Investing Ideas Newsletter

Long: CHWY, MP, STKL, IIPR, EXPE, BYD, UAA, LVS, GH, MTCH, AMN, TCNNF, BCO, V, FISV, POAHY, IHRT, GME, EXPC Short: ZI, HBI, BYND, SCL, KR, HD, TAP

Below are updates on our twenty six current high-conviction long and short ideas. We have removed Armstrong World Industries (AWI) and Anheuser Busch Inbev (BUD) from the long side and Boston Beer (SAM) and New Oriental Education (EDU) from the short side. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.

CHWY

Click here to read our analyst's original report for Chewy.

On Thursday Petco filed its S-1 with the SEC as it preps to go public – yet again, which is a huge tell as to the strength we’re seeing in the pet category. The company plans to list its 48mm shares at $14-$17 per share, which could result in north of $800mm in proceeds and value the entity in the vicinity of $4bn (deservedly less than Chewy's (CHWY) $41bn). Post IPO, the company would still be controlled by the current owners – CVC Capital and the Canadian Pension Plan. Per the filling, most of the proceeds will be used to pay down debt.  This offering will be a three-peat for Petco (proposed ticker WOOF) as it went public in 1994 and 2002. It filed to go public again in 2015 but was bough pre-IPO by current owners. If there was ever a time for a sale, this is it. Just look at Chewy and now the BarkBox SPAC – capitalizing on the surge in pet adoptions since the pandemic and the heat that has been driving the category. In the S-1 Petco revealed that it has over 21 mm active customers and in the 39 weeks ended Oct 31 comp sales increased an impressive 9.6%, which leveraged to 84% growth in EBIT. Strike while the iron (and the category) is hot. Across all durations, however, Petco will still be a net share loser to Chewy.

MP

Since MP Materials (MP) was added to Investing Ideas (as FVAC) in August 2020, shares have run-up significantly. It's worth reviewing Industrials analyst Jay Van Sciver's original long thesis for clarity.

STKL 

This past week SunOpta (STKL) announced the completion of the sale of its global ingredients segment (and related assets) to Amsterdam Commodities N.V. (Euronext: ACOMO) for cash consideration of €330 million.  The company also announced a five-year credit agreement for a senior secured asset-based revolving credit facility of $250M, replacing the previous facility set to expire on March 31, 2022.  Additionally, as part of the same facility, the lenders provided a five-year, $75M delayed drawing term loan for general corporate purposes.  This is a transformational deal for the company and makes SunOpta a (near) pure play on the high-growth, plant-based category.  This transaction significantly de-levers the company balance sheet, enabling the acceleration of expansion plans in the plant-based food and beverage segment.  Yesterday the company suggested that they are looking at "synergistic acquisitions" that add to the core plant-based beverage platform.  The press release also stated that the retired in full its 9.5%, $223.5 million second lien notes due in October 2022. The second-lien notes' retirement reduces interest expense by approximately $21 million on an annual basis. "In total, debt was reduced by approximately $355 million between the payoff of the second lien notes and pay down of the existing credit facility on December 31, 2020. On an annualized basis, interest expense would decrease from approximately $29 million to approximately $4 million based on the weighted-average interest rates as of September 26, 2020." We continue to see significant upside in SunOpta shares from current levels. 

IIPR

Democrats Jon Ossoff and Raphael Warnock have won the Georgia runoff elections for the Senate against their Republican challengers, giving the Democrats control of the Senate and the three government branches.  With a 50-50 split in the Senate, Vice President-elect Kamala Harris will have the deciding vote in the event of a tie. With outgoing Senate Majority Leader Mitch McConnell (R-KY) no longer dictating legislation, meaningful cannabis reform on the federal level can pass. Sen. Chuck Schumer is anticipated to become the new majority leader of the Senate. In an interview in October, Schumer stated that if Democrats won control of the Senate, he would prioritize marijuana legalization legislation. The MORE Act, which Schumer first introduced back in 2018, would federally deschedule cannabis, reinvest tax revenues into communities impacted by the drug war, and financially support efforts to expunge prior cannabis records. Vice President-elect Kamala Harris has been a lead sponsor of the Senate’s companion version of the House-passed MORE Act. The SAFE Banking Act, which has stalled in McConnell’s Senate, could be passed in the new 117^th Congress. The legislation, which would provide cannabis businesses with access to banking services, passed the House in 2019 with bipartisan support. The Democratic Senate makes it more likely that the cannabis industry will have more access to financing. Sale leasebacks are common in most other real estate sectors that have access to banking. Innovative Industrial Properties (IIPR) also has no current borrowings which will be used to offset lower yields in the future. The management team also has the most experience lending to the sector which still will have a unique compliance and regulatory framework.

