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During our 3Q19 Health Care Themes presentation last week we went into detail on how Hedgeye's Macro Quads give us a useful framework to enhance and de-risk our fundamental work. Even the most airtight fundamental thesis can be undone by Macro. We applied the Macro Quads to Health Care broadly and to TDOC (a suspicious long) and DXCM (a potentially disastrous short) and discovered both are equally good shorts in the current environment.
Given our recent updates to DXCM, we turned our attention to TDOC this week and spoke with an industry contact who cautioned us on the Medicare Advantage opportunity but was reasonably optimistic on the CVS deal. We have also added SGRY and NVTA to the Long Bias. Given the DVA news this morning, we gave an update on the positive pre-announcement.
Position Monitor Updates
Teladoc Health Inc (TDOC): We spoke to an former executive in the telemedicine industry this week who walked us through his views on the Medicare Advantage (MA) opportunity for TDOC and other platforms. As a result, we are far less surprised by the lack of an announcement of an major MA partnership for TDOC and subdued management commentary. Any back half 2019 announcement seems likely to be unimpressive. However, the CVS partnership is potentially far more positive for TDOC where, unlike MA which seems to have a difficult path, the downstream revenue for CVS is a more credible narrative. Leaving TDOC on Best Ideas Long but with watchful waiting.
NVIDIA Corporation (NVTA): Our Field Notes ILMN | "50% of these labs will go under" suggested a wash out phase of genetic testing labs is likely. Our expert's comments also prompted us to begin taking a closer look at Invitae (NVTA), which was roundly criticized for "cutting corners" and offering what sounded like permanently unprofitable pricing. Rising short interest, tough compares, delayed profitability, all rhyme with short in our view. However, after some preliminary work, we uncovered what appears to be a positive inflection in test volume coincident with their capital raise earlier in 2019 and the announcement that they had been included in UNH's preferred lab network. As we detailed in our 3Q19 Health Care Themes, revenue growth and positive revision cycles can offset the damage from slowing GDP in Quad 3 and 4. We are adding NVTA to our long bias list.
Surgery Partners Inc (SGRY): Factors that work in a Macro Quad 3 and 4 in Health Care include revenue revision. After getting all we could out of SGRY as a short, we are revisiting it now that we are a year into management changes and seeing the early stages of what might be a turn around story. Their expressed interest in bundled payment programs and the potential of more Medicare policy shifts make the story more interesting. If they can turn this dog around, the secular story is still a very good one. We've heard some positive comments about their Othopedic case recruitment efforts which sound realitic and credible. We are adding SGRY to our long bias list.