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Long: MP, STKL, EXPE, BYD, AMN, BCO, POAHY, IHRT, GME, EXPC, CTRN, SAVE, TCS, PLCE, XM, ASPL, CNK, DUFRY, FAII, LVS Short: PLUG, WING, ULTA |
Below are updates on our twenty three current high-conviction long and short ideas. We have removed TCNNF, KR, AKAM, & YETI from Investing Ideas. We have added FAII & LVS to the long side. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
MP
With a more competent management team, backing from some exceptional investors, favorable geology, permits, a net cash balance, and recently installed facilities, we expect Mountain Pass (MP) to take a very different path from Molycorp.
We added MP (FVAC at the time) as a Best Ideas long in August, with a favorable macro backdrop and quantitative signals increasing the odds of success.
STKL
Danone’s plant-based products reported its fifth consecutive quarter of LFL sales growth this week. In North America, plant-based LFL sales grew HSD%. Plant-based yogurt and ice cream grew at a “very fast double-digit” growth rate. In Europe, the company’s plant-based portfolio grew double digits. Inflation has risen MSD% driven by milk and dairy ingredients. The company will seek selective price increases to offset the pressure.
Juergen Esser, Chief Financial, Technology, and Data Officer of SunOpta (STKL), said, “We are investing into the differentiation and superiority, especially of our Silk master brand as we speak. We have started a new Silk almond campaign, which shows the first positive market share results. While on soy, we are reframing our portfolio, building on the nutritional benefit of that unique ingredient and are also seeing here first promising results, with the segment returning back to growth since the beginning of the year.” Management said Silk oat would be restaged – “We are conscious that we need to catch up fast on this segment, but are determined and probably, more importantly, we are confident in our ability to accelerate based on those initiatives.” Silk is a leader in the soy milk category, so management would like to keep it growing while focusing on participating in the faster growth in almonds and oats. Danone has been slow to readjust to the changing preferences in plant-based milk and its Silk brand has been tied to the declines in soy milk. A stronger Silk brand with more innovation would boost plant-based milk sales.
EXPE
Earlier this week, Expedia (EXPE)announced a series of steps they plan to enhance their brand position to best capture the post Covid leisure travel boom. They didn’t say “travel boom” but they’re definitely anticipating a pick up, and are probably seeing it right now. EXPE had mentioned on their last conference call that they were working towards a revamped marketing campaign that would go live in the spring so this isn’t a huge surprise, but we like the theme and set up. Actress Rashida Jones will be the figurehead for the campaign in the US entitled “It matters who you travel with,” which looks like it could be a catchy campaign that is rolling out just in time for the busy summer booking season (campaign kicks off on 4/25 in the US, 5/11 in the UK). Easy to cancel functionality, itinerary management solutions, and customer service access are top priorities of the repositioning, and EXPE will also be looking to rollout improved pre-packaged and bundled travel booking options for travelers (opportunity to gain more wallet share).
Above all, as part of the announcement, EXPE is looking to give the Expedia Brand loyalty program a bit of a facelift. Expedia is automatically enrolling another 25 million bookers into their loyalty program (previous bookers), which will add to their existing tally of 30+ million loyalty members. We’re expecting more details on how they plan to better leverage the loyalty program going forward and but the press release suggests they’ll be leaning into their loyal bookers and for their new members, they’ll look to better address the benefits of repeat booking and points accumulation, something that the hotels and BKNG have done very well over the last few years. These are all things we like to see coming out of our top idea in the travel space – we see upside into the low $200’s on EXPE over the next 3-6 months, and potentially more over the next 12-18 months.
BYD
March is pretty much in the books for regional gaming markets (still have NV to report), and it seems like our expectation for a strong Q1 finish have come to fruition and more so. As of yesterday, 12 key states from our regional SS sample have reported March data and trends are looking strong with all 12 states showing material acceleration vs February growth. Among all states the average acceleration vs February was > 1,550bps, and as shown in the chart, the total industry nearly eked out positive growth vs March of 2019. February’s softness was never a major concern for us as it reflected one less critical weekend day, inclement weather in certain parts of the country, and a tough YoY comp. But March should represent the start of a major inflection for the regional gaming markets, aided by solid weather, accelerating vaccine rollouts, and consumers flush with stimulus cash. March is also reflective of the start of easing capacity restrictions across key states but, despite the strength, it does reflect a challenging calendar relative to March 2019 and holds 2 less weekend days. Trends into April might only get better with a more comparable calendar.
