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Long: MP, EXPE, BYD, AMN, BCO, POAHY, IHRT, GME, EXPC, CTRN, SAVE, TCS, PLCE, XM, ASPL, CNK, DUFRY, FAII, LVS, PLBY, TWTR Short: PLUG, ULTA |
Below are updates on our twenty three current high-conviction long and short ideas. We have removed Wingstop (WING) & SunOpta (STKL) from Investing Ideas. We have added Playboy (PLBY) & Twitter (TWTR) to the long side. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
MP
We continue to see equities with higher beta, greater short interest, smaller market capitalization – basically ‘risk-on’ names – outperform the bigger, safer, squishier equities (like BLL). The Industrials sector has room to recover but isn’t always a risk-on beneficiary.
We’ve been looking for names in the sector with these style factors, like Mountain Pass (MP), in an effort to find solid longs that match the market and macro backdrop. As we approach mid-year and a Quad 3, ‘post stimulus’ environment, readers should expect us to turn more favorable toward less volatile, larger, higher ‘quality’ names and add overvalued, poor businesses to the short side.
With a more competent management team, backing from some exceptional investors, favorable geology, permits, a net cash balance, and recently installed facilities, we expect MP to take a very different path from Molycorp.
EXPE
Most receiving this email should have a sense for how bullish we have been on the leisure traveler and the OTAs (mostly Expedia (EXPE)) over the last months. We echoed that bullishness in our recent earnings preview for the OTAs which cited a variety of datasets that are inflecting to the positive ahead of next week’s conference calls.
Q1 was mostly still in throwaway territory from an earnings perspective, but bookings and forward commentary do have the potential to surprise to the upside vs consensus. On the latter, our latest data check up suggests that even in the last 7-10 days, data for the OTAs is getting even better and bodes well for the busier travel season ahead.
Historically we have shown MAUs or WAUs (usage data trends) but in the below chart we’re highlighting new app downloads which could serve as a bit of an advanced read for where 3rd party tracking data is headed. Note the massive acceleration in EXPE through the last few days of April, but also notice the reacceleration in BKNG. BKNG has been lagging EXPE’s recovery due mostly to their EU exposure, but we like what we’re seeing in this data as new app downloads across the BKNG system are accelerating at their fastest clip since Covid.
BYD
After a blowout print and an update of our model and our SOTP analysis, BYD still looks undervalued vs potential. Higher out year estimates predicated on strong top line growth and boosted by sustainable margins could support a higher stock price. We’re now 13% and 15% above consensus for ’21 and ’22 EBITDA. It has been a good ride so far since we added BYD to our Best Ideas Long list back in September of last year, but this story still has plenty of legs.
BYD is at the epicenter of both the reopening trade and then has an undervalued call option(s) on the future of domestic online gaming barely reflected in the current stock price. Make no mistake, this is still a classic earnings story, but we increasingly believe that BYD is also one that could benefit from structurally higher valuations. Why do we keep saying that? Because all the key points that made up the bear case, don’t really hold much weight in the post Covid world. The removal of the negative demographic overhangs that throttled industry growth are a thing of the past. Expanding margins, significant FCF, and actual top line growth + its FanDuel stake and iGaming optionality put BYD’s stock in a good place for the future.
Analysts should raise numbers again, but we suspect not enough and that will continue to feed the story and our conviction in BYD for the foreseeable future. With 30%+ upside left in the stock, Boyd Gaming (BYD) = Best Idea Long at Hedgeye.
AMN
Last 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 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 Healthcare (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
From a factor perspective, smaller cap & higher momentum continue to outperform in a ‘risk-on’ trend that makes sense given policy support, accelerating economic growth, and an ‘early-cycle feel’ to the post-pandemic economy.
We continue to like out-of-favor names with asymmetric payoffs like ASPL, as well as our pandemic recovery plays like Brink's Company (BCO) while acknowledging those are much closer to the end than the beginning (i.e. position accordingly).
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
This week GameStop (GME) announced it has completed it’s at the market share offering. The company sold 3.5mm shares of stock raising $551mm. The company previously announced its plans to retire its notes due 2023 after redeeming its 2021 notes and paying off its ABL in March.
