SBH | New Long Idea. Keep It On A Short Leash. Not a typical long call for @HedgeyeRetail, as we outline in the note. It took a LOT for me to get over in order to make this call. But the model for this company (which sells beauty supplies to low income consumers and Salons) is gnarly, and I think the Street is mismodeling Q2-Q4 reopening by a 30% delta. It’s a hated name by Old Wall – only 1 Buy out of 8 ratings and the PT is only $18 (stock at $15 today). Buy side won’t touch it. Any investor who likes quality will push back hard. But there’s a fundamental catalyst on a hated name with all the right Quad 2 style factors – heavily shorted, small cap, levered. If I’m right on the model, this stock will be at $25 – fast. That’s 60% upside. Q1 EPS is this Thurs, and won’t be without it’s hair. I’m good making the call ahead of the print. But if I’m wrong (Canada store closures due to quarantine) and the stock trades down, you want to be prepped to buy on a red. The modeling levers in the coming three quarters are real. After the run, a good short candidate.
TCS | New Long Idea. Buy On Tempered 4Q Guide. Forgotten retailer, new management, new industry tailwinds, new unit growth and margin opportunity. Solid Quad2 name. 3 year, 3 bagger. We’re going down the cap/liquidity curve with this one, but if the TAIL call plays out as expected there’s a meaningful revaluation here on much higher numbers. Potential $40+ stock over TAIL duration. Full details in the note.
WMT/COST Off Long List: In addition to adding SBH and TCS long side, we’re removing COST and WMT from our Long Bias list. Earnings expectations for both companies have largely caught up with our models, and neither performs well in Macro Quad 2. We particularly like the COST story longer term, but will revisit when there’s more controversy around the name and a greater delta in our estimates vs consensus.
