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Long: MP, EXPE, BYD, AMN, BCO, POAHY, IHRT, GME, EXPC, CTRN, PLCE, XM, ASPL, CNK, DUFRY, FAII, LVS, PLBY, TWTR, PENN Short: PLUG, ULTA |
Below are updates on our twenty two current high-conviction long and short ideas. We have removed The Container Store Group (TCS) & Spirit Airlines (SAVE) from Investing Ideas. We have added Penn National Gaming (PENN) to the long side. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
MP
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
Expedia (EXPE) caught the leisure wave in March and is set to ride that wave to full recovery and significantly more. Last quarter in our recap, we discussed how Q1 had the potential to really mark the start of an inflection for much of the leisure travel ecosystem and more importantly for EXPE. We had a sense through the quarter that this inflection was underway, but the company’s results and commentary suggest that the wave, and EXPE’s opportunity, is even bigger than we previously thought.
Bookings are accelerating at a much faster clip than Street had been modeling and our data suggests that trend should continue. Meanwhile, early signs of management’s refocusing efforts are surfacing, foretelling outperformance over the near and long term.
Positive momentum on bookings, growing brand presence, progress on cost savings initiatives, and the growing confidence to start playing offense are some of the key highlights from last night that keep us excited about the EXPE story.
The stock has done well in the YTD, but the valuation remains muted and we still sense a level of caution in the investment community. EXPE falls right in our sweet spot for top ideas – inexpensive and packed full of underappreciated catalysts, both cyclical and secular.
Sure, the company needs to deliver, but the stage is set, and our conviction only increased after last night. EXPE remains a Best Idea Long at Hedgeye.
BYD
Although the commentary appears to have gone mostly unnoticed, PENN provided a lot of color about the status and health of the regional gaming customer on their call yesterday and the feedback was overwhelmingly bullish. At least from our vantage point… accelerating trends across all buckets of demand, but still ways to go before the 55+ age cohort is back to pre-Covid levels of spend.
On the latter, not only does that customer provide an offset to potentially fleeting unrated play, but it actually presents an upside driver to current revenue run rates. We suspect the April (and the rest of Q2) revenue releases from the state control boards will get investors refocused on what matters – accelerating growth and strong flow through.
After MD reported accelerating revenues on Wednesday (+11.6% in April vs +3.6% in March), IA reported another monster month in April with GGR growth of +16.8%% in April vs +30.1% in March. Again, this is real growth vs 2019 levels, not vs 2020. Sure, some of this growth might trail off, but other markets that have been more impacted by restrictions will likely see an acceleration in demand, which should keep the regional party going for quite some time. Boyd Gaming (BYD) will benefit greatly from these accelerating trends and remains a Best Idea long with upside into the $90’s.
AMN
In our decision to go long AMN Healthcare (AMN) in November of 2020, we laid out a series of four tailwind cycles that we believed would drive the stock in the near- term. Earlier this week, AMN Healthcare (AMN) reported strong numbers and took the 2Q21 guide up by over $100 million (not a typo). These results and commentary provided confirmation for the themes and data points we have been highlighting.
2Q21 consensus was $712 million heading into earnings last night, well below guidance, which includes $30 million in vaccination staffing, that came in at $810-$830 million. While we expect rates to slow as the COVID crisis abates, we expect high- rate ICU and COVID staffing will be offset by increases in Med Surg and other core staffing that will cycle higher as we see a return to in-person care.
Additionally, a key quote from the call was that the “very tight labor market and recovery in non-COVID demand caused volume and pricing to be stronger than expected this quarter and this trend is continuing into the second quarter." With this quote in mind, we 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.
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
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
iHeartMedia (IHRT) reported strong 1Q20 results with revenue of $707M coming ahead of the FactSet consensus of $689M. More importantly, management guided Q2 revenue to be up 65% YoY in Q2, ahead of the consensus of 57%.
In terms of overall revenue growth for first quarter, it was still down 10% as broadcast recovery continues to be slow with the broader multi-platform segment down 21% (note the programmatic/side of broadcast was only down 11%).
However, the digital audio segment, including podcasting continues to grow rapidly with revenue up 70% - and podcast revenue specifically up 142% YoY (albeit it is less than 5% of revenue in aggregate). While the digital audio segment represents 22% of revenue, as a whole, it represented 39% of total adjusted EBITDA in the quarter.
