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Long: CHWY, MP, STKL, IIPR, EXPE, BYD, UAA, GH, MTCH, AMN, TCNNF, BCO, POAHY, IHRT, GME, EXPC, CTRN, TRSSF Short: BYND, HD, PPC, SIRI |
Below are updates on our twenty two current high-conviction long and short ideas. We have removed Las Vegas Sands (LVS), Visa (V), Fiserv (FISV), ZoomInfo (ZI), & Kroger (KR) this week. We have also added Citi Trends (CTRN) and TerrAscend (TRSSF) to the long 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.
Chewy (CHWY) is trading 2% above the weighted average price targets by Old Wall. Those numbers are likely to head higher. We think that this is the year, that the company will accelerate its spending per customer in a way that will offset a slowdown in customer acquisition growth, and will also break out into the pet services (especially telemedicine).
That should results in a positive EPS number for the first time in company history. At some point this year, International is likely to become part of the growth narrative, which adds an important leg to this story. Ultimately, price targets here are likely headed higher.
MP
Increasing US tensions with China, flows into ESG funds, growth in alternative transport powertrains, lower carbon energy investment, combine with macro forces like accelerating inflation should drive investor interest in MP Materials (MP). Rarely does a single equity check so many ‘thematic’ boxes, particularly when many of those categories are seeing rich equity market valuations.
Rare earth elements have unusual magnetic properties – unpaired electrons in f-orbitals align favorably in certain crystals – that are well characterized and reasonably stable. Our surveys suggest that consumers are much more interested in Battery Electric Vehicles than is often assumed by investors, with ‘known’ OEMs committed to platform introductions….now and over the next couple of years. While regulation and subsidy are important, consumer preference the performance characteristics of EVs with powerful electric motors (with efficiency enhancing permanent magnets) should drive consumption.
STKL
CPG in-stock levels have generally been hovering 1-2% below the baseline of product availability in the last few months. Alternative milk out of stocks has been more prevalent than most food categories and varies by region, as seen in the map below.
Within alternative milk, there are significant share shifts. Almond milk has been growing at a low double-digit rate, soy milk has been declining, and oat milk has grown at a 200% clip. There is a secular shift away from dairy milk to alternative milk due to several factors.
Almond milk is the share gainer from dairy milk and the category leader in alternative milk because oat milk requires years of capacity expansion to take the top spot. The out of stock level for alternative milk is comparable to personal thermometers but significantly less severe than hand sanitizers or color-safe bleach.
We remain long on SunOpta (STKL).
IIPR
Innovative Industrial Properties (IIPR) closed on the sale/leaseback of a Harvest Health & Recreation (HRVSF) property in Alachua, FL. The purchase price was $23.8M. The facility is a cultivation and processing facility.
Harvest is expected to complete additional tenant improvements, which IIPR will reimburse up to $10.8M. The improvements would bring IIPR’s investment up to $34.6M.
The Alachua property is the first transaction with Harvest, which has 12 cultivation processing locations. IIPR still has a small presence in Florida, one of the largest and fastest-growing medical-use cannabis markets poised for even more growth when it eventually legalizes adult-use. As the cannabis sector continues to expand so does IIPR’s potential lease base.
EXPE
We have talked about the diverging trends within business travel bookings and leisure travel bookings, and how both segments have shown divergences (in favor of leisure) throughout the recovery.
We see it in the real time data each week, and this week's data update was no different, but the below focuses on new hotel bookings for the future, and we’re seeing a pretty sharp inflection on the leisure side (still down a lot YoY), while on the business travel side we’re not really seeing much improvement at all (and still down a lot more YoY). The rate of growth or decline is still bad for both, but the arguably less bad set up for leisure is a good sign for what could be on the come in the next couple of months as leisure demand starts to represent more of the total industry mix.
Business travel bookings will eventually tick higher, but the spread with leisure is only likely to widen in the coming months, we think. We continue to reiterate our stance on Expedia (EXPE).