So now the company has essentially no debt, no restrictive covenants, and about $700mm in net cash on the balance sheet plus a very strong equity currency to pursue potential transformational M&A and other new strategic investments. The war chest is full for the new Cohen plan, and there are a lot of opportunities in front of GME.
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
This has been a big winner, and we think it still has room to run. 2021 earnings per share is coming in well above our initial expectations of $3-$4. After the big 1Q guide up we’re now modeling this year at $5.60 vs the street at $4.85. The spending tailwinds have been clearly evident and we think the Citi Trends (CTRN) consumer is still in the early innings of a sentiment ramp given the leadership changes in Washington (ie expect more spending that will support urban development and low income citizens).
Let’s also not forget that the Child Tax Credit is as big a boost to discretionary spending for many consumers than stimulus checks, and that hasn’t started being distributed yet. What’s the right multiple for a unit growth story, with strong cash generation for share repo, that can still have a 3 to 5 year 20% EPS CAGR ahead of it? We think at least low 20s, probably more like 25x.
That puts a fair value on this name around still well above current levels. This is far from the total upside potential, heck Boot Barn is trading at 32x consensus. The company is just hitting $1bn in market cap and as one of the better earnings growers in retail today it’s still underfollowed and under-owned. Over a tail duration we see the potential for earnings power of $9 to $10.
SAVE
Spirit Airlines (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.
We expect SAVE to be a good pandemic-end performer, assuming concerns around variants and vaccine effectiveness continue to look more manageable than some news coverage. Leisure air travel, give or take, looks to be healing in the domestic market. Public transit ridership not so much.
TCS
The Container Store (TCS) was finally part of a press release, but it was in one by the tech company Medallia. TCS has selected to use Medallia Experience Cloud for managing customer experience metrics. The significance is that this is the first release featuring commentary from new CEO Satish Malhotra, and this partnership is apparently one of his first actions.
There has been a lot of nothing from the company since Malhotra took over, but in the not too distant future we expect to hear about this CEO’s new strategy including unit growth and margin expansion which we think will be a positive catalyst for the stock.
PLCE
Carter’s CRI reported earnings this week and put up a big 1Q revenue beat of 19% and a guide up of 2Q. 1Q revenue is 6% ahead of 2019 levels, and guidance implies that the whole first half will be inline with 2019. That’s a very positive sign for Children’s apparel demand. Carter’s numbers confirm that demand is strong, and that demand in children’s wear looks strong this year. We expect Children's Place (PLCE) to put up strong numbers when its reports and the stock should react positively.
XM
The main idea we tried to express with our Long was that we believed subscription software revenue was re-accelerating for Qualtrics (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).
So far, numbers point to fair value in the low $60’s based on 2022. There are two bullish puzzle pieces for us: 1) the NTM y/y comparisons after a sluggish YTD through 9/30 due to a COVID impact in 1H20, and 2) increasing acceptance of this tool as central, not peripheral, in customer engagement which we think leads to greater adoption and enduring NRR%
ASPL
Click HERE to listen to Industrials analyst Jay Van Sciver discuss Wheels Up (ASPL) on The Call @ Hedgeye.
CNK
We expect Cinemark (CNK) will outperform in the next 3-6 months as COVID restrictions ease, live events ramp back up to scale, and theatrical exhibition stages a comeback. Additionally, it fits the preferred style factor exposure in a #Quad2 macro environment (SMID-cap, high-beta, and leverage). While there is still significant uncertainty about the recovery's pace and magnitude, there is more evidence to support pent-up demand in out-of-home (OOH) than not.
In 2020, we saw an acceleration in the secular trend to digital advertising as dollars chased the consumer to where they were spending the most time (at home and on their phones and computers). In 2021, we expect advertising dollars to shift back to out-of-home at an accelerating rate as the world returns to normal.
DUFRY
A big point of pushback we get on Dufry (DUFRY) is how trustworthy their cost cut program is. Unlike in America where you can fire employees at any time, Europe has much stricter labor laws that make cost cuts difficult.