EXPE

It might be a new year, but we’re holding firm with one of our highest conviction themes across our coverage: the prospect for pent up leisure travel demand to take off in Q2 or Q3.  For everyone’s sake, we’re hoping for a better 2021, but as we say at Hedgeye “hope is not a risk management process.” 

Indeed, while we may be hopeful for a better and more open 2021, the data is what will ultimately guide our conviction and so far, the data during the Covid led downturn and early recovery continues to favor leisure accommodation demand vs most other segments we track.  The OTAs, specifically Expedia (EXPE), are right at the epicenter of the leisure travel industry and were among the hardest hit during the downturn last year, but consequently have proven the most resilient across the travel landscape.  With Covid pulling forward alternative accommodation adoption, pent up leisure demand, and the need for hotels to fill lost room nights, the 2021 outlook for the OTAs looks favorable.  Positive signs and stabilization across some high frequency data are visible, which could become solid catalysts ahead of earnings in February.

We see a combination of higher earnings estimates for 2H’21 + multiple expansion in the cards for EXPE and continue to see significant upside (25%+) in both stocks over the NTM. 

BYD 

Momentum continues to build for Sports Betting (and iGaming) across the broader US, and the latest news strikes closer to home for us at Hedgeye GLL.  Earlier this week Governor Cuomo of NY spoke favorably about legalizing online sports betting in the Empire State suggesting that NY already contributes close to ~20% of NJ’s handle/players.  Cuomo then walked back his comments suggesting that he’d like the State lottery to run the operation, but it’s hard to tell if he’s just posturing and simply looking to negotiate a more favorable tax rate.  If he were serious about having the lottery run the operation he should consider states like DE and OR to see how well (read: poorly) they have done with Sports Betting. 

Following that address by Cuomo, Governor Lamont (Hedgeye’s home state), voiced his support for legalizing sports betting and iGaming in Connecticut at some point in the near future.  Stressing that CT needs to be competitive with its surrounding areas of NY and NJ, not to mention the state’s gaping budget deficit.  CT will have some hurdles as it will need to strike a balance with both Mohegan and Foxwoods which have argued for exclusivity in the past, but ultimately we see a decent shot of CT getting it done. 

All bodes very well for the Sports Betting industry and the stocks but we continue to see a lot of opportunity for a stock like Boyd Gaming (BYD) to get more of the credit it deserves in Sports Betting + iGaming.  BYD remains our top pick in domestic gaming.

UAA

Golden marketing opportunity for Under Armour (UAA) this past weekend, as Steph Curry marked the first time a player scored at least 30 points in each half of an NBA game since 2005. He went 18-for-31 from the field, 8-for-16 from behind the arc, and a near perfect 18-of-19 from the free throw line. That’s a career-high 62 points for Curry – in his inaugural season wearing the new Curry brand. To tie in to a commercial initiative, Curry gifted 62 pairs of the Curry 8 “Flow Like Water” colorway to stand-out student athletes in Oakland. It might not seem like a big deal for a company that generates $5bn in sales…but these little details are critical inputs for building great brands – an area where the UA sports marketing organization has largely failed in the past. This one was a win for UAA.

LVS

We reiterate our long call on Las Vegas Sands (LVS). For a brief update on LVS, click here to listen to Gaming, Lodging & Leisure analyst Todd Jordan discuss hotel RevPAR data and Las Vegas Sands CEO Sheldon Adelson’s medical leave (00:07:27).

