Takeaway: CACC, MTCH, SBUX, MCD, CCL, UNFI, ALRM, GWW, SGRY, TSLA, BYD

Investing Ideas Newsletter - 08.07.2018 roller coaster bulls cartoon

Below are analyst updates on our eleven current high-conviction long and short ideas. Please note we removed ADT (ADT) from the short side of Investing Ideas this week. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.

IDEAS UPDATES

CACC

Click here to read our analyst's original report.

Credit Acceptance Corp (CACC) reported second quarter GAAP net income of $151 million recently with GAAP EPS (diluted) measuring $7.75, both up +52% Y/Y, with EPS coming in well ahead of street estimates for $6.52/share.

Credit Quality: Collections forecasts were adjusted upward for six out of the firm's ten reported vintages, with the most meaningful improvement induced by second quarter additions to the still-forming 2018 vintage. 

Investing Ideas Newsletter - cacc1

MTCH

Click here to read our analyst's original report.

Match Group (MTCH) 2Q18 ≈ Flawless Print: Clean beat and raise with accelerating revenue growth on a FX neutral basis.  The US accelerated across the board with both subs and ARPU accelerating on a y/y basis, while Int'l revenue growth also accelerated on a FXN basis.  Tinder subs came in ahead of mgmt's guide (~300K vs. 200K), and mgmt expect to sustain that level of net adds into 3Q18 vs. the 200K run-rate it previously guided to. 

3Q18 Already be in the Bag? Remember the strength in net adds in any particular quarter isn't fully reflected in revenue until the following quarter.  We estimate that the revenue run-rate for its existing sub base is largely inline with the low-end of MTCH's 3Q guide, so MTCH could likely get there on fewer net adds than it guided to.  But we expect an incremental sub tailwind from Tinder's upcoming "Picks" feature, which appears to be designed toward driving Gold subs 

SBUX

Click here to read our analyst's original report.

Recapping Starbucks (SBUX) Earnings | GLOBAL TROUBLES

Transactions were negative globally, with consolidated transactions down -2% vs. Consensus Metrix -1.4%. Digging into the Americas, the region’s SSS were +1% which was in-line with consensus expectations, but what was troubling was the 4% increase in average ticket.

Surely some is due to the attachment of food, but much of it is due to price increases across the menu. Reaching for price while your traffic is decelerating is rarely a good idea! SBUX is an overpriced, over-promoted, over-complicated mess that is spiraling downward, time is ticking for this management team to get their head on straight.

MCD

Click here to read our analyst's original report.

The change in the first line of McDonald’s (MCD) quarterly 8-K says it all.  In 1Q18, the CEO said, “we continued to build upon the broad-based momentum” and now the 2Q18 press release says, “we’re seeing good performance across our business.” With the sequential slowdown in U.S. same-store sales and negative traffic, the momentum is gone from the text and now the traffic in the stores.

CCL

Click here to read our analyst's original report.

It has been a rollercoaster ride for the cruise stocks this earnings season. Carnival (CCL) came first with a disastrous outlook on its North America segment, particularly the Caribbean, with lower pricing and occupancy for 2H 2018.  

So where do we go from here? The water is still murky. The Caribbean is the weak spot and the main driver for yield growth deceleration in 2018. The yield deceleration theme (reported and same-store) is the main tenet of our cautious call on this space this year, with RCL our go-to name. The stocks’ NTM PE multiples remain close to the midpoint of its historical yield deceleration range.  The hurricane uncertainty is certainly impacting consumers from booking the Caribbean this year.  However, Europe performance is better than expected, and China is more in-line with our expectations but above the Street’s.

While management is bullish on Europe, next year is a high hurdle given a double in supply growth, double digit one and two year yield comps, and macro/tariff issues.  Alaska is a huge boost to NCLH’s yields, while hurting RCL and CCL.  The focus now turns to 2019 and our outlook is still cautious given lower 2019 same-store pricing growth for RCL/CCL and non-accelerating new ship premiums.  

UNFI

Click here to read our analyst's original report.

Love shorting companies with bad balance sheets and deteriorating fundamentals?

How do you make a low and declining margin distribution business even worse? Buy an even lower margin distribution business strangled by debt, mounting pension liabilities, and add in a small dying retail presence! United Natural Foods (UNFI) recently announced that they have entered into an agreement to acquire SUPERVALU (SVU) for $32.50 per share in cash or approximately $2.9B (including the assumption of $1.6B in debt) in cash. This implies that UNFI’s leverage ratio will increase from 1.5x at the end of 3Q18 to roughly 4.5x to 5.0x at the close of the acquisition.

ALRM

Click here to read our analyst's original report.

We continue to think Alarm.com (ALRM) has a high concentration of clients, clients made increasingly nervous by a rapidly changing market landscape, and ALRM is a mismatch as long term savior with both unimpressive product cadence + innovation, but also with an economic model that pits them as owners of the subscribers (rather than as a contracted software provider).

GWW

Click here to read our analyst's original report.

W.W. Grainger (GWW) Gross Margin Pressure Continues Unabated:  MSM reported the lowest gross margin, while GWW would have had it not juggled its sales force and cut prices (it was the 3rd lowest).  This is not an inflection in the business in any way, as we see it.  Volume is way up because of a strong demand environment – gross margins should have looked okay.

How Did GWW Beat? SG&A!  

While supposedly ‘no one cares’ about earnings quality in this market, and a little bit of it is leverage on sales growth, we’d bet the exceptional drop in accrued expenses played a role.  Just maybe… If so, the SG&A line is unlikely to hold in 2H and longs better hope for Gross Margin gains.

Investing Ideas Newsletter - gww2

SGRY

Surgery Partners (SGRY) reported 2Q18 revenue of $448.8M, which beat consensus expectations of $428.9M on sequentially higher revenue per case of 4.5% YoY (3.8% in 1Q18) and a stronger contribution from acquisitions. However, same-unit case volume continues to run negative at -1.4% YoY, in-line with our view that SGRY will have a challenging time recruiting docs and improving case mix, which is heavily Medicare. We believe the sequential improvement in same-unit volume is mostly attributable to seasonality, combined with a stronger utilization environment. Note HCA and THC both saw a sequential improvement in ASC volume in 2Q18, with same-unit growth rates of 1.5% and 3.4%*, respectively. While management said they have recruited "slightly" more physicians year-to-date compared to last year and the productivity of those physicians has "more than doubled," the continued decline in same-unit volume suggests it is not enough to offset ongoing attrition.

TSLA

Click here to read our analyst's original stock report.

We sent subscribers a special Tesla (TSLA) report this week written by Industrials analyst Jay Van Sciver to our Industrials institutional clients. Click here to review this research note.

BYD

Click here to read the short Boyd Gaming (BYD) stock report Gaming, Lodging & Leisure analyst Todd Jordan sent Investing Ideas subscribers earlier this week.