We still think IHRT to $1B run-rate EBITDA before the year is out, and 2022 estimates need to move higher to $1.1-$1.2B - at 9x gets us to a stock in the high-$20s… and this is before any deleveraging, which for every turn of the multiple is $7/per share and $100M in EBITDA estimate is $6/per share.
GME
NFT drops were in the news over the last couple weeks. One name with think might get into NFTs that people may not expect is GameStop (GME) . Gamers are generally on the forefront of cryto/blockchain/nft technology. GameStop isn’t historically a content generator, but you maybe be surprised to know that about half of the NFT market has been in gaming content, and virtual land (otherwise known as Metaverses).
Maybe GME designs its own or partners to make digital rewards collectible NFTs. Let consumers get them with their rewards points or via free drawings, but then have a royalty on them for when the trade in the secondary market.
There are a lot of niche opportunities in gaming that are not part of the mainstream discussion on GME. We suspect the new GME leadership is looking at many different options.
EXPC
We like many aspects of the Blade (EXPC) business, but recent experience shows that de-SPAC is no longer a positive catalyst. We’ve written it several times, but the trade in SPACs is now likely to buy them well below 10 in the weeks after de-SPAC.
If holders are so inclined, that opportunity may present itself in early June. We’ll position accordingly…NYC reopening or not. This is not a new information emergency, but the execution of a plan we’ve indicated in several earlier comments.
CTRN
Last week we heard President Biden announced the American Families Plan. One aspect of this plan is that it would extend the enhanced child tax credit out to 2025. Some think Citi Trends' (CTRN) run has been just one time stimulus help. We don’t think that is the case.
There are business improvements, and some very real long term consumption tailwinds for the CTRN core consumer. We suspect there will be many bills from congress to help support urban areas hit hard by the pandemic as well as supporting minority and lower income individuals who are the voters supporting the Democratic congress/exec win in 2020.
If CTRN is simply benefitting from government consumer support (which we disagree with), that support is far from over.
PLCE
We remain bullish on Children's Place (PLCE) heading into its earnings print later this month. We think sales should be strong, evidenced by CRI’s results and we have data points suggesting pricing is healthy, meaning margins are likely to be strong.
However, we think beyond this quarter the company has a number of catalysts that will continue to propel it. Keep in mind last summer PLCE totally missed out on the demand for summer camp clothes, as very few kids went to camp. Then we have back to school which will presumably be much stronger than last year when back to school was marred by COVID questions.
To top it off we also have the child tax credit which could bring forth outsized children’s spending in 2H and beyond which PLCE will be able to take advantage of. We see upward earnings revisions for the foreseeable future.
XM
Click HERE to watch our Technology analyst Ami Joseph discuss Qualtrics (XM) on The Call @ Hedgeye.
ASPL
Click HERE to listen to Industrials analyst Jay Van Sciver discuss Wheels Up (ASPL) on The Call @ Hedgeye.
CNK
Cinemark (CNK) reported earnings this week. Results were still heavily impacted by COVID, theater closures and a weak movie slate. However, our bullish long-term thesis centers on the recovery in the 2H21.
Therefore, 1Q21 results were less relevant. The three notable takeaways were 1) CNK reached a distribution agreement with the five major studios to show films theatrically 2) CNK is the first theater chain to reach an exclusive, one-week window to screen Zac Snyder’s Army of the Dead (Netflix film) and 3) concessions revenue per patron (high margin) is trending above pre-COVD levels thanks to investments in digital ordering.
Looking ahead, we expect a strong summer blockbuster slate to drive folks back to movie theaters and financial results above consensus.
DUFRY
China’s five-day Labor Day holiday ended on Wednesday with some very strong data points for the travel retail industry. First, Chinese domestic flights during this five-day period were up 119% from 2020 levels and 3% from 2019 levels. On top of that, the travelers and tourists are spending money with Hainan Island duty free sales up 248% year-over-year to $153.3mm for those five days.
While we believe Dufry (DUFRY) doubles simply from reopening and outsized margin gains, the way it doubles again is through its expansion and concerted effort in the Chinese Duty-Free Market through its partnership with Alibaba. These data points coupled with Dufry’s 8% share on Hainan currently are very bullish for the company as it kicks off its growth trajectory in this critical market.