BYD
As Covid surged again in mid-November, regional gross gaming revenues (GGR) fell off a cliff. Visitation deteriorated further in December and with most of the states already reporting GGR, it’s clear that prior Q4 revenue expectations were too high. Investors appropriately looked past Q4 results and now it looks like the gamers are getting back on track.
Channel checks and some weekly data suggest that January is improving from December and with a new round of stimulus and as vaccines ramp, it seems that GGR should be nicely in recovery mode. As we outline below, the elderly are on track for vaccination in most states with regional gaming facilities and they represent a key demographic that has been mostly absent from casinos during the pandemic.
Regional gaming companies are in good shape for a post Covid world. The cost structures look permanently reduced so the profitability ramp should be much faster than the revenue ramp. The Covid lockdowns also introduced casinos to a younger demographic, which offset lost business from the elderly cohort, and some of that younger business appears to have stuck.
It’s been years since a significant number of younger customers frequented regional gaming casinos. Finally, Covid also pulled forward adoption of online sports betting (OSB) and iGaming and while the rate of growth could moderate as people get out of their houses, the level of demand is no doubt higher than what it would’ve otherwise been without Covid.
Boyd Gaming (BYD) remains our favorite regional gaming stock
UAA
Under Armour (UAA) is set to report 4Q EPS on Feb 10th before the market opens. The company will also likely give a more detailed look at expectations for 2021. As we’ve previously noted, we think that EPS expectations for the quarter are largely in check. The Street is looking for a loss of $0.07 per share compared to EPS of $0.10 in last year’s fourth quarter.
We think that both SG&A and Gross margins will likely come in better than the Street is modeling, and the consensus is too bearish on a 12% revenue decline. The company is going light on inventory this quarter as to mitigate off-price sales and encourage more full price selling. That’s well telegraphed.
But when the numbers hit the tape, we think it is likely to be led by a revenue beat. To show how bearish the Street is on UAA expectations, it is modeling that sales don’t return to pre-pandemic levels until 2024 – which is way too conservative from where we sit. Don’t get us wrong, the brand lacks the kind of heat we’re seeing out of Nike and Lululemon but taking 3-years to get to pre-pandemic levels is simply too conservative.
GH
Guardant (GH) has had a great January with a string of positive news and appearances. Last week, we discussed the CMS’s recently released decision memo for screening for colorectal cancer - blood-based biomarker tests. The posted final NCD and decision memo is in-line with expectations (74% sensitivity and 90% or better specificity). While the currently available Epi proColon® test does not meet the criteria for an appropriate blood-based biomarker CRC screening test, Guardant's LUNAR-2 data does.
Following that announcement, a head-to-head study released this past week showed Guardant 360 liquid biopsy was proven to outperform tissue biopsy for comprehensive genomic profiling in advanced non-small cell lung cancer with similar outcomes.
While the release was positive on the margin, it is unlikely to fundamentally change practice patterns in the near- term. Nonetheless, we are excited to see GH move back into the MQ2 bin and remain long on the Hedgeye Health Care Position Monitor.
MTCH
Below are Communications analyst Andrew Freedman's four thesis points underlying his long Match Group (MTCH) thesis.
1. Tinder 6M Subs -> 10M 2026
- North America is mature; incremental growth coming from international markets
- MSD ARPU growth 2021 – 2023 driven by Platinum roll-out and premium features
2. Hinge Grows to 3M Subs by 2026
- Hits $1B revenue run-rate by 2026; Becomes as large, if not larger than Bumble today.
- Affluent Millennial Target + High Intent = Higher ARPU / Higher Retention / Conversion
3. Product Development Drives ARPU Higher
- Rollout of video chat and live stream capabilities (e.g. POF driving 2x increase in app revenue).
- Engagement from digital events in post-covid world (e.g., Tinder’s Swipe Night)… premium video content + gaming?
AMN
During their appearance at the 39th Annual JP Morgan Healthcare Conference, AMN Healthcare (AMN) shared further details on elevated demand for the Nurse and Allied segment centered on a combination of themes including recovery and meeting incremental needs.