Relative to 2019, GGR / Day for the 12 states finished down about 1% which puts March on track for the best month of the recovery, by far. States like OH, IA, MO, and MS were the standouts and posted growth vs ’19 > 5%. March in MS posted the highest monthly GGR in at least 15 years. We expect commentary to be positive on upcoming conference calls and the trends in April could be equally as strong as a better calendar (extra Friday) + easing capacity restrictions + lingering stimulus dollars support the industry growth. Boyd Gaming (BYD) still represents the best risk / reward in the space, in our opinion, and we see upside into the low $80’s.
AMN
Earlier this week, we hosted an Executive Insights Call on Health Care Staffing and Digital Health with Robert Longyear. The conversation was centered on the ins and outs of staffing, the transition to digital, and the various models providers leverage to control labor costs (all important to our AMN Healthcare (AMN) thesis). The takeaways from this call largely mirrored what we have heard from experts in the field. Staffing continues to be the key concern of hospital administrators throughout the industry, so much so that the director of a laboratory system in the Midwest explained that they are in the process of establishing their own school to meet the incremental demand.
The continued support from within the industry for our long thesis is re-assuring while we watch many headlines cloud the near- term outlook for health care including vaccine roll- out progress, regional outbreaks of COVID variants, and potential hospital budget cuts as a result of COVID losses. Regardless of the noise, further examples of this support include a number of publicly- available data releases and articles that were reported earlier this month.
As of the most recent MicroQuad Screen Update, we are seeing AMN rotating toward MQ4. Regardless of that signal, we have been involved for quite a while and believe we're into the next wave of growth. The bullish JOLTS data (all-time high), wage pressure, burnout, and a general supply/demand imbalance are all positives. With this update in mind, we remain Long AMN on the Hedgeye Health Care Position Monitor.
BCO
We expect shares of Brink's 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
We’ve noted that we expect VW and Porsche SE to be the best performing large cap names in our coverage this year. That seems to be playing out well in shares of VW today, but to a lesser extent in shares of Porsche SE. In this volatile upward move in a name with a (pointlessly) complicated capital structure, we’re seeing the preferred v common relationship for VW in the local market blow out – likely driven by enthusiastic buyers of the VWAGY ADR which holds ordinary shares. In the local, one might swap to the preferred.
If you have VWAGY, we’d suggest swapping into Porsche Auto (POAHY) – the divergence has rarely been wider and is a relative risk for VWAGY. There is no obvious arbitrage forcing the gap to close, but Porsche SE is (basically) an entity that holds shares of VW
IHRT
Click HERE to watch our Communications analyst Andrew Freedman discuss iHeartMedia (IHRT) on The Call @ Hedgeye.
GME
New consoles remain in short supply out at retail. The reason console flow is some important is that in the last new console launch hardware sales per store went up nearly 110%. Those hardware sales drive transactions and then other items can be attached to drive further sales at solid margins. We won't be able to see the full near term earnings power for GameStop (GME) until consoles supply is plentiful. Until then the rate of change continues in a positive direction and numbers likely march higher.
EXPC
Blade (EXPC) has shown a less clear trend, if past the bottom. This has disconnected from revenue growth expectations because of live organ transport, new vertiports, and mix changes.
The SPAC deal is expected to close around May 5th and there should be more coverage of Urban Air Mobility & EVTOL aircraft with Wisk and EmbraerX’s Eve Urban Air Mobility Solutions. Hybrid work models in the NY/Chicago area should support increased use of Blade services.
CTRN
Citi Trends (CTRN) hit $1bn in market cap this week. It’s hard to believe with the run the stock has had that its still only reaching $1bn. For one of the best growth names in retail today, the stock is still under owned and underfollowed. The stock is only recently trading above 1x EV/sales, and with the rate of change of earnings, long term growth, and the street still looking too low on EPS, trading 22x consensus is not expensive. There are consumption tailwinds at its back, and there is still a lot of potential upside for the stock both via earnings and multiple.
