Below are analyst updates on our fifteen current high-conviction long and short ideas. Please note we have added Altice (ATUS) and Paypal (PYPL) to the short side of Investing Ideas. We have also removed Chipotle Mexican Grill (CMG) and Dexcom (DXCM) from the short 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.
Our Health Care Labor Demand model remains in a solid growth trajectory, but the underlying trend is beginning to decelerate with implications for consensus growth expectations and company results heading into 2020. In the short term, expectations remains subdued and revisions have only recently begun to inflect higher, so our long bias remains. With the massive upward inflection in wage growth, our Healthcareteam has made AMN a top long in the sector.
CNQ
Canadian Natural Resources’ (CNQ) valuation is attractive. Current metrics are pricing in ~$40 WTI or $50 WTI with blown out differentials indefinitely. The dividend is safe, the yield is +4% relative to the S&P 500 at ~2%. In our view, things cannot get much worse for CNQ and the current macro backdrop has created an opportunity to own one of the highest quality E&Ps in North America at its most compelling risk/reward in a decade.
GH
Click here to read our analyst's original report.
Guardant Health (GH) was one of the first few names our Healthcare team highlighted when they began their thematic long thesis for genetic testing supplies and labs. While we see another health care active long, Illumina (ILMN), as the paramount opportunity in the space, our claims data pointed to revenue upside for GH heading into 3Q19. Complimentary to our view, Guardant did not disappoint posting a nearly $61 million total revenue number versus the Street’s $45.4 million expectation.
As evidenced by our initial success with this name, our team has continued to update and analyze new data and fundamentals as they become available. Our analysis shows that the correlation between revenue and enterprise value, and more specifically the expected change between these metrics, is the key fundamental driver of the GH share price. For a TAM story, a tight correlation to revenue should not be surprising. If consensus isn't wrong, forward estimate trends will resume an upward expansion, taking the shares with it.
MAR
Click here to read our analyst's original report.
RevPAR – Better overall in Q3, but confidence falters for Q4; 2020 preliminary read in-line with our expectations
For a change, 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%.
GOOS
Click here to read our analyst's original report.
Last week Canada Goose opened its new multi-room concept it named “The Journey” in Toronto.The location in a Toronto mall is an experiential venue, not a typical “store” because it doesn’t have any physical inventory. Inside people can experience the Canadian outdoors through the smell of trees, videos, and of course touch real snow and ice. Retail companies are all trying to make their stores more experiential, but we think Toronto residents know what real snow and ice are like. The new store concept probably makes a lot more sense in Hong Kong where the brand’s two stores continue to be challenged by the ongoing protests. Of course when you have to show people what snow and ice are like it’s probably more difficult to sell them $1,000+ parkas.
APHA
Click here to read our analyst's original report.
Aphria (APHA) CEO Irwin Simon talks a lot about building a long-term sustainable company in the U.S. over the last 25 years. Hain Celestial, the company he built, was merely a roll-up story, that he eventually destroyed through cost cutting, lack of brand investment and an eventual dry up in the well of small fast-growing companies he could tack on top to maintain top-line growth profile.
We think the same will happen to his plan with APHA, but investors may have already figured it out given the “discount valuation,” APHA is likely going to be a supplier of raw materials to extraction and branding companies in the future.
CMI
Click here to read our analyst's original report.
In considering the question of why cyclicals have performed pretty well so far despite downward revisions in estimates, we come back to the view that “stabilization” did not. Perhaps the reason that our commercial services shorts worked on weakening outlooks (TNET, NSP, ROL) or even just more defensive names like BLL, was positioning for a quick stabilization in industrial activity. Why sell Cummins (CMI) if industrial production is about to scream higher? Why own expensive defensive names if cyclicals are about to start working? With backlogs dropping and employment cuts, will capex cuts turn into something of a feedback loop? The backdrop isn’t like 2015/2016; the elevated comparisons created by tax reform and Chinese stimulus leave it more challenging. The drop in ISM readings has been sharper. Valuations are higher. No one knows how deep the cycle will be, but it has yet to stabilize in the data we see.
MDLA
Medallia (MDLA) is trading at around 13 to 14x newly revised EV/FY21 software revenue for a company using M&A to keep growth in the mid-20s and who produces lumpy results. Importantly, the cash balance came down quite a bit this Q. F4Q should repair some of that as Deferred Revenue reverses from cash headwind to cash tailwind, but the accelerated pace of M&A might imply a secondary is not too far ahead. We remain firm on the short call.
BLL
We repeat. Aluminum cans are not a growth industry. Can sales continue to be 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 Ball Inc. (BLL).
AXP
Click here to read our analyst's original report.
Consistent with our original short thesis, competitive pressures continue to drive American Express (AXP)'s core pricing power lower, and with slowing growth in its global billed business, the company is increasingly drawing earnings growth from its lending business, thereby augmenting its risk profile in the face of late-cycle phenomena such as weakening consumer confidence, greater market volatility, yield curve inversion, and sluggish luxury goods consumption.
Accordingly, American Express remains a Hedgeye Financials Best Ideas Short.
SQ
Square (SQ) management plans to reinvest the proceeds and savings from its Caviar sale back into its seller business, bolstering sales and marketing expense to drive increased awareness of its seller offerings. Accordingly, Square has largely maintained its prior adjusted EBITDA guidance for FY19 of $410M-$415M, despite Caviar carrying a negative adjusted EBITDA of ~ -$3M. Adjusted EBITDA margin (LTM) excluding the lower margin Caviar business was 20% in 3Q19, compared to 18% inclusive of Caviar. However, in its guidance for 2020, management revealed that it would be giving up the incremental 200 bps of margin, thus holding 2020 adjusted EBITDA margin flat Y/Y in order to pursue plans for heightened investment in its seller business.
DIN
Restaurants are core shorts alongside Consumer Staples (XLP), but only when they're at the top-end of their @Hedgeye Risk Ranges.
Dine Brands (DIN) is there currently...
And here's Howard Penney's recent comment on the name:
"I would love to get another opportunity to SHORT this company. There is so much hot air coming out of this management team it’s hard to take them seriously. This quote from the CFO is a great example of what we are talking about
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“But in response to your question about what's going to take us to the next level for both brands, we see catering as the major opportunity because we think that space has been underserved.” |
Catering is not underserved and every restaurant company has a catering angle! If Chili’s sees accelerating revenues from delivery it’s going to come directly from Applebee’s."
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.
atus
Hedgeye CEO Keith McCullough added Altice (ATUS) to the short side of Investing Ideas this week. Below is a brief note.
New Best Idea @Hedgeye (short side):
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pypl
Hedgeye CEO Keith McCullough added Paypal (PYPL) to the short side of Investing Ideas this week. Below is a brief note.
Looking to sell names at the top-end of their Risk Ranges? We have plenty of Best Idea Shorts (Institutional Research product) to consider at the SPY's all-time high!
Financials analyst Josh Steiner just went bearish on a widely owned name: Paypal (PYPL). Here's a summary excerpt from a call he made this week:
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"While the company has certainly managed impressive payments volume and revenue growth over the last five years, and while the global payments opportunity remains undoubtedly large, we believe that the focus of the company's growth story, its dominant and growing position in the P2P sphere and the ecosystem synergies implied by the company's existing merchant network, is both highly ambitious and riddled with uncertainty when the transaction economics of the company's varying sources of payments volume are taken into account." |
