Below are updates on our fifteen current high-conviction long and short ideas. Please note we have added Booking Holdings (BKNG) and Luckin Coffee (LK) to the long side of Investing Ideas. We have also removed Aphria (APHA), Chef's Warehouse (CHEF), and USA Compression Partners (USAC) 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.
AMN Healthcare Services (AMN) continues to be an excellent long position for the Hedgeye Health Care team as we move from 2019 into 2020. For this top 3 position in our Healthcare team's position monitor, we draw our edge from the extensive health care labor demand data we routinely track, analyze, and release to clients. Through this math- driven approach, we are able to gain key insights on the current state of the U.S. Medical Economy and the particular themes pertaining to health care staffing companies.
Throughout January, we have minded the same process, updating our AMN Tracker and Labor Demand Chartbook with every new release. We remain long the favorable trends which have driven AMN to this point.
CNQ
Click here to read our analyst's original report.
On a full-cycle basis, Canadian Natural Resources’ (CNQ) upgraded mining operations have one of the highest FCF profiles in North America. In 2018, the company earned ~C$5.5B in FCF paid ~C$1.6B in dividends, reduced debt by ~C$1.8B (net of USD gross up), and repurchased C$1.2B of stock.
The company recently released its 2020 CapEx and production guidance, which calls for 9% production growth per debt adjusted share on a $4B D&C capital budget. After fulfilling the dividend obligation, the company will have ~$4.8B in adjusted FCF to allocate between share repurchases and debt reductions. By year end 2020, the company should be approaching a net debt/EBITDA ratio of 1.6x. By our estimates, CNQ is one of only a handful of oil-levered upstream businesses that generates FCF at $50 WTI.
DIS
Click here to read the long Disney (DIS) stock report that Communications analyst Andrew Freedman sent Investing Ideas subscribers this week.
GH
Guardant Health (GH) remains a key favorite of our Healthcare team's since beginning our deep dive into the world of genetic testing labs. Finally, we are seeing the adoption rates and interest in genetic testing that many in the health care industry have expected for years. For this reason, our team continues to utilize our proprietary data sources to maintain a wealth of claims information for the struggle of power between market share leaders and new entrants looking to challenge them.
We remain long GH and will keep our finger on the pulse of this industry as it continues to evolve.
BKNG
Hedgeye CEO Keith McCullough added Booking Holdings Inc (BKNG) to the long side of Investing Ideas this week. Below is a brief note.
Looking to fade the China "virus" fear?
One way to do that is to buy EEM. Another way is to buy a travel related idea that Gaming, Lodging, and Leisure (GLL) analyst Todd Jordan still likes: Booking Holdings (BKNG) which is signaling #oversold here today.
Here's a summary excerpt from Jordan's recent Institutional Research note on the name:
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The current consensus (sellside and buyside) bar for RNs, EBITDA, and EPS look beatable, and 2020 should reveal emerging tailwinds - EU Macro, Merchant model profit dollar capture, and Alternative Accommodation growth |
LK
Hedgeye CEO Keith McCullough added Luckin Coffee (LK) to the long side of Investing Ideas this week. Below is a brief note.
Virus headlines didn't give US Equity Bears (SPY remains Bullish TREND @Hedgeye) what they were hoping for today. What it gave China Consumer Bulls was another buying opportunity.
One of our favorite China Consumer names is Luckin Coffee (LK).
Here's a summary excerpt from Restaurants analyst Howard Penney on the name:
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"We believe LK is one of the most revolutionary restaurant models the public markets have seen, and despite their current focus on China, expansion internationally will likely come in the future. Competitors are already piloting and adopting the digitally focused model in order to compete, but we believe LK will maintain the upper hand as they expand." |
MAR
Click here to read our analyst's original report.
Marriott's (MAR)'s guidance of 0-2% is in line with our current modeling assumptions and likely in line with the broader consensus. However, it’s interesting to see MAR open up their range to 0-2% vs HLT who went with a range of 0-1% - is MAR being aggressive? We think 2% is well out of reach if current industry momentum persists, but ~1% isn’t unattainable, though we’ll take the under.
GOOS
Click here to read our analyst's original report.
China is Canada Goose’s (GOOS) biggest international opportunity and likely its fastest consumer market today, but China also brings unique challenges. Canada Goose has three stores in mainland China and two stores in Hong Kong in addition to an online store on Alibaba’s Tmall. That represents nearly a quarter of the company’s store base. Making big headlines this week is the Chinese coronavirus problem that currently has thirteen cities under quarantine during one of the largest shopping periods of the year. That can only be bad for the sales trends of GOOS as Chinese customers will spend less at home fearing leaving the home and won’t be traveling to spend either. In addition China still has a counterfeit problem as every foreign brand knows. The first listing on the Alibaba website for Canada Goose is for counterfeit jackets sold at a discount of 90% or more. That makes it difficult to protect brand integrity within the Chinese market.
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 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.
BLL
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 into 2020, 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).
MDLA
Medallia’s (MDLA) growth is episodic around winning major F100 customers who are committed to an integrated approach to VoC solutions. ~19 years into the journey they have about ~33 of those giant customers.
While MDLA was an early pioneer in VoC solutions, we believe the industry has moved to approaches that optimize for faster time-to-value rather than back-end integration, where MDLA is more unique.
We continue the short thesis.
AXP
Click here to read our analyst's original report.
Pricing pressure continues to mount on American Express' (AXP) core business as it bids to gain favor with merchants and defend its target market of affluent, high-income earners from the entrance of large issuers with capital to deploy and greater abilities to compete on rewards.
Accordingly, American Express remains a Hedgeye Financials Best Ideas Short.
SQ
Regarding the Cash App, total revenues hit $159M in 3Q19, up +115% Y/Y - growth that continues to be largely inspired by the launch of the company's zero cost rewards program in May of last year. While this program no doubt proved popular among the company's under-banked and young user base, we do not see the same momentum extending into older and more adequately banked segments of the population, especially given the increasing level of competition on rewards among the major card issuing players. Hence, the Cash App, now ~28% of adjusted revenues and ~50% of subscription-based revenues, will continue to struggle from a very difficult comp setup.
In response, Square (SQ) unveiled the addition of a fractional investing feature to the Cash App, enabling users to buy and sell divisible shares of domestic equities for as little as $1, all without charging a commission. Of course, the firm expects to lose money on this initiative with the ultimate goal of driving greater app engagement and usage, similar to the function of its existing Bitcoin offering. While it is no doubt a novel idea, we view the prospects for increased app engagement as highly limited for a number of reasons, including a limited target market, an offering that runs against conventional investing wisdom, and the existing plethora of low-to-no cost wealth management products available to individuals with investment goals.
DIN
We see Dine Brands (DIN) missing the current same-store sales estimate of -1.5%. The current estimate suggests a 200bps deceleration in same-store sales.
On top of that, the street has the concept returning to positive same-store sales in 2H20, which is an unlikely scenario. Additionally, several third-party data providers are pointing to slowing trends for the Applebee’s brand.
Longer term, the Applebee’s brand will continue to feel the pressure from changing consumer purchasing behavior, significant labor inflation and shortages that make operating traditional casual dining brands difficult. We think the long-term model of 2%-3% same-store sales and 2%-3% unit growth is an unlikely scenario.
ATUS
Click here to read the short Altice (ATUS) stock report that Communications analyst Andrew Freedman sent Investing Ideas subscribers this week.
