Takeaway: GTBIF, AMN, CNQ, ITHUF, WTRH, THC, TSLA, ROL, DVA, MCD, TXRH, EAT, PENN, UNH

Investing Ideas Newsletter - 04.23.2019 bulls camping

Below are analyst updates on our fourteen current high-conviction long and short ideas. Please note we removed Target (TGT) 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

GTBIF

Click here to read our analyst's original report.

This page represents just six members of the very talented Green Thumb (GTBIF) team across all levels of the organization.

Ben Kovler, Founder & CEO, is a visionary in the space, with great leadership capabilities and brand creativity, but let’s not underestimate the bench this company has procured over the last couple of years to put them in a great position to lead the U.S. MSO space. Anthony, Jennifer, Kate and Andy are all deep in the weeds, and bring a ton of knowledge and experience to the company, but there are others below the c-suite that are very impressive as well. We think one of their secret weapons is Laura Brown (and her team), who runs their Maryland processing operations, if you ever get a chance to meet with them and get a tour of the facilities (which are currently being expanded), you will know what we are talking about!

They have branding, operational, and finance expertise that is some of the best in the industry.

Investing Ideas Newsletter - gtbif

AMN

Click here to read our analyst's original report. 

There continues to be a good long thesis with AMN Healthcare (AMN) despite the disappointing 4Q18 results and 1Q19 guidance.  We'd be more concerned if the market dynamics were not as strong as they are; health care wage growth is accelerating, health care hiring and job openings are accelerating, and our model continues to forecast improvement in utilization.

Pricing improved in Nurse and Allied sequentially on a one year and two year basis in 4Q18 as the premium placement trend continues to stabilize. Net of the single client, 1Q19 guidance would have been better than consensus even with the flu comp.  When comparing the guidance for Nurse and Allied before and after the problem client, the negative 600 bps swing resulted in 1Q19 revenue forecast to $333M, lower than consensus of $342M. Without the headwind management quoted a +5% growth rate (versus down 1% to 2%)  in Nurse and Allied which would have driven guidance well ahead of consensus and our forecast would have been spot on.

Investing Ideas Newsletter - amn

CNQ

Click here to read our analyst's original report.

Canadian Natural Resources' (CNQ) FCF yield is unique in North America E&P. There is a clear divide between integrated/top tier producers and the rest of the independent producers.

After a 10+ year investment cycle, CNQ’s asset base is extremely efficient, high margin, and diversified with a solid balance sheet. It generates free cash flow in nearly any commodity price environment. At normalized differentials CNQ’s oil sands mines have better economics than nearly all shale oil-levered E&Ps.

Investing Ideas Newsletter - cnq

ITHUF

Click here to read our analyst's original report.

iAnthus Capital (ITHUF) recently completed the transformational acquisition of MPX Bioceutical on February 5th, which drastically expands their coverage into critical states across the U.S., making iAnthus one of the premier MSO’s. The combined entity now has access to 11 states with rights to build 63 dispensaries, while 21 are operational today, with plans to have 50 open by CY2019 YE. The acquisition also expands their cultivation and processing square footage from ~210K to ~600K. 

Investing Ideas Newsletter - ithuf

WTRH

Click here to read our analyst's original report. 

The value of delivery to restaurants is hard to overstate and is arguably the most consequential change to affect restaurants and eating in a generation. As an example, CMG reported yesterday that SSS increased 9%, most of which was driven by transaction growth.

Delivery through DoorDash was a huge part of that success. Our Restaurants sector head Howard Penney is confident that we’re in the early innings of a sea change shift in consumer behavior, as dining-in via delivery becomes a more common way people “eat at a restaurant.” The Delivery aggregators will be the long-term winners in this triangle, as they “own” the customer data.

We expect Casual Dining chains to become less relevant, and “cloud kitchens” to capture this shift from traditional, customer-centric restaurants. 

Waitr Holdings (WTRH) has about 2.0 million active diners across Waitr and the newly acquired Bite Squad. WTRH has an EV of $800 million and revenue estimates of $250 million for 2019. WTRH is off to a strong start and has a solid management team and backers to become a significantly bigger company.

THC

Click here to read the long Tenet Healthcare (THC) stock report Healthcare analyst Tom Tobin sent Investing Ideas subscribers earlier this week.

TSLA

Click here to read our analyst's original report.

Tesla (TSLA) seems like an obvious short, but how many obvious shorts have plenty of borrow available and $43bn in alpha? Our Industrials Sector Head Jay Van Sciver has been a virtuoso threading the covers and presses of this Best Idea short since he first came out on the name in June, 2017.