Below are the timestamps for the rest of this edition of "The Call":

• Consumables analyst Howard Penney updates on casual dining recovery and growth in the oat milk industry, flagging SunOpta (STKL).  – 00:00:19
• Consumables analyst Daniel Biolsi reviews Constellation Brands (STZ). – 00:02:57
• Gaming, Lodging and Leisure analyst Todd Jordan talks hotel RevPAR data and discusses Las Vegas Sands (LVS) CEO Sheldon Adelson’s medical leave. – 00:07:27
• Retail analyst Brian McGough discusses The Gap (GPS) with CEO Keith McCullough and updates on Costco Wholesale Corporation (COST). – 00:10:53
• Retail analyst Jeremy McLean flags Wayfair (W) and Ollie’s Bargain Outlet Holdings (OLLI). – 00:16:51
• Healthcare analyst Tom Tobin discusses NeoGenomics (NEO) with CEO Keith McCullough and then updates on Natera (NTRA) and Covid-19 vaccine distribution. – 00:20:09
• Financials analyst Josh Steiner comments on the impact current events are having on the bank market and then discusses the incoming administration with CEO Keith McCullough. – 00:25:55
• Industrials analyst Jay Van Sciver flags rail traffic and gasoline consumption data. – 00:34:07
• Technology analyst Yosef Vaitsblit discusses Zendesk (ZEN) with CEO Keith McCullough. – 00:39:39
• Communications analyst Andrew Freedman reviews T-Mobile (TMUS), Roku (ROKU), and Sirius XM Holdings (SIR). – 00:41:52
• Telecom-Media Policy analyst Paul Glenchur comments on Biden nominating Merrick Garland as Attorney General. – 00:54:13
• Chief Political Strategist JT Taylor discusses yesterday’s violent Capitol breach and the Georgia Election. – 00:55:34

GH

This past week, Guardant (GH) reached another all-time high following simultaneous positive moves in the ARK held funds, such as Ark Innovation Fund (ARKK) and Ark Genomic Revolution Fund (ARKG). We believe the common denominator between the price reactions of GH and other high growth/high beta stocks this past week is the significant correlation found between the price of their funds and the names which they hold. The extraordinary positive move prompted us to review the proprietary claims data that we map and measure prior to the release of our monthly Genetic Testing Lab Chartbook.

Based on this data, Guardant’s volume currently looks to be in-line with consensus, but the directional trend and more generous forecasting methods signal that there may likely be upside from here. Past analyses of the data have shown that Guardant360, the first FDA-approved comprehensive liquid biopsy test, is likely expanding beyond its initial application in lung cancer. Despite screening as a MicroQuad 4 name within our proprietary algorithmic screening tool, we believe GH is well positioned to be successful within the current setup, and we remain long on the Hedgeye Health Care Position Monitor.

MTCH

Hedgeye CEO Keith McCullough and Communications analyst Andrew Freedman discuss Match Group (MTCH) and building a long-short book of Communications ideas in an edition of The Macro Show this week. This process begins at 28:15. Click here to watch this edition of The Macro Show.

AMN

On this week’s Position Monitor Update, we previewed the ADP Employment Report and subsequent BLS Employment Releases which were set to be released this week. Of the names in our coverage, AMN Healthcare (AMN) sticks out as a primary beneficiary of what is likely to come from these data releases heading into the JP Morgan Health Care Conference on Monday, January 11^th.

Upon review of our AMN Listings Tracker, we are better able to understand the trend of hiring throughout the COVID-19 pandemic. Following the first wave of COVID, many hospitals froze hiring and suspended their travel nursing programs to preserve local staff. The hiring freeze was ended following the “flattening of the curve” when additional nurses were needed to meet the re-opening of elective surgeries and regional breakouts. While the Tracker for New per Day Listings looks to be stalling, this may be due to the Holiday season and uncertainty around staffing needs in 2021.

We reiterate that AMN is our top long for a reason as it sits in MicroQuad 2 with multiple fundamental tailwinds. With labor demand returning to pre-COVID levels, and wage growth and average hours trending in the right direction, AMN remains in the “green zone” for us. 

TCNNF

Pennsylvania has granted a $2 million capital grant to Trulieve as it expands its PurePenn cultivation and processing facility outside Pittsburgh. PurePenn is a premier cultivation and production company producing medical marijuana products. Its portfolio includes some of the highest THC potencies in the Pennsylvania program, with 750mg THC per 30mL bottle tincture and the original THCA sand with potencies over 96%. PurePenn currently operates a 35,000 square foot cultivation and processing facility in McKeesport, PA, which is undergoing expansion to 90,000 square feet, expected to be operational by Q1 2021. Gabe Perlow, the president of PurePenn, commented, “We currently employ 77 people, and we will potentially double or triple that number in this new building as we are potentially doubling or tripling the size of our production capabilities.” PurePenn currently wholesales to 100% of the operating dispensaries in Pennsylvania, and with its 35,000 square feet of cultivation, produces 461,207 grams of finished product annually. Aside from PurePenn, Trulieve Cannabis (TCNNF) also owns Solevo Wellness, which operates three medical marijuana dispensaries in the Pittsburgh area. Pennsylvania is one of Trulieve’s newer expansion states.

