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Long: EXPE, BYD, AMN, BCO, POAHY, IHRT, GME, BLDE, CTRN, PLCE, XM, ASPL, DUFRY, FAII, LVS, PLBY, PENN, PSA, MUDS Short: PLUG |
Below are updates on our twenty current high-conviction long and short ideas. We have removed MP Materials (MP), Cinemark (CNK), Twitter (TWTR), and Ulta Beauty (ULTA) from Investing Ideas. We have added Public Storage (PSA) & Mudrick Capital (MUDS) to the long side. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
EXPE
By now, most industry observers understand that the US leisure traveler is back in action (the above topic is one of many examples), but we don’t think enough are focused on what’s going down in the EMEA region right now. T
he below charts highlight the disparity in hotel bookings between the US and EMEA region, but look at the sharp hook higher (RHS chart) that has taken hold literally over the last 7-10 days for the EMEA region, led predominantly by Western Europe.
There’s definitely a seasonal element to this, but the steepness of the bookings inflection has been impressive over the last week and indicates added strength relative to recent management commentary.
Accelerating vaccination rates and declining covid numbers are likely a driving force behind the added activity – good timing ahead of the travel season. Numbers have come up for the OTAs, but we still see consensus bookings expectations as too low on Expedia (EXPE). EXPE would benefit significantly from an EU travel surge.
BYD & PENN
Much like the rest of GLL, gaming stocks are down for the count of late, but the fundamentals sure don’t look down. In fact, they look way up and are accelerating. We and the companies soon after have been talking about strong top line trends across many markets since February, but ‘strong’ has been an understatement.
Despite capacity restrictions still in place for a number of markets, particularly in the Northeast and Midwest, growth is still off the charts.
Note, the below bar for April-to-date does not yet include the likely accelerating trends from the South segment which have experienced more relaxed conditions. April does have the benefit of an extra weekend day + the lingering benefits of stimulus checks, but we think the bigger cause of acceleration could be stronger volumes from the rated segments, especially older demographics.
Relative to 2019, GGR / Day for the initial 8 states is pacing up about 17%, which puts April on track for the best month of the recovery and one of the best we have seen in pretty ever. The early to report states like OH, IA, IN, and MO still hold the strongest levels of growth vs ’19 and post growth of > 15%, but even IL is approaching 2019 levels and was only down 6%.
This might be the best month of growth for a little while, but early data and our checks suggest May is looking very robust, too.
We remain long Penn National (PENN) and Boyd Gaming (BYD).
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. Last 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
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
This week Ryan Cohen posted another picture of himself inside a GameStop store. He’s apparently spending some time assessing instore experience. There are a lot of changes to be made to improve the shopping experience for GameStop (GME) customers both in store and online.
Under prior leadership many of the core gamers that spend the most time and money in the category gradually moved away from GME given its inability to adjust to core gamer preferences. We think Ryan Cohen has big plans to draw in and create value for the core gaming customer which will drive long term share and profit gains in a huge and growing global category.
BLDE
We like many aspects of the Blade (BLDE) 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
Retail sales for April were reported this week and results were very strong. In clothing stores sales were up 727%, huge because they were so bad last year. To provide better context, vs April 2019 clothing store sales in April this year were 6% higher.
That compares to +10% in March. So still very strong trends on a relative ‘recovery’ rate and it demonstrates that 1Q success at apparel retailers like Citi Trends (CTRN) was not purely a March stimulus driven event.
Clothing was the worst retail subcategory in 2020 by far, there are many more months of easy compares to come for clothing consumption and we think CTRN still has runway in sales and earnings performance in 2021.
PLCE
We think that business at Children's Place (PLCE) is trending better than even our well above consensus model is suggesting, and now see upside to ~$110. least $100 from where we stand today.
As a reminder, the call here is that after 4 years of being kicked in the teeth (Toys R Us/Babies R Us filed, Gymboree Ch 22, Justice filed), the kids space has finally rationalized capacity, and PLCE has been aggressively closing mall-based stores to minimize exposure to money-losing dinosaur distribution. By the end of this year, only 25% of its business will be mall-based, with the remainder being strip-mall and e-commerce.
We think that 1Q is running particularly strong for PLCE, and our estimate of $0.65 per share vs the Street at a loss of $0.19. For the year we’re coming in at over 50% ahead of consensus.
XM
Constant measurement of customer interaction, continuous reporting, integration with other customer engagement tools, improving analytics, C-Suite involvement, sentiment analysis, and gradually, predictive recommendation engines are increasingly best practice for companies, and adoption is a long tail of leadership to simple surveys to nothing but moving in the direction of more
Like other companies in software we see who innovate with an aggressive cadence, Qualtrics (XM) has been a leader in providing an increasingly sophisticated tool which delights customers as ‘missing’ features are often added or improved with alacrity, and the accumulated effort has really separated XM from the competition in a large market that seems to be coalescing around Qualtrics as the best of breed tool
ASPL
Click HERE to listen to Industrials analyst Jay Van Sciver discuss Wheels Up (ASPL) on The Call @ Hedgeye.
DUFRY
Dufry (DUFRY) is in its quiet period as the company prepares for its Q1 call on May 20. Dufry recently announced that it won a new 12-year concession at Teesside International Airport, which may not be the biggest airport, but it demonstrates the company’s strong position as the global leader in travel retail.
Something that perhaps gets overlooked is how much local mom and pop duty free retailers are struggling at the moment, and how those struggles allow Dufry to win more concessions simply due to their ability to weather the storm that has been COVID for air travel. When air travel picks up again, and it will, Dufry is in pole position to capture that surge.
