Below are analyst updates on our sixteen current high-conviction long and short ideas. Please note we have added Chipotle (CMG) to the short side of Investing Ideas and added Canadian Natural Resources (CNQ) to the long side of Investing Ideas. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
IDEAS UPDATES
AMN
Click here to read our analyst's original report.
As you saw from impressive 3Q19 results, AMN Healthcare Services (AMN) continues to be long for the Health Care team at Hedgeye. Within the beat, we’d like to draw your attention to the evidence of extreme tightness in Health Care Labor markets as the result of rising incremental demand despite customers having yet to bid up labor rates. This trend will be a significant revenue driver for the company whose orders are already up 20% YoY and accelerating.
With the implied lower guide in 2019, we will continue to use our tracker and other data sources in order to give subscribers an edge in evaluating this stock. We expect they will be rewarded when rates catch up to demand, driving both growth and acceleration to cycle highs.
BKNG
Click here to read our analyst's original report.
While Google’s impact on both EXPE and TRIP may seem like a very bad omen for all related travel parties, it is in fact, not a very good read through for the likes of Booking Holdings (BKNG). For BKNG, due to its exposure both geographically and from a customer acquisition perspective, there is little to no major read through from what EXPE and TRIP reported. So, with earnings reports in the rear view and only a modest rebound in the stock, we would be picking BKNG shares on this dip.
CNQ
Hedgeye CEO Keith McCullough added Canadian Natural Resources (CNQ) to the long side of Investing Ideas this week. Below is a brief note.
Alongside big cap US Energy Stocks (XLE) our favorite Canadian Energy name, Canadian Natural Resources (CNQ), is correcting toward the low-end of its @Hedgeye Risk Range.
Here's a summary excerpt of Energy Sector Head Al Richards' fundamental view on the name:
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"We continue see it as one of the most compelling opportunities on the long side in energy today. The business is on the back-end of a 10 year CapEx cycle, retains high FCF margins due to low operational costs and bitumen upgrading operations, has a repeatable, low decline asset base, and is shareholder focused. All in all, a rarity in North American E&P. Additionally, we see it as an interesting way to play our Macro Team’s call that Quad 3 and Long Energy will be a persistent theme over the coming quarters." |
NFLX
Click here to read our analyst's original report.
The growth rate in Netflix (NFLX) mobile app downloads picked up in November (through 11/18) compared to the prior month, but is still tracking down sequentially QTD. While we thought we would see more weakness around the Disney+ launch on 11/12, growth continues to slow regardless, and it is still early.
We are nearly half-way through Q4, and the QTD growth rate of +6.8% YoY is down from 13.0% YoY in 3Q19 and in-line with the +6.6% YoY growth rate in 2Q19. Meanwhile, our international subscriber model is forecasting 6.5-7.0M paid net adds in 4Q19, which is slightly below management's guidance of 7.0M.
MAR
Click here to read our analyst's original report.
For a change, Marriott (MAR) at least put up a beat on RevPAR (+1.5% vs. HE of +0.8%) driven by better full service RevPAR growth in their North America segment, and slightly better than expected growth from international, particularly the AsiaPac region. That said, RevPAR was still shy of the high end of their 1-2% guidance – so while it may have beat, the trend is still slower for MAR and the broader industry. Again, MAR’s limited service brands in the US were pretty sluggish, despite facing very easy comps – limited service RevPAR was +0.3% YoY in Q3 2019 vs a comp of -0.5%.
Despite the slight beat, MAR was forced to lower full year 2019 guidance (~1% from 1-2%) due to their outlook for a more sluggish Q4. In response to this, we’ve slightly lowered our RevPAR assumptions for Q4. A quarterly beat is nice to see, but with no follow through to Q4, makes it somewhat of a wash. Like other C-Corps, MAR is not immune to the impact of softer industrywide trends.
GOOS
Click here to read our analyst's original report.
On its Q3 call Canada Goose (GOOS) provided more details around BRANTA, its new limited release of luxury/fashion outerwear. The six pieces in the collection were above the price range of its core line and more of what consumers are used to from Moncler (albeit less colorful). A notable issue that is not often discussed by bulls is the margin risk as the company goes into what we’ll call ‘SKU Proliferation’ mode, given that its model is built upon a ‘zero markdown’ mantra.
That might hold when we’re talking about a single parka, but not when over a third of the mix is now knitwear and lightweight jackets – and that ratio is only growing. A higher end line further adds to that inventory complexity. We’re not saying that GOOS does not have the right to go there on fashion, but simply that it will have to respect the same 13-week seasonal markdown cycle that every single other brand in the performance outerwear space does – which will cost it gross margin.
APHA
Click here to read our analyst's original report.
No change to our initial thesis on Aphria (APHA) as it firmly remains a Best Idea Short for our Cannabis sector.
CMI
Click here to read our analyst's original report.
Cummins (CMI) did essentially everything wrong. They slipped in their 10Q that they are currently being questioned by the Department of Justice and the Securities and Exchange Commission over “defeat devices” in their 10Q for emissions compliance.