Based on their comments and our own field work, we foresee a set of four tailwinds that will occur in rapid succession to bolster AMN’s value proposition in the near- term. The remaining tailwinds will focus on the additional demand necessary to roll out the vaccine, subsequent re-opening following the point of herd immunity (100MM doses), and lastly post-COVID reckoning of burnt-out health care workers.
Our outlook of AMN’s potentially long tail was bolstered by a couple of articles this past week detailing the struggles of New York nursing homes to meet the necessary staffing requirements, as well as an override of nurse workload limits in California.
Both articles referenced the use of temporary staffing agencies to meet the additional demand, a practice which has become common over a year after the first COVID-19 cases were reported in the US. AMN remains one of our top Long ideas.
TCNNF
State Rep. Carlos Guillermo Smith of Orlando introduced a bill in the Florida House this week that would make marijuana available for use by adults over 21 without needing a medical marijuana card as part of a round of legislation review certain marijuana-crime convictions.
According to Smith's office, the Availability of Marijuana for Adult Use legislation, House Bill 343, would establish a “robust and free-market regulatory approach” to medical and adult-use of marijuana in Florida. An identical, corresponding bill in the Senate by Republican state Sen. Jeff Brandes, of St. Petersburg was also introduced.
If approved, the bill would revise licensing and functions of medical marijuana facilities in Florida, authorizing anyone over 21 to possess and/or deliver cannabis in specific amounts. “The need to end Florida’s prohibition of responsible adult use of cannabis is long overdue. This bill creates a sensible bipartisan framework for legalization that can earn the support needed to pass the Florida legislature,” Smith said in a statement. “It doesn’t include everything I’d like to see, but it’s the fresh start Floridians deserve to move past the draconian cannabis prohibition-era finally.”
Cannabis sales in Florida would expand significantly from current medical only levels if recreational use is approved. Most states take a couple of years after medical use is approved to legalize recreational use. Trulieve Cannabis (TCNNF) has the largest share in Florida and would be the biggest beneficiary of legalization in Florida.
BCO
We expect shares of Brinks Company (BCO) to continue to perform well as the pandemic recedes, and consumers return to cash venues. BCO should be valued like a high quality, route-based logistics company like Uniform Services or Pest Control.
If BCO was able to perform well in an exceptionally difficult 4Q20, a pandemic-free 4Q 2021 should generate investor friendly results. Shares of BCO have performed well, but we see more upside as Brinks operations emerge as a post-pandemic winner.
POAHY
Porsche Auto (POAHY) 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.
A pandemic recovery → Quad 2 economic backdrop that should be favorable for shares of VW/Porsche SE. While over-indexed to a European recovery, demographics, reduced public transit utilization/service, and ex-urban trends support auto sales into an aged fleet.
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
Not a lot of news out on GameStop (GME) this week.
That is if you ignore the fact that it was a headline story for every news outlet in the country. The only release from the company was how it did in the Human Rights Campaign’s 2021 Corporate Equality Index, “top marks” evidently. Pundits seem very concerned with talking about the disconnect between the stock and ‘fundamentals’. Asset prices are disconnected from NTM fundamentals all time; sometimes rightly, sometimes wrongly.
The Hedgeye model has never been about trading stocks solely on traditional views of fundamental valuation, rather we also apply a macro overlay, and fractal math. Quantitively GME very much remains bullish, and it’s still a name that does well in Quad2. With how much cash the company could raise, the strategic change opportunities are massive. In this category, we could theorize ways this could be a very powerful/profitable business over the long term regardless of the near term fundamentals.
Click here to read our full history with GME and watch our long thesis.
EXPC
We believe investors are underestimating the potential of e-VTOL growth over the next 3-5 years, with deployment lagging developments due to stringent regulatory oversight.
