airline that has struggled to generate positive free cash flow in a favorable economic environment.
The road ahead looks increasingly rough for UAL. Our pricing data suggests they have exited a price war with a lower cost airline. What did UAL gain? Flat market share growth and lots of shareholder pain.
SBUX
Click here to read our analyst's original report.
The recovery for Starbucks (SBUX) is still a long way off.
Traffic is declining globally for the brand. In Europe/Middle East/Africa is loosing money, with traffic down 4%. The growth in Starbucks loyalty members accelerated and SSS decelerated. Not the company's desired outcome.
Furthermore, aggressive ticket growth is negatively impacting traffic. Consumers are getting tired of giving so much of their money to Starbucks, while margins are getting hammered over the company's obsession with food.
Coming out of the call many will wonder why management is holding onto guidance they can't hit. We reiterate our short call on Starbucks.
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.
The PREPA/Cobra contract confirms our interpretation; Article 58 states, “The Contractor shall be responsible for all services performed by the subcontractor and all such services shall conform to the provisions of this Contract” (PREPA/Cobra Contract 10/19/17, emphasis added). It stands to reason that as a result of the two incidents, Cobra Energy could face consequences as it relates to the surety of payment from PREPA, potential clawbacks or damages due to the two blackouts, and its ability to win future work on the island at margins it has guided to.
FL
Click here to read our analyst's original report.
The bear case on Foot Locker (FL) is that it doubled margins over a decade as a result of a major strategic vendor shift that should never really have happened.
Due to Nike’s own agenda (to generate capital needed to build DTC infrastructure) Nike went from 40% of FL’s sales to 73%. How the FL Board allowed that to happen is beyond me. Such bad risk management.
But the reality is that FL underinvested in stores, people, and e-comm over that time frame, and leveraged SG&A way more than it should (ie 18-19% SG&A ratio is not sustainable for ANY mall based retailer in a declining mall traffic environment).
As Nike moves away from FL (and vice versa) – even if to 55-60%-- it will be ugly and massively disruptive.
ADT
Click here to read the ADT (ADT) stock report Technology analyst Ami Joseph sent Investing Ideas subscribers earlier this week.
KSS
Below is a brief note from CEO Keith McCullough on why we added Kohl's Corporation (KSS) to the short side of Investing Ideas earlier this week:
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"Our Retail analyst Brian McGough has been The Bear on Kohl's (KSS) for a long time now. The most recent quarter validated his concerns." Here's an excerpt from his Institutional Research note: "Management guidance looks aggressive, compares get tougher, and confidence is based on the fourth time in 13 years KSS comp matched aggregate US Retail Sales. Michele Gass has a high hurdle in 2018 – a very high one. And yet the market thinks KSS can push $6 in EPS. Even after taxes, I think $5 will be a push (ie below the guide). KSS is setting itself up to miss this year – a meaningful one. Still one of the best shorts in retail, even after the recent sell-off." |