FAII
Our top long idea right now comes after we finished filling in the details and developing our tracking tools last month. Following our process, we presented our long thesis for Fortress Acquisition Corp II (FAII) last week. 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
We’ll get a formal read on Macau early next week, but the reports across China and Macau indicate that the holiday was fairly positive. Headline visitation figures totaled close to 166K which averages out to 33K per day or so.
33K is lower than higher estimates provided by the government late last week, but still 74% higher than October Golden Week and over 150% higher than Chinese New Year. Again, we’re not overly concerned that visitation trends into Macau slowed through the holiday period. As we said earlier this week, there’s an access and capacity problem that really deters a lot of day trip activity and tour groups aren’t really a thing right now. However, with the visitor tallies that were registered, Macau IRs were likely sold out for the duration of the holiday which should lead to solid GGR trends.
On the Mainland, leisure trends continued to be very robust over the holiday as consumers traded international travel for domestic travel. Per China Tourism Research Institute, domestic trips actually grew 3.2% vs pre Covid levels over the holiday period as Chinese consumers remain committed to “revenge” travel.
The vast majority of this demand is staying within the China borders, but we think a SAR like Macau will be the most likely to benefit from this demand as the visa/border spigot is opened. Macau looks like it’s at an inflection point to us… We like Las Vegas Sands (LVS) on the long side to ride the upcycle.
PLBY
Playboy (PLBY) reports earnings next Wednesday 5/12. This week though, the company had its first ever NFT launch. There were 6 works done in collaboration with artist Slime Sunday where he reimagined old Playboy magazine covers from the past 60 years.
Their feature item, a 1/1 called “One Satoshi” sold for 250k, while the other works which had multiple copies sold for around 700k in total bringing the direct drop proceeds to 950k. PLBY has an arsenal of NFTs they could deploy, and the first was a success. We think PLBY is a huge long opportunity not even counting the NFT call option, as one of the most recognizable global brands
TWTR
Good quarter or bad quarter for Twitter (TWTR) - investor expectations got ahead of themselves and have to reset. The guidance still looks conservative, but that matters less after not beating by a larger magnitude in 1Q21.
Meanwhile, the mid-point of management's guide fell below the consensus estimate for 2Q21.
We understand why the stock is down, and it is probably going to have a hard time getting positive momentum back until they report Q2 earnings in July 2021. That said, really not much has changed. Management continues to execute against the strategic plan they laid out at their investor day in February 2021.
We would like to see further traction in monetizing new direct-response ad-formats outside of MAP before the year is out (...hopefully in beta by Q4).
If we are to believe management's 2023 revenue and margin guidance (which we do), then at $7.5B in revenue at a 42.5% normalized EBITDA margin and 23x multiple gets us to a $90 stock. We would be looking to get more aggressive on the long side $50-55/share.
PENN
Hedgeye CEO Keith McCullough added Penn National Gaming to the long side of Investing Ideas this week. Below is a brief note.
For those of you who subscribe to The Call @Hedgeye, you heard Gaming, Lodging and Leisure analyst Todd Jordan and I walk through buying Penn Gaming (PENN) at the low-end of my Risk Range....
We're getting that alongside this #Overbought Signal in #NazVol this morning.
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PENN | ADDING TO BEST IDEAS LIST | BUYING THE BIG DIP Takeaway: With the stock 37% off its March high and likely positive earnings revisions looming, we’re adding PENN as a Hedgeye Best Idea Long HEDGEYE EDGE The Big Dipper – PENN’s stock has been crushed since star struck investors pushed the stock up based primarily on sports betting exuberance. We’ve been less enthusiastic regarding stocks, including DKNG, with significant online sports betting (OSB) exposure in recent months although our long term OSB outlook has not changed. In addition to Barstool founder Dave Portnoy’s misadventures, sentiment surrounding PENN’s OSB operations have contributed to the big dip. But we’d like to focus investors back on PENN’s brick & mortar operations which should provide significant EBITDA upside versus Street Q1 and full year 2021 and 2022 estimates and drive the stock back up close to previous highs. |
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) announced a partnership with CurlBox. CurlBox is a subscription box product for people curly and coily hair, and the ULTA partnership is to curate three multibrand boxes sold on the CurlBox site. The first box, released on May 7th, will cost $30.
While this may be more of a PR partnership than anything, the reality is this partnership furthers our argument that ULTA is entering into a new and slower phase of growth that deserves a lower multiple. ULTA has partnered with TGT which helps TGT more than ULTA, and this partnership probably helps CurlBox more than ULTA as well. We remain short this name.
