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Position Monitor | Estimates Have Come Down, But Should the Bar be Lower? CLICK HERE for video & audio replays. CLICK HERE to access the associated slides. |
OVERVIEW
Before a busy week of earnings, we take the opportunity to recap the highlights from last week’s 2Q20 Themes Deck and further explore the country’s current status amidst the “re-opening” of the economy. Despite some recovery, we expect the “re-opening” to cause some slowdown and a likely disappointing rally back to pre-COVID levels. For this reason, we will not be making any changes to our Position Monitor this week but will continue background work on One Medical (ONEM) and 10x Genomics (TXG).
POSITION MONITOR
AMN | Although currently a Quad 2 stock, we have moved AMN to the short side as we expect a revision cycle to the downside will likely occur in the near- term. Regardless of sell- side concern, estimates have not come down nearly enough to account for the financial losses hospitals are experiencing while fighting the pandemic.
While our Tracker points to a strong first quarter, propped up by heightened ICU demand in the initial months, we expect a massive deterioration of demand on the “other side.” Pairing the loss of incremental demand with an initially lower hospital utilization rate following “re-opening,” we believe AMN will struggle to give a strong guide going forward.
TDOC | Much of the client push-back surrounding TDOC has been centered on valuation. In the same time frame, the stock has continued to improve 132.86% year- to- date, proving that estimate revision cycle is a better indicator than relying primarily on valuation.
Despite new app downloads trending lower, utilization of the services offered continue to climb. Aside from near- term upside, we derive future value from the structural changes being made in health care consumption as a result of COVID-19. Anecdotes from health care professionals point to a massive long- term opportunity in telehealth as an item that moved quickly from low priority to the forefront.
EXAS | Exact Sciences remains a top-line story and active short. Despite some pullback of top-line estimates, we do not believe that the Street is properly accounting for the decline in wellness visits in 2H20 as the result of hospital fear and joblessness.
Aside from the decline in ordering rates, our team has done extensive work on the adoption curve and potential TAM of the Cologuard product, outlined in our Black Book.
KEY TOPICS
Fundamental Equity Quads | In an effort to plug into the Hedgeye Macro outlook, we have developed a stock quad system that focuses our attention on the estimate revision trends. Using this process, we are looking for acceleration or deceleration in the estimate trend. Through numerous back tests and data points studied, we’ve found a very successful batting average.
Private Fixed Investment | Based on historical evidence, we expect that the negative headwinds from COVID-19 will be felt on a lag. In 2008 and 2009, the rate of change for hospital and medical instruments was felt well after the initial impact.
Venture Capital | Similarly, capital raising for venture capital is often affected for a period after a catastrophic market event. Any sort of rebalancing should have negative effects on the ability money losing companies, selling unprofitable units, or growing through acquisition to gain access to funding.
POLICY
State Plans for “Opening” | While all plans are slightly different, they follow similar guidelines set by the White House Plan. In part, all feature a slow phased process focused on balancing risk and the need for economic recovery. Governors in Florida and Pennsylvania have received political pressure for not issuing “stay-at-home” orders early enough.
On the West Coast, Oregon, California, and Washington have formed a coalition to “re-open” together. This situation is complicated by the very different positions these states find themselves in regarding case load and testing.
Hedgeye Preparedness Score | Rather than solely focusing on case load data, we have created a Preparedness Score for each of the states based on multiple factors. Beginning with a comparison of the case load for COVID-19 against case load for influenza- like illness, an initial score is determined. That score can then be reduced based on the testing positivity rate and volumes for the state.
Elective Procedures | Elective Surgeries are prominently featured in every state’s plan for “re-opening.” While some states are requiring hospitals to secure two weeks of PPE and set aside 25%-30% of beds for COVID-19 patients, others are providing much more general advice.
All data available upon request. Please reach out to with any inquiries.
Thomas Tobin
Managing Director
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Emily Evans
Managing Director – Health Policy
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William McMahon
Analyst
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