SAVE
While Spirit Airlines (SAVE) continued to post results reflecting the pandemic, commentary on the end of March was encouraging. Demand appears to be normalizing with domestic leisure demand boosted by pent-up demand. The guidance for improved profitability during 2Q21 is encouraging, as results often lag pricing and demand in forward bookings. Assuming the vaccination progress continues to squash concerns about COVID-19, we’d expect 2022 to be one of the best for the domestic travel industry. International air travel, a minor part of the mix for SAVE, is likely to remain impaired for longer – a concern for legacy carriers.
SAVE is in the early stages of an upcycle, with unit costs, pricing, and traffic all starting to push in the upward direction. With new capacity and, potentially, less competitive pricing pressure in a strong demand environment, 2022 could end up being unusually profitable for SAVE and Frontier.
TCS
Online interest for The Container Store (TCS) has been moderating some recently. It could simply be that consumers are now vaccinated and case loads are much better than winter, so they feel more comfortable heading into the stores. The more store traffic the better as this is a high attachment model. A shopper goes in for one or two storage items, but leaves with many more. We think the home organization trend will continue to have legs. The shows (Home Edit/Marie Kondo) that helped launch the behavior change are getting new seasons on Netflix, so it will become top of mind again in the future. The Container Store remains the top choice for pros in the space and do it yourself organizers in the mid to high income levels.
PLCE
As schools continue to reopen, Children's Place (PLCE) is a name that can reap the benefits. PLCE is obviously a destination of any low priced children’s clothing, but it also has a sizeable school uniform business. Currently a little more than 50% of schools in the country offer traditional in-person teaching five days a week and states are moving toward vaccinations for all age groups. As kids continue to go back full time, they will need their school uniforms and expanded wardrobes, which is an area where PLCE can capitalize on. With the company having continued catalysts, getting back to peak margins, and improving its cost structure, we remain bullish on PLCE earnings upside.
XM
Qualtrics (XM) reported 1Q21 numbers in line with our estimates and above Street for key metrics including RPO, NTM RPO, RPO Billings, and non-GAAP profits. The company reported above our numbers for revenue, subscription revenue, and below our estimate on Billings (but above Street by 20%). First look at guidance for 2Q and 2021 seems conservative (+38% and +34% for subscription revenue, respectively). The company set 2Q revenue guidance 5% above the Street on total revenue after a 5% 1Q21 beat, despite the implied deceleration in that guidance. We hope to get updates on adoption (total customer count) and ARR by tier of customer on the call. The company did show in the investor presentation that large customers >100K in ARR was 1,457 for a record +379 adds Y-Y (highest add rate prior recorded was +312 in Q4 2020).
The main idea we tried to express with our Long was that we believed subscription software revenue was re-accelerating for XM, after one year in the 30-35% y/y zone, an idea that is supported with the company's reported 1Q results of 48% Y/Y growth in that line item (and acceleration in subscription billings to +61% Y/Y). No change to thesis, more after the call if there are meaningful additions.
ASPL
Click HERE to listen to Industrials analyst Jay Van Sciver discuss Wheels Up (ASPL) on The Call @ Hedgeye last week.
CNK
As the third-largest film exhibitor in the U.S., Cinemark (CNK) is poised to benefit from movie theaters reopening and pent-up-demand for out-of-home entertainment. Based on the slate of tent poles awaiting release (and re-release), we believe domestic box-office has the potential to get back to 2019 levels faster than what is reflected in current consensus estimates.
To note within the sector, "Godzilla vs.Kong" took in $13.4 million in its second weekend of release, with the total U.S. box office revenue coming in at $69.5m. The film is now the top-grossing film of the COVID era, unseating "Tenet," which earned $58.4m. "Godzilla vs.Kong" 's performance is even more impressive given that it was available on HBO Max the same day it was released in theatres.
DUFry
Earlier this week we had a call with the management team at Dufry (DUFRY) and one of the more important topics was an update on their progress in Hainan Island. Hainan is a huge opportunity where the street seems to be ignoring the revenue upside. We are modeling that they have 2-3% share now with the possibility to get to ~10%. By 2025 our top line is 60% ahead of the street, and that could be conservative if Dufry can get its fair share on Hainan. Management noted that its currently tracking around 8% share in the market, which is a very positive early sign. While their JV with Alibaba is split 51/49 and they get that 49% through equity income, Dufry has a real opportunity to blow away estimates simply through Hainan Island. The Island had a little more than $4bn in duty free sales last year, had $2bn in just the first quarter this year, and is projected to be $46.5bn by 2025.