BCO

Below are the core tenets of Industrials analyst Jay Van Sciver's long thesis on Brink's Company (BCO).

1. BCO Is Already A Dominant Route-Based Business Services Franchise, Ignored By Market

Most likely because investors needlessly worry about the future of cash payments, Brinks is poorly covered by the Street and often ignored by investors. Armored trucks? Sounds like a business from the days of the gold standard. But so were railroads. The ongoing transformation of Brinks is likely to prove durable, as a larger footprint and broader solutions package drives route density, branding, compelling strategic acquisitions, and other scale advantages. Management has demonstrated competence, executing continuous improvement programs while furthering long-term strategic initiatives. Exceptional execution in otherwise boring industries often delivers fantastic investor returns.

2. Penetration Opportunity Via Solutions More Than Offsets Risks Of Declines In Global Use Of Cash

If we were to critique management’s presentation, we’d offer that they are too defensive about the continued use of cash. Physical currency has existed for thousands of years, fiat or otherwise; there are laws protecting it. The low penetration for outsourced retail cash management services and potential growth in ATM and other high value transport services is a more compelling long thesis. The company’s CompuSafe and related products help reduce the labor and risk of managing cash, while also allowing users to access the value each day even if the cash is not transported. From a retailer’s perspective, cash can be a lower cost form of payment, and we suspect they would rather customers use more of it.

3. >50% Relative Upside Following Demonstrated Resilience, Excess Return On Eventual Pandemic End

The market ‘factors’ for Brinks have improved markedly. Weak anticipated fourth quarter volumes are likely a reason for the languishing BCO share price, but the market should soon look past it. After the pandemic, we would expect a surge in attendance at cash venues and retailers, and less investor concern about electronic payments. The underlying profit growth and business opportunities for BCO merit a multiple in-line with other dominant, structurally advantaged business services names. Those typically trade for 2x to 3x BCO’s multiples. We expect shares to return to prepandemic levels, offering more than 50% relative upside.

V

While the Financials (XLF) have been relative dogs as of late, they are longs in #Quad2…the growthier, the better... Just look at Visa (V).

Several months removed from the expiration of enhanced UI benefits, domestic spending volumes slowed a bit on the margin, but are holding up relatively well in November, with debit spending volumes proving robust as the recovery in credit spending continues to make progress.

Cross-border volumes remain severely depressed; however, cross-border e-commerce appears to have helped drive somewhat of a recovery in late November despite travel-related spending remaining deeply in the red. With little prospect for a broad lift in travel restrictions, cross-border travel spend is unlikely to meaningfully rebound until sometime in 2022, especially when taking into account the approximately three years required for international travel to recover following the September 11th attacks. 

FISV

Below is Financials analyst Josh Steiner's core long thesis on Fiserv (FISV):

1. Twin Tailwinds

Notwithstanding pandemic-related headwinds and strong equity price performance of the past month, we take confidence in Fiserv's unique position as a direct beneficiary of two separate and simultaneous secular tailwinds: (1) exposure through its merchant acceptance business to the ongoing and accelerated migration to electronic payments at home and abroad, and (2) the digital transformation underway in the banking industry and the increasing needs of regional and community banks for external IT solutions like those provided by Fiserv.

2. Strong Execution of Cost & Revenue Synergies Post FDC Merger

Fiserv is on track to deliver $600 million of cost synergies by 2020, two-thirds of an initially expected $900 million over five years through 2024. Accordingly, the company has increased its cost synergy expectations to $1.2B, while also pulling forward implementation by 18 months to 2022. With Fiserv’s legacy account processing client base, the distribution of FDC’s merchant-acquiring solutions through digital banking channels and the physical branch networks of Fiserv’s clients represents a significant revenue synergy opportunity.

3. Steady, Defensive Growth at a Reasonable Price

With a diversified and durable revenue mix capable of reliably producing high single-digit, top-line growth, and together with significant operating margin expansion driven by cost synergies, Fiserv is poised to deliver mid-teens earnings growth over the next three years which, given the rich valuations in the payments space, represents a solid investment offering growth at a reasonable price.