Since Dufry is a European headquartered company, the assumption is that their planned €400mm cost cuts will be from Europe, however that is not the case. Since Dufry retook full control of Hudson in America, they now can use this business to lead of the cost cut program going forward. Not only will this company capture growth with reopening, but it has a strong and trustworthy lever to pull in achieving its permanent cost cuts.
FAII
We finished filling in the details and developing our tracking tools for Fortress Value Acquisition Corp II (FAII) earlier this week and presented our long thesis yesterday. 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 issuances 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 plenty of upside from here.
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
Before the Golden Week holiday kicks off this weekend, the Macau Police announced they’re expecting that Macau could see average daily visitor totals of 40K per day over the holiday. Quoted in GGR Asia, this morning the Police suggests that the 40K / day forecasts is born out of the fact that the China government did not impose additional travel advisories or restrictions ahead of the holiday, essentially giving folks on the Mainland a greenlight to head to Macau.
Recall that ahead of Chinese New Year, citizens were actually told to avoid traveling far from home as the country was in the midst of a mini Covid wave. For context, 40K daily visitors would be 2x the daily average during the October ’20 Golden Week and almost 3x the daily average from the recent Chinese New Year holiday. Will GGR grow 3x over the CNY period?
No probably not, but if the visitation expectations come to fruition we’d expect solid volumes on the mass side and strong daily revenue results. Hopefully we’ll have a sense for how things are trending on Monday when we speak to market contacts. For now, most know our position on Macau and we like Las Vegas Sands (LVS) on the long side to ride the recovery.
PLBY
Hedgeye CEO Keith McCullough added Playboy (PLBY) to the long side of Investing Ideas this week. Below is a brief note.
Since the stock only went up, I have had to wait and watch for a legit #oversold signal on Playboy (PLBY)... until this morning. Now we're getting a nice sale to buy into!
Here's an important Independent Research view by The Axe in this name, Brian McGough (and his research partner Jeremy McLean) – Retail Pro subscribers will also be aware:
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Takeaway: We misinterpreted last night's S-1. This was purely a registration of shares, no sale happening yet. Still a buying opportunity. A correction to last night's note, we misinterpreted the S-1 filing. This was purely a registration of shares, no sale is happening yet. 50% of these shares came off of lockup on April 12th with the stock trading above $14 for 20 trading days within any 30 consecutive trading day period. All of the shares are being registered now, the other 50% will come off lockup 12 months after the deal closing in Feb 2021. The shares off lockup can now (when SEC finalizes registration) be sold via Form 4 during appropriate windows if desired. No change in float until a sale happens from these holders. The market looks to be misinterpreting the filing as a liquidity event like we did. We see this as a buying opportunity on a big Tail Long idea. We're hosting a deep dive Black Book on May 11th at 11am for Institutional and Retail Pro subscribers to review the bull case on PLBY and why it will be a $10bn company in 3-5 years. |
TWTR
Hedgeye CEO Keith McCullough added Twitter (TWTR) to the long side of Investing Ideas this week. Below is a brief note.
After waiting and watching for US Equity Volatility to pop, we're going to start registering some Buy Signals on red obviously...
The most obvious of those is this overeaction in Twitter (TWTR) today. Great spot for longer-term Full Cycle Investors to get involved in the name.
Here is the link to Communications analyst Andrew Freedman's full research note (on us).
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.
ULTA
This week Ulta Beauty (ULTA) was hit with a recall on one of its products, a hand sanitizer from its Ulta Beauty Collection produced by Sensational Soaps and Candles. The hand sanitizer contained multiple toxic ingredients such as methanol, benzene and acetaldehyde.
Ulta is accepting returns for all the affected hand sanitizers at the stores that they were bought from. Now is this going to significantly affect Ulta? No. Nor was product quality control part of our bear case, but it is certainly not a good look and an incremental negative. We think this company is just well past its best days of growth and incremental profit and the departure of a rock star CEO means if the company misses a step, the multiple will be under big pressure.