FAII
We’re presenting our long thesis for Fortress Value Acquisition Corp II (FAII) next week and continue to fill in the details and develop our tracking tools. FAII is acquiring the physical therapy chain ATI Physical Therapy and we think the company has multiple levers to upside both in the short and longer term.
The pace of new issuance of SPACs has slowed in recent months. There is plenty of capital chasing acquisitions and the tide seems to have gone out on investor excitement. In some cases, this has been totally warranted. There are plenty of busted SPACs that deserve to be trading at a discount because they were lousy businesses before the SPAC craze. But we think FAII/ATI is going to be a great long with 30%-100% upside from here, and likely more as we continue to dig into the model.
Over the next 2 years, ATI Physical Therapy is a great way to play re-opening as physical therapy will benefit from a recovery in surgical volume, team sports, and accelerating economic activity that leads to Worker’s Comp cases. As with many of our long ideas, we’re expecting COVID-19 vaccinations to release a large pool of delayed medical care. There are surveys showing upwards of 40% of patients have avoided doctor offices and hospitals out of fear of getting COVID-19. Longer term, ATI has levers to pull on de novo expansion and value-based contracting, and M&A. Physical therapy also fits in well with our digital-hybrid theme and we expect ATI to be seen and valued for their opportunities to leverage their infrastructure even further.
LVS
Hedgeye CEO Keith McCullough added Las Vegas Sands to the long side of Investing Ideas. Below is a brief note.
In the current #Quad2 Volatility Regime, Full Cycle Investors invest when the VIX is in the high teens (and book some gains on green days)...
One name we have been waiting on, patiently, is Las Vegas Sands (LVS). Here's a good excerpt from Gaming, Lodging and Leisure analyst Todd Jordan's recent Independent Research note on the name:
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..the pace of improvement has been painfully slow and we understand investor pessimism. However, Golden Week is coming in a few weeks and with Macau government promotions offered to Mainland Chinese, air capacity increased to support expected higher demand, and the potential for cross border vaccine recognition with Guangdong Province, we remain optimistic that May will display a significantly better month of growth. |
PLUG
Plug Power (PLUG) basically sells fuel cells into the highly competitive forklift market via an cumbersome go-to-market strategy to overcome the high initial capital costs. The company’s largest customers – AMZN and WMT – have received product that was more than paid for via warrants on shares of PLUG.
This rhymes with NKLA’s effort to get GM into a relationship via an equity “gift”. The rest of PLUG’s ‘roadmap’ for buying and distributing hydrogen, international ambitions, field data & big data, aftermarket, and 2024 projections all seem well outside of what is currently happening or could reasonably be expected. And that’s before the restatements.
WING
Consumers are returning to restaurants and increasingly returning to activities they were not allowed to during the pandemic. In the near term that is a headwind for Wingstop (WING) that benefited from consumers eating at home.
There is a nationwide chicken wing shortage which is pressuring prices higher. Prices usually fall after the Super Bowl and March Madness, but this year they have not. Wing prices spiked 56% last quarter. Drumstick prices are three times higher than last year. At least three factors are driving chicken slaughter down and prices up:
- Covid-19 has led to increased labor costs and ongoing labor shortages in poultry processing plants, a situation that has gotten a little bit worse in the last few months.
- Prices for corn and soy—which producers purchase for chicken feed—have gone up, meaning it's more expensive to produce birds, and farmers have pulled back slightly on production.
- More restaurants are now selling wings (EAT has a ghost concept selling wings) as chicken wings travel well in takeout containers.
- Increased consumption – Sales are up 7% nationwide.
ULTA
Ulta Beauty (ULTA) is a name that we continue to disagree with consensus on and think that the company has entered a new weaker stage of growth profile. We think that the TGT initiative is a sign of weakness in the ability for store growth and that the continued exposure to ecommerce is going to have a materially dilutive impact to company margins. That means the growth profile is one with lower incremental returns than what investors are accustomed to with ULTA. The company took down expectations during the last earnings print but it continues to hold a high multiple. The slowdown we expect to take place in both sales and margins will pressure both EPS and that multiple.