POAHY

Below is Industrials analyst Jay Van Sciver's long thesis on Porsche Auto (POAHY):

1. VW Made Exceptional Investments In EVs, Charging, Batteries, AI/Autonomy

As an outcome of Dieselgate, VW has pushed into electric vehicle development. VW is building Electrify America, a charging network competing in an industry with high peer valuations. VW owns about 1/3 of QuantumScape, a promising solid state battery maker that picked up about $25 billion in market cap this month *without* VW shares responding. VW owns about a third of Argo AI, an autonomous vehicle firm likely worth ~$7.5 bil. VWs’s TRATON stake, 10% of which floats, is worth another ~Eur 10 billion. This is before considering VW’s profitable operations, a cyclical recovery, self help opportunities, finco, and exceptional brands. We doubt that the market will ignore these EV/transport tech assets for long.

2. VW Shares Are Cheap, But Even Cheaper Through Porsche Holding

Porsche Automobil Holding SE (Porsche SE) is a family controlled holding company that has voting control of VW and holds ~157 million shares (~31%), and little in the way of relevant other assets or on balance sheet liabilities. Those shares are worth about Euro 25 billion vs. Porsche’s cap of about Euro 17 billion, a sizeable discount despite the same functional control position (or better, since Porsche SE holders are in the same position as the Piëch/Porsche). The Porsche car brand is owned and operated by VW. The Porsche SE holding company just holds controlling shares of VW, although it somehow feels more confusing. The gap need not close, but it is a discounted way to buy shares of VW, which already appear to trade for about half what they should.

3. Macro/Cyclical Line-Up Well For Pandemic Recovery, VW Likely Worth ~EUR 380

We anticipate a macro backdrop that is more hospitable for Auto OEMs in 1H21, with the pandemic recovery helping global auto sales. When we add up the sum of the parts for VW, it is hard to avoid a number north of EUR 350/share, and potentially EUR 400/share. VW has been a value name for some years, but the recent EV and transportation technology successes, as well as fading Dieselgate concerns, should attract the market’s interest. VW is expected to produce more EVs in coming years than Tesla, but with much greater scale and resources in an industry where that matters. VW & TM also appear to be the furthest along in solid state batteries, the likely next step for EVs

IHRT

We believe growth in digital and podcasts, combined with a cyclical recovery in ad-spend, is likely to drive iHeartRadio (IHRT) higher in the next 12-months. While the radio broadcast market is mature, it is highly localized and therefore less at-risk of disruption from streaming in the near-term.

Meanwhile, we like Liberty Media's involvement, having received DOJ approval to increase their ownership stake from 5% to up to 50%.

GME

Hedgeye CEO Keith McCullough added GameStop (GME) to the long side of Investing Ideas. Below is a brief note.

At VIX 25, I'm a buyer of #Quad2 USA Small-Mid Cap Stocks that my analysts like. Consensus doesn't think of it that way. They hedge and/or sell on red. They’ve been doing so for a month.

One recent name Retail analyst Brian McGough added to the long side of his Retail Pro product is Gamestop (GME). It's for sale (-8%) this morning. You should be capitalizing on that.

Here's an excerpt from his recent research note:

We hosted a call this week with a 60-page slide deck outlining our Best Idea Long call on Gamestop (GME) and Best Idea Short call on Best Buy (BBY). The feedback has been polarizing – particularly on the Gamestop front. People either love the name, or absolutely hate it – that’s probably why 100% of the float is short. We think there that the ‘this business is going all digital’ call lacks significant context as to where were are in the console and software cycle, the need for physical stores for a certain portion of the customer base, and what a new management team, and (newly) activist investor (Ryan Cohen) can do to enact significant change to make the concept a critical point of interaction and distribution for the gaming community. I view our $30 price target as something of a softball.

McGough will be hosting a call on this at 1230PM ET. We're looking for another squeeze of consensus shorts,
KM

EXPC

Hedgeye CEO Keith McCullough added Blade (EXPC) to the long side of Investing Ideas this week. Below is a brief note.

Looking for another SPAC idea by Jay Van Sciver? One of his latest (in his Industrials Pro product #subscribe) is Blade (EXPC) (formerly Experience Investment Corp) and it just corrected towards the low-end of its Risk Range.

