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POSITION MONITOR | 5/28/2019 | ANTM, HQY, DXCM - position monitor

We moved HQY to the top of the short list as we put our attention on quantifying some of the headwinds emerging described below. 

ANTM  | In follow up calls to our Black Book the pushback is focused on the accretion from upside in Medicare Advantage and the current counter campaign being run by White House adviser, Joe Grogran.  There is some concern being raised about delays emerging for the final rule as a result of Grogan's efforts, but we see Azar prevailing for multiple reasons. The ANTM work also has allowed us to revisit the UNH short.  Our thesis on both names is based on the normalization of premiums in a post-rebate environment and subsequent enrollment gains and losses.

HQY |  As the macro outlook continues to deteriorate, there a number of headwinds to the HQY business model we are working on and we've moved HQY into the top short position.  First is the potential for the Federal Reserve to cut interest rates and the subsequent pressure on Custodial yield income.  Second, medical utilization on a per capita basis typically accelerates into a downturn, which is likely to lead to spend down of existing AUM balances.  Third, same client hiring is likely to turn negative putting pressure on member growth.  While there may eventually emerge increased interest in an HSA offering as a cost savings tool for US companies, its more likely to emerge after the first 3 headwinds emerge.

DXCM | Shares historically perform poorly in the current macro environment and sentiment scoring system continues to rank DXCM at the very low end.  The debate seems centered on the upcoming ABT ICGM approval and the impact to both DXCM share and price. In recent weeks we've seen G5 app downloads slow consistent with our thesis, but the G5 user base appears not to be switching to G6, which we did expect.  This trend puts a significant upward bias to estimates for 2H19, counter to our thesis, but for now we feel we have room to be patient given the set up.  We are reaching out to speak with endocrinologists and other relevant market experts to confirm the trend as well as refine our TAM analysis.