Below are updates on our ten current high-conviction long and short ideas. Please note we have removed Canada Goose (GOOS) from the short side of Investing Ideas. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
AMN
Click here to read our analyst's original report.
By most measures our positive view of Health Care demand trends came through AMN Healthcare’s (AMN) 4Q19 earnings and 1Q20 guidance.
While AMN beat 4Q19 and guided 1Q20 ahead of consensus, stable/weak pricing continues to be a drag on results and run counter to the demand commentary. We had expected stronger pricing. Revenue of $586.9 beat consensus of $575M and 1Q20 guidance of $598M-$605M well ahead of consensus of $587M.
DIS
Click here to read the our analyst's original report
We continue to be surprised by the level of investor skepticism surrounding Disney's (DIS) stock in the face of rising subscriber expectations for Disney+. Our latest survey work (as of 12/31) suggests Disney+ finished the quarter with at least 20M paid subscribers worldwide.
The following estimates are based on an 11/22 survey of 1,250 U.S. consumers balanced by age and household income according to the U.S. census. Estimates assume 100M U.S. internet households. We see 18.0M (+/- 2.0M) Disney+ U.S. Subscribers (excl. password sharing) and 21.5M (+/- 2.5M) Disney+ U.S. Households (incl. password sharing). 40% pre-paid for at least 1-year (incl. Verizon promo) and 28% paying $6.99 monthly. 16% opted for the bundle with Hulu and ESPN+ at $12.99/mo. 15% are using Disney+ but not paying for it.
BKNG
Click here to read our analyst's original report.
The latest regulatory development out of Europe looks to be in favor of the major OTAs and Meta players. Thanks to pressures by EU regulators, Google is going to be testing direct links to Meta and OTAs in its search results. The tests are currently taking place in a number of key travel hubs (Germany, Spain, Italy, UK, etc.) – the breadth of the “tests” could suggest that these measures will likely become somewhat permanent.
For Booking Holdings (BKNG), who dominates the EU, these added direct links are likely to create some incremental traffic, but BKNG has already been cultivating such a large direct traffic mix and these tweaks are unlikely to create much an adjustment to their long held SEM strategy with Google. The signal and messaging to the industry is the bigger takeaway here, though. We have long believed that regulatory / anti-trust guardrails would ultimately keep Google’s encroachment at bay, and this announcement is a step in the right direction. Will these direct links actually make the market more competitive? Who knows, but we do believe it should assuage some concerns about Google Travel taking over the entire industry – it may have the ability but over the long term lacks the motivation, for a whole host of reasons.
MAR
Click here to read our analyst's original report.
Accelerating Full Service North America RevPAR should be somewhat hamstrung by the still very weak Limited Service trends that continued on through Q4 + weaker international growth was not accretive to year end ’19 RevPAR – net/net, we estimate Marriott (MAR) RevPAR will fall short of consensus expectations and guidance of 0 – 1% and post growth of 0.3%.
MAR afforded itself some nice cushion in its guidance for Q4, but due to weaker international growth we see them missing the low end of the range. With incentive fees under pressure this quarter, and merely in-line unit growth, we’re anticipating few mitigating factors to sluggish RevPAR growth for MAR.
CMI
Click here to read our analyst's original report.
Stocks usually respond disproportionately to guidance relative to consensus – not so with Cummins (CMI) this earnings season. We suppose CMI has been a lousy performer into numbers, lagging the market by ~12% since the last report.
Maybe investors worry that a rosier outlook would fade – who knows. Nonetheless, we must have missed all of the hope in the Cummins earnings call. It sounded like most regions and product categories were struggling – management was clear that they didn’t think guidance was ‘conservative’, and CMI management (to their absolute credit) doesn’t sugar coat:
MDLA
Medallia (MDLA) reported that the largest retailer in the world with 1.5MM employees took the employee experience module and has grown their account with MDLA by 400% in the last year as they start to migrate to bigger modules. A few problems with this example. If the dollars are material, and we can all make our estimates, then if you back out the 400% growth from one customer it implies all other customers would have had an NRR somewhere lower than the reported 118%.
For example, if the retailer (clearly Walmart?) expanded from $1MM to $4MM ARR then the overall NRR x-this one deal was ~125bps lower than what was reported. If the dollars were immaterial, there are two problems. First, CEO shouldn’t be hyping up 400% increases if they are immaterial. Second, if the dollars are immaterial, it shows you customers don’t really value the employee experience module very highly, as a 1.5MM unit account – likely to be their largest ever in this zone – generates immaterial revenue.
We stay firm with our short thesis.
SQ
Despite Square's (SQ) recent surge higher, we continue to discount the company's TAM story, limiting its penetration to smaller merchants with slow international uptake amid heightened competition from new entrants across in-person, online, mobile, and commerce payments solutions.
In addition, we see diminished growth tailwinds from the Cash App as the appeal of the company's rewards program flattens out, with user growth inevitably decelerating as competition in the P2P space limits market share gains.
ATUS
Click here to read our analyst's original report.
The most recent data updates (as of 2/7) suggest the problems at Altice (ATUS) have not gotten better. The # of complaints filed with the Better Business Bureau (BBB) ticked up slightly in December 2019, which runs counter to management's "back to normal" commentary (see below).
In fact, the # of BBB complaints and negative reviews remains elevated so far in 2020. Meanwhile, the number of reported outages/service problems at Suddenlink and Optimum continues to increase in size and frequency. Finally, the NPS for "employee compensation" and "views of senior management" continue to remain depressed and well below peers.
DFS
Consistent with our original short thesis, we are seeing delinquencies continuing to tick upwards despite a still remarkably favorable labor backdrop, signifying the escalating risk profile of the underlying book, namely greater late-cycle subprime exposure - a stark contrast to the last downturn when Discover (DFS) was shedding risk steadily in the years leading up to the crisis.
DFS repurchased 4.9MM shares of common stock for $401MM in the quarter, resulting in a -6% Y/Y reduction in share count. In addition, the company paid out $136MM or $0.44 per share in dividends.
Accordingly, Discover Financial remains a Hedgeye Financials Best Ideas Short.
SYF
While bull's cite the prospect for new program launches, recent exciting deal wins, the belief of continuing strength in the domestic consumer, and a stronger, more defensible portfolio following Walmart's move to COF, our analysis concludes that Synchrony Financial (SYF) is much more like an ice cube on a hot summer's day with both secular and cyclical headwinds poised to accelerate the melt.
While contract extensions with major store parents are in place, we draw on the experienced insights of the Hedgeye Retail Team to cast serious shadow on the outlook for some of SYF's major brick and mortar partners like JCPenney and GAP; A reminder of late-cycle realities: elevated loan loss rates, increased defaults, higher credit costs, slower loan growth, and highly sensitized investor sentiment to the consumer finance space amid deteriorating economic conditions. With the Hedgeye Macro Team signaling a transition into Quad 4, we highlight SYF's abysmal record under an economic regime characterized by decelerating growth and inflation.