All CMI does is make engines and engine compounds, so if they are found to not be complying with emissions, that’s a lot more critical to their business than say VW who payed an enormous fine for the exact same thing. We are shocked the stock didn’t respond more although it continues to guide down as they face a huge chasm. The trend seems set on course and we remain steady on the short
MDLA
If you read Medallia’s (MDLA) S-1 in the beginning you probably came away a little bit bullish. A Sequoia backed software company? Silicon valley? A 20% grower offered a little cheap? You should look closer. Our work suggests that MDLA has struggled for a long time to penetrate the mid-market.
But in their S-1 they define mid-market as $150MM-$1.5B revenue companies, and in their TAM calculation they imply they have calculated their mid-market TAM based on the top 100 customer ACV in that category, which would imply that the mid-market represents at least 17% of the customer base (100 / 565).
We think it is more likely that MDLA changed the goal posts, widening the mid-market definition to include some large customers in the $1.5b revenue range. It won't stop them from giving investors false updates along the way on the mid-market penetration opportunity. We remain firm on our call.
DXCM
Click here to read our analyst's original report.
Despite a blowout 3Q19 revenue number, the Hedgeye Health Care SHORT thesis on Dexcom (DXCM) remains intact. We would like to re-emphasize that this short is a matter of when, not if. That being said, the surprising result did implore us to add additional detail to our claims data in order to take a deeper look at the underlying trend. Beyond service date, CPT code, and claim ID, we added fields for rendering physician NPI, patient ID (coded and anonymous), and billing entity NPI.
We believe this addition will help us to better understand the difference in trend between our tracker and the reported number. Aside from just understanding for the future, we will be using the additional data to map out new physicians, new patients, same physician patient growth, repeat patient trends, and practice level, and geography level detail.
We are currently in the process of compiling and analyzing this deep dive, so subscribers, please be on the lookout for these updated postings in the coming weeks.
BLL
Aluminum cans! Everyone’s favorite cocktail party conversation. Ball Inc. (BLL) was in a growth industry around the time of the statement that “aluminum cans are better for the environment than bottles.” With this narrative there was expected to be above average growth.
News Flash: That is not what is currently happening. Sales are lower than a year ago, starting from the first half of 2018. Few cans were shipped, so in 2019 we saw against an easy comp what looks like mid single digit volume growth that kind of confirmed the idea of “cans are a growth industry.” They’re not. Over the 4th quarter and continuing further, we have very tough comps that make the growth story very difficult. Trucking rates are down. Marginal cans have been shipped and on a sequential basis we think it will be shown that it will not be a growth industry for BLL.
AXP
Click here to read our analyst's original report.
This week it was reported in the Wall Street Journal that American Express (AXP) offers bonuses ranging from under $10k to ~$450k to some businesses that don't take its card in an effort to close the gap between AXP and its rivals Visa (V) and MasterCard (MA) in the US. In 2016, American Express said it would close the gap with Visa and Mastercard by the end of 2019. CEO Stephan Squeri has said the company is on track to meet its goal, though it has been noted that the payments indicate it hasn't been easy.
Our team views this latest piece of news as corroborating evidence for its short thesis, centered on a slowing and increasingly less profitable core business.
Din
No change to our initial thesis on Dine Brands Global (DIN) as it firmly remains a Best Idea Short for our Restaurant sector.
SQ
Adjusted for the completed sale of Caviar to DoorDash on 11/01/2019, Square (SQ) issued adjusted revenue guidance for the fourth quarter of $571-$581, with FY19 guidance coming in at $2,095-$2,105. Management increased FY19 guidance, ex.Caviar, by +$35M and +$15M on the low-end and high-end of the previously given range, respectively.
Relative to street expectations ahead of the print, the midpoint of management's new 4Q19 and FY19 guidance for the adjusted top-line of its core business (i.e. ex.Caviar) came in +2.4% and +0.8% higher, respectively.
CHEF
Chefs Warehouse (CHEF) is an over-valued food service distribution roll-up story who’s better days are in the rear-view mirror. Since the beginning of 2012, CHEF has acquired 10 businesses and operating margins have gone from 6.0% to 3.2% over the same period.
The central tenant of our CHEF SHORT has always been the sustainability of margins, especially EBIT margins. There is more clarity around that theme after the company reported 3Q19 earnings, which was yet another disappointing quarter. There is no change to our conviction, that given the optimism baked into consensus numbers for CHEF the stock remains a core SHORT.
cmg
Hedgeye CEO Keith McCullough added Chipotle (CMG) to the short side of Investing Ideas. Below is a brief note.
Covering some shorts on red means you can short others on green...
Our Restaurant Analyst Howard Penney has recently gone from Chipotle (CMG) Bull to Bear. Here's a summary excerpt of his SELL idea:
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"The accelerating/recovery phase of the Chipotle story is over now and it's decelerating/execution time. To be clear, management is executing, but now we need to compare against a very strong December 2018 and a wildly successful 2019, which suggests a significant deceleration in same-store sales." |