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 month. 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.
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. 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.
On Friday afternoon, FAII released a definitive proxy statement to announce that they would hold a virtual special meeting in lieu of the 2021 annual meeting of stockholders (the “FAII Special Meeting”) to consider matters relating to the proposed Business Combination. The FAII Special Meeting will be held exclusively via a live webcast at www.virtualshareholdermeeting.com/FAII2021, on June 15, 2021 at 8:00 a.m., Eastern Time.
LVS
Golden Week (GW) strength is pushing May expectations higher, on top of already escalating optimism over the past few weeks. The optimism looks warranted as GGR apparently remained elevated (vs April) following the big GW weekend although understandably lower than the first 5 days.
Is this the big inflection investors have been waiting for? Well, it’s certainly a step in the right direction but the reinstatement of electronic visas could be the bigger catalyst, and that’s still on the come.
We remain constructive on the Macau stocks due to the fact they’re earlier in the recovery trade than most of the rest of our universe. The bulk of that trade is still on the come and current valuations suggest the upside could be material. Macau stocks have massively underperformed other travel related stocks, but the catalysts are visible even though the timing may not be.
Despite the painfully slow progress in Macau, we remain positive on the stocks and, unlike most of the rest of GLL, we see unrecognized value. Las Vegas Sands (LVS) is a recovery winner in our view, and we continue to favor these stocks on the long side for those interested in the Macau trade.
PLBY
Playboy (PLBY) reported a solid quarter this week featuring a revenue beat despite some DTC out of stocks due to Covid supply chain disruptions and EBITDA coming in ahead of consensus even with the company leaving in some $1.5mm in M&A & Covid charges.
However, this event was not about the quarter, but rather about the reads in the brand and business momentum as well as what new plans management has in order to turn one of the most well-known brands in the world into a global business.
On that front this quarter did not disappoint and we still confidently believe in the long term story of PLBY. One key announcement was the fact that PLBY renegotiated its prior beauty license to reclaim several category rights that belonged to its now fragrance only licensee. This means PLBY can develop and launch products in cosmetics, grooming, skincare, and bath capturing the full revenue amount on the P&L.
Color cosmetics are already in the works with a planned launch in 2022. This is in-line with our thesis that the company will revisit licensing deals, take business rights back, or get better terms by being creative in the negotiations as opposed to ‘strong arming’ for more money.
In this case the fragrance partner is likely getting contract extension for a hot brand where the brand owner is about to invest more heavily in brand relevance in the category. It should be a win win. Given the business change, management also noted that the beauty revenue outlook is "multiples ahead" of its prior 5 year targets.
psa
Hedgeye CEO Keith McCullough added Public Storage to the long side of Investing Ideas this week. Below is a brief note.
Provided that you made your sales late last week (on green), today is a nice day to go shopping on red for names that you didn't think would tap/test the low-end of my Risk Ranges...
One of those names is REITs analyst Rob Simone's Best Idea REIT, Public Storage (PSA). Here's an excerpt from Rob's new REIT research product on the name:
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Takeaway: Positive changes are happening but not priced in Key Takeaways: We can keep this short - Best Idea Long PSA blew out the quarter vs. both Hedgeye and Consensus (see variance chart below), but all that really matters for the stock is that the company inaugurated FY21 FFO guidance with full ranges for all the key drivers (SSRev, SSExp, SSNOI, Development, Acquisitions, etc). Not only does this bring PSA up to par with the other four peers in the space, but it signals management's ongoing commitment to address long-time shareholder gripes regarding engagement with the street, governance, capital deployment, balance sheet efficiency, etc. All of these items are core to the long thesis for accelerating earnings growth and a positive re-rating of the stock. |
MUDS
Hedgeye CEO Keith McCullough added Mudrick Capital (MUDS) to the long side of Investing Ideas this week. Below is a brief note.
Looking for US Retail Longs that are A) for sale towards B) the low-end of their Risk Ranges on C) #decelerating volume...
That's what I am doing. Whatever other people do is what they do.
Retail analyst Brian McGough out on a new name (at a better price today!) called Mudrick Capital (MUDS) which is a great play on NFTs and Consumer Trends:
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Takeaway: We’re adding The Topps Company (MUDS/TOPP) to our Long Bias list. We’re adding The Topps Company (MUDS/TOPP) to our Long Bias list. Topps is one of the most recognizable brand names in collectibles, trading cards, and memorabilia. It’s coming public via SPAC with Mudrick Capital Acquisition Corporation II at a very reasonable announced deal multiple of 12.5x 2021 EBITDA and 1.9x 2021 revenue. The SPAC has done well, with MUDS now trading at $16.13. The company has 4 business units: Physical collectibles at 55% of revenue, Digital collectibles at 6% of revenue, Gift Cards at 4% of revenue, and Confections at 35% of revenue. |
PLUG
Several fuel cell companies have been running losses funded with stock and debt issuance for years, essentially a confidence game based on long-term investor hopes. Companies like Plug Power (PLUG) have been dependent on new capital inflows.
That PLUG management viewed 2020 as a ‘breakout year’ despite a widening loss, presumably because the share price performed well, is likely indicative of deep perspective conflicts.
The restatement may make future offerings more difficult, potentially attracting substantial regulatory overhangs. The restatement apparently relates to the accounting for issuances of warrants with large customer purchases – stock was *literally* part of the product for AMZN & WMT.