Here's a summary excerpt from Jay's Research Pro product:

Blade has compelling partners, an exceptional board, and a talented & focused management team. It is generating revenue and growing rapidly and is gross margin positive at a 50% load factor on mature routes. Blade will have the ability to integrate different modes of transport – helicopters, sea planes, business jets, and eVTOL – potentially generating a winner-take-most network effect as they can deliver passengers to transportation assets. Cash Redemption Should Provide Asymmetric Return Profile, Upside ~$20 - $3

Buyem on sale so that you aren't chasing on green!

KM

ZI

In 1Q19, two months into the merger of DO-ZI, the combined company had billings of $107MM. Fast forward seven quarters, ZoomInfo (ZI) reported $127MM of billings in 3Q20. At this point, the post-acquisition churn drama, as well as the pricing and business model integration, are mostly behind the company, and ZI has started to nibble back into the acquisition market so they can have more stuff to sell.

4Q20 billings growth will benefit from 5-7% sequential customer growth, based on our estimates, plus some year-end billings-per-customer normalization, which together generate ~25% Y/Y billings growth. We see this data point as a high-water mark for organic growth near-term, that will decelerate in the coming quarters.

We see risk/reward heavily skewed to the downside. 

HBI

Hanesbrands (HBI) saw a rally this week alongside much of consumer discretionary.  The Georgia senate race outcome got investors excited about bigger the probability of higher stimulus checks to come.  It’s obviously not yet a reality, but that is the narrative, and with consumer companies generally having easy compares a large stimulus round would driver further YY growth. For HBI though remember that after March, the comparisons are actually not easy given the PPE sales it took in during the pandemic.  Also, as we look at 4Q and 1Q, we should remember that about a third of HBI’s revenue is outside of the US, and about half of that in Europe where lockdowns have been intensifying over the last couple months.  Australia is another big region, its Covid cases trends have been very low (since its summer), but it recently introduced restrictions because of the new virus strain showing up.  The punchline is even with a stimulus round, from the perspective of rate of change on fundamentals, unlike many US retailers HBI is not out of the woods.

BYND

This past week Beyond Meat's (BYND) earnings power was challenged by a competitor. Impossible Foods is cutting foodservice prices by 15%, and it's not likely to be the last price cut. Impossible Foods, Inc. said it would cut prices for foodservice distributors in the United States by about 15% amid "increasing demand for its burgers." The price cut is its second in a year, and the California-based company is asking distributors to pass on the savings to restaurants and consumers. In a statement, Impossible Foods Chief Executive Officer Patrick Brown noted the price cut is "not the last."  This reminds me of DoorDash (as a private company) making life difficult by cutting "take rates" for (the public company) GrubHub. That competitive pressure on profitability ended up pushing GrubHub into being acquired. Beyond Meat’s current valuation makes it an unlikely acquisition candidate. Instead its competitors are developing their own plant-based offerings in house.

SCL

Industrials & Materials Typically Good Quad 2 Longs…Except

Quad 2 means accelerating growth and accelerating inflation – right now, markets seem to be recognizing the inflation part.  The ISM Prices Paid was a good hint, but we can see a variety of input costs that are much higher.  Industrials and Materials typically perform well in a largely synchronized global Quad 2 environment, but it is worth being mindful of industries that lack pricing and suffer from higher input costs.  Commodity chemicals (e.g. Stepan (SCL)) are a good example, we think, of a group that tends to underperform in that macro environment.  Staples like sector constituents, like can maker BLL, also tend to underperform. 

KR

As we turn the page on 2020, many consumer packaged goods categories will find it difficult to report growth in 2021. IRI based its growth forecasts on a June 2021 COVID-19 vaccine assumption. As seen in the 2021 IRI forecast below, most CPG categories will range from up 5% to down 20%. Categories that are minimally or negatively impacted by restrictions like candy, cosmetics, and hair products will likely see growth in 2021. When comparing against 2019, most CPG categories will still see growth of more than 10%. Reporting sales growth will be difficult in the coming quarters, but inflation headwinds are coming.

We reiterate our short call on Kroger (KR).

HD

Hedgeye Macro updated its quarterly themes this week. The outlook remains Quad2 for 1Q and 2Q 2021. Home Depot (HD) does not like Quad2 as it is its worst relative performance Quad and 2^nd worst expected value based on historical performance.  If we add onto that the comparison problem of lapping wallet share shift towards goods, and even more goods related to the home, we think there is clear risk to both organic earnings and the multiple for HD heading into its new fiscal year starting Feb.

TAP