This shift to ‘air taxis’ should reduce the noise and emissions that limit the helicopter operations, opening many new shorter distance routes. Blade (EXPC) has grown well, with traction in wealthier urban areas – it isn’t a pre-revenue offering. Blade is asset light, but has mindshare, market experience, and the travel data that should allow it to keep up with potential competitors.
Blade has an established premium brand in a market where perceived safety is a consideration. Blade should also benefit from a pandemic recovery through increased travel, a bit like airlines. The management and board both have top shelf, influential talent.
CTRN
Hedgeye CEO Keith McCullough added Citi Trends (CTRN) to the long side of Investing Ideas this week. Below is a brief note.
With core #Quad2 Long, US Retail (XRT), ripping the eyelids off the bears +6% today...
We'll keep hunting for Retail Longs by Retail analysts Brian McGough & Jeremy McLean. One of their latest ideas that is on sale today is Citi Trends (CTRN):
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Takeaway: No sell side coverage, customer with a spending tailwind, and likely to blow away its stated targets. We're adding CTRN to our Long Bias list. Stock has been on an absolute tear, but for good reason. The story here is very interesting and we think going to look better over the next 6-12 months. Company is led by a new CEO that started in March after nearly 10 years at Five Below. |
TRSSF
Hedgeye CEO Keith McCullough added TerrAscend (TRSSF) to the long side of Investing Ideas this week. Below is a brief note.
You didn't think I was going to sell everything and go net short again (like I did last Thursday) did you? Nope. Plenty out there to buy.
Consumables analyst Howard Penney's cannabis names still signaling low-end of their Risk Ranges with TerrAscend (TRSSF) being one of my oversold signals of the day.
BYND
The pandemic did not cause more consumers to shift from purchasing beef to plant-based meat. From January to September 2020, the percentage of consumers claiming to eat beef weekly has increased to 72% compared to 67% in the prior year.
Also, the percentage of people with a positive perception of beef has increased, with positive perceptions reaching 70% for the first time. According to Beef Research, positive perceptions regarding how cattle are raised increased 18% compared to 2019. Fresh meat demand has remained relatively stable for the last six months, as seen in the chart below.
Beyond Meat’s retail sales have decelerated over the same time frame. The two trends taken together hardly support the idea that consumers are shifting away from meat towards plant-based meat.
HD
TSCO reported earnings this week, and it put up a solid quarter on all fronts – and yet the stock traded down. Commentary was very bullish on current performance, highlighting the comp beat driven by broad based geographic and category strength and triple digit e-comm growth. Total comps came in at 27.3% vs the Street at 20.9%, with EPS clocking in at $1.64 vs $1.52.
Upped dividend by 30%, and gave bullish EPS guidance of $6.50-$6.90 vs the Street at $6.51. Could you really ask for better than that? My sense is that guidance is conservative, but for a company to put up a stellar com of 27% with a beat and guidance raise and have the stock trade down 3.6% on an up market day makes a pretty big statement about sentiment on a name/space. The home improvement category is a tough place to find incremental buyers right now, which makes us more confident in our short of Home Depot's (HD).
PPC
Corn prices hit a new high for the year this week as seen in the following chart. Farmers refer to chicken as “corn with wings” for a good reason. Corn feed represents the majority of the variable cost in raising a chicken.
Poultry prices in the grocery store are not seeing the price increases necessary to offset the higher feed costs. Poultry prices were 5.6% higher in 2020. Poultry production will have to decrease at a faster rate than it is currently in order to get prices higher. In November poultry production was up 1.2%. The poultry industry is hoping for a surge in demand from restaurants and exports this year to offset the higher costs and to create more demand.
We remain short Pilgrim's Pride (PPC).
SIRI
We believe Sirius XM (SIRI) has the most to lose as share of engagement shifts to global platforms that are ramping spend in podcasting (SPOT, AAPL, AMZN). At a minimum, increased competition will result in higher content costs for SIRI. We are also skeptical of management's ability to turn Pandora around and meaningfully expand SiriusXM's presence outside of the car.