Jay’s original thesis posited that the unlimited demand the growth bulls were relying on was likely to evaporate in early 2019 when the Federal tax credits began phasing out. And 2019 would coincide with rivals rolling out new electric vehicles to compete with Tesla. Since then, Jay has validated and expanded the diminishing demand thesis with proprietary alternative data tracking fewer test drives, and fewer app downloads, and the company has confirmed demand drying up with successive price cuts and capex cuts.

Yesterday’s Q1 earnings report shows that sales are nowhere near where mgt guided even three months ago, and the stock continues to tumble. Jay thinks there’s still plenty of downside in the stock, especially since the company has more than $15bn in debt, and no earnings. Jay will have an update to his TSLA short thesis a few days after the Q is filed.

ROL

Click here to read our analyst's original report.

Roll ups go up before they blow up. That's what we saw in Rollins (ROL) last week. The company better get back to explaining why a stock at 60x just reported a miss and earnings decline. The roll-up story is at risk as their non-accretive (>3x sales) acquisition hits a regulatory snag. Competitive pressures increasing. Is valuation a passive flow artifact? ROL has also definitely benefited from some mild winters in 2015-2017. 

Our work continues to show signs that the tailwinds behind the pest control industry are fading.  Pricing trends in the industry suggest rates have been stretched and may now be facing competitive pressures based on our work.  Customer counts have stalled, while revenue per customer has ramped significantly over the past five years following ROL’s pricing study.  Combined with other growth and competitive headwinds, we expect market recognition of pricing and ancillary service limitations to drive a revaluation in ROL shares. 

DVA

Click here to read our analyst's original report.

We think trends in commercial patient volume, reimbursement, and margins are coming under pressure alongside regulatory problems. We see significant downside over the next 12-months for DaVita (DVA), which has little flexibility and apparently no plan except for repurchasing stock.

Since we presented our short thesis on DVA, things have gone from bad to worse. The 2019 guide included many of our assumptions about rising labor costs and their impact on patient care expense but surprised us to the downside with lower than expected organic patient volume of +0.5 percent. Meanwhile the federal government is looking to open up new channels of patient care and reduce its reliance on the duopoly of DVA and FMS.

Investing Ideas Newsletter - dva

MCD

Click here to read our analyst's original report.

The restaurant industry needs to slow growth but the market doesn't like that. The restaurant industry has a track record of growing faster than both the population and GDP, which is a terrible equation for ever getting traffic growth back. Chipotle along with other fast casual chains have experienced the fastest growth and are undoubtedly stealing share from the QSR's such as McDonald's (MCD). In particular, the higher income demographic is looking for better/healthier options.

Investing Ideas Newsletter - mcd

TXRH

Click here to read our analyst's original report.

Texas Roadhouse (TXRH) is unique in the restaurant industry for its consistent growth in customer traffic.  They have been able to achieve this by running great restaurants and keeping prices on the menu low.  Unfortunately, there is a price to be paid for this strategy when sales trends slow and you are left holding the bag of higher inflation, profitability suffers.

The eight-month run of positive same-store sales ended in February with a (0.6%) decline.  Weather may be a reason, but I suspect there is more to the decline than just weather.  First, one of the biggest issues the industry is facing is aggressive pricing, with guest check up 40bps sequentially to 3.1%.  Given the aggressive pricing across the industry, we saw a (3.7%) decline in same-store traffic.

Investing Ideas Newsletter - CHARt 1

EAT

Click here to read our analyst's original report.

In FY19, Brinker International (EAT) is embarking on a 3-year remodel program, which has some negative implications for the P&L in FY19.  In short, expenses are rising without the benefit to the top-line. It will not be until 18-24 months from now where the sales will be growing faster than expenses.

Investing Ideas Newsletter - CHART 4 

PENN

Click here to read our analyst's original report.

We’ve seen multiple sell-side cut numbers for Penn National Gaming (PENN) Q1 EBITDAR and revenues in the last few weeks.  It may not be low enough.  But management has two code words ready - “bad weather.”  There’s no doubt weather played a role in Q1 2019 but we don’t think it fully accounts for a ~1% miss on revenues vs management guidance.  Tax refunds have been anemic and overall regional casino admissions continue to decline, even after accounting for sports betting.

With respect to PENN’s Q1 EBITDAR guidance, we anticipate a small miss despite all the PENN & PNK synergies and we think PENN will reduce FY EBITDAR guidance of $1,541m (ex. Greektown) by ~$5m.

UNH

Click here to read the short UnitedHealth Group (UNH) stock report Healthcare analyst Tom Tobin sent Investing Ideas subscribers earlier this week.