Below are updates on our nine current high-conviction long and short ideas. We have removed Disney (DIS) from the long side of Investing Ideas this week. 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.
AMN Healthcare Services (AMN) has been a great call for the Hedgeye Health Care Team since we saw our AMN Tracker and the supporting BLS and ADP Employment data sets inflect positively in September of 2018. Now, more than a year past the inflection point and having reached our team’s mid-$70’s price target, the maintenance and interpretation of this data is paramount.
We know that Health Care demand remains a tailwind for AMN and nurse staffing, as we’ve been expecting since our data began slowing. Depending on how the trend develops over 2020, it could catch up with the company.
A key indicator in this signal may be the trend in pricing. Despite the growth in demand, pricing trends have not risen accordingly. The result may already be telling us that demand is softening. For now, we remain Long AMN in the Position Monitor and will update subscribers when something changes.
BKNG
Click here to read our analyst's original report.
Investors will have to wait for Booking Holdings' (BKNG) reacceleration campaign as the Coronavirus is highly likely to impact financial performance in 1H 2020, at least. That said, our own thesis on BKNG was never just about a quarter or two. We initiated positively on the stock last summer due the mismatch we saw in out year expectations and also the potential for a (very) positive shift in the investor base, one that would likely result in multiple expansion down the road. 2020 was off to a hot and accelerating start for BKNG, with growth in their core OTA platform (Booking.com) beginning to reaccelerate supported by a positive EU Macro pivot. The world has obviously changed over the last month, and near term results will undoubtedly be under pressure, but take a look at the long term performance of BKNG… they have weathered many storms before, and we have little doubt in their ability to forge through the current environment.
Stormy skies aside, we see massive, long term, inherent value in BKNG’s stock.
MAR
Click here to read our analyst's original report.
The bulls will point to the few positives from this quarter and last – a RevPAR “beat” that resulted in global share gains, and a beat on fees. However, those represent just a few positive sound bites that don’t tell the whole story. Yes, RevPAR beat the Street, with the bigger delta derived from international markets, but a “beat” doesn’t mean much for us – the trend in RevPAR slowed through 2019 and ended up being a far cry from the 1-3% growth initially flagged. Fees “beat” thanks to incentive fees; which analysts were told to model as “FLAT” – hard to credit a beat on a line item that had expectations pared way down. Core fees were in line, and the year ended at the low end of the initial 5-7% guidance range – again, not enough for a stock commanding Marriott's (MAR) valuation. Numbers had come down throughout the year alongside guidance, and MAR still only came in at the very low end of the range.
CMI
Click here to read our analyst's original report.
NAV + Electric Catalysts Playing Out: If the TRATON + NAV tie up were ‘completely expected’ then NAV wouldn’t have shot up and Cummins (CMI) wouldn’t have sold off. It takes the “start to recover” out of the “get through” for CMI holders. Good luck with the electric bus in Santa Monica and refuse truck aside because CMI is dependent on HD and Medium-duty engines and components – that is where the company makes its money. There might be a relationship with PACCAR but, then this.
“Let me first just say that we've been active talking with PACCAR and would love to win them as a customer on the electric side, too. Needless to say that it's a significant effort for us. And while we're disappointed when they choose other people, they have their own goals and things and -- we are -- but we are active with them, let me just say it that way. So we hope to win some of their business, and we are fighting hard to do it.” (Linebarger CMI CEO)
Sounds like a “no”. Engine shipments inflected and likely move lower given current order rates, oil prices, Coronavirus, and industrial activity.
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%.
We stay firm with our short thesis.
SQ
Square (SQ) reported 4Q19 earnings, adjusted EBITDA of $119M and adjusted EPS $0.23, beating street estimates by +2.8% and $0.02, respectively.
Credit where credit is due, the company posted a strong quarter. Adjusted for the sale of Caviar on October 31st, 2019, gross profit increased +42%Y/Y, continuing the strength of the previous quarter.
Moreover, the company's subscription business, increasingly based in revenues from the Cash App, is performing well with expanding gross margins of 82%. Note, Cash App revenues have a 77% gross margin; however, Cash App revenues feature a transaction-based component and thus the margin on subscription and service-related revenues is even higher.
ATUS
Click here to read our analyst's original report.
For Altice (ATUS), we expect Pay-TV declines to accelerate through the 1H20 and also weigh on broadband subs. With 60-65% of the Optimum footprint bundled with video/broadband/phone, a cord-cutting decision increases the probability of an outright customer loss. The risk is higher in markets where they compete with Verizon (VZ), who recently began offering Fios internet and video unbundled w/no contracts.
DFS
Discover Financial (DFS) reported 4Q19 EPS of $2.25, in-line with street estimates and marking an increase of +11% y/y.
Total revenue of $2.94 billion grew +5% y/y, missing street expectations by -33 bps. The top-line miss was driven by a -82 bp disappointment in net interest income, which totaled $2.42B for the quarter and registered +5% higher y/y, attributable to +6% loan growth offset by NIM compression. Non-interest revenues of $520 were up +3% y/y and beat estimates by +1.5%; however, with net discount revenues essentially flat y/y due to higher rewards costs, the increase and beat were fueled by a +14% increase in loan fee income, reflecting increased late fees driven by greater incidence and pricing adjustments.
SYF
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 Synchrony Financial's (SYF) 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.
SYF has high sell side ratings combined with low levels of short interest which historically have translated to underperformance according to our proprietary scoring system. With the Hedgeye Macro Team firmly positioned in Quad 4, we highlight SYF's abysmal record under an economic regime characterized by decelerating growth and inflation.
We stay firm with our short thesis.
