CPRI: We’re moving CPRI to the top of our Best Idea list, as it is our highest conviction Long idea, by a mile. The quarter reported last week was stellar on the top line in all three divisions, and on EBIT margins across the board. Earnings for this name went up by ~$1.00 per share for this year (though we’re still well ahead of the Street), and the stock was up only $1.50 in the two trading sessions since the print. In other words, we got a sub 2x p/e on the incremental earnings, and it is cheaper today than it was before we got confirmation on Thursday that the turnaround across all of the portfolio is taking shape. Though we’ll take the 2Q beat, we want to be crystal clear about something…this upside is just the beginning. Even though numbers went higher after this print, we think that people are still grossly underestimating the growth and underlying margin trajectory of the portfolio, and ultimately the earnings power of CPRI. The current consensus has the company earning $1.25 for the balance of the year. We think it’ll do that in the third quarter alone – with another $0.70 in 4Q (ending March). More importantly, for next year we took up our Street-high estimate by $0.50 to $3.66, and are looking at roughly an incremental buck per year in EPS growth for the next three years. The reality is that within 12-months, the narrative should change in a way that will get people wondering about the timing for when the company will get to $5-$6 in EPS, which is huge with the stock trading at $25. We still think this name doubles over 12 months, and is a 3-bagger in 3-years.
PTON: We’re adding PTON to the Long Bias list. We're well aware that this move on our part seems like its very late in the game given the stock's stellar performance for the YTD and the fact that it is trading within 10% of its all-time high. We were short this name last year pre-covid and (then painfully, but now fortuitously) covered at $86. But TREND momentum continued this quarter and the demand from consumers solidifies that home fitness will continue to be an area of spending well beyond the initial Covid bump. The Bear case on the name is based on a big drop off in product sales lapping Covid, but the new product launches are continuing to growth product demand growth and the delivery times are extending that demand along a much longer time window. At the same time ‘digital-only’ is starting to show the growth it needs to for investors to believe in the big long-term market potential. That means for the short to intermediate term, the bull case will continue to win out, and the stock is more likely to grind higher than sell-off.
