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Long: EXPE, BYD, AMN, BCO, POAHY, IHRT, GME, BLDE, CTRN, PLCE, ASPL, DUFRY, FAII, PLBY, PENN, PSA, MUDS Short: PLUG |
Below are updates on our eighteen current high-conviction long and short ideas. We have removed Las Vegas Sands (LVS) and Qualtrics (XM) this week. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
EXPE
Q1 earning season is in the rearview but we’re keeping an even closer eye on the higher frequency hotel data trends to gauge a shift in industry trajectory relative to company commentary and reported #’s.
On almost a daily basis, we have been flagging the improvement in both leisure travel sentiment and leisure travel data, both forward looking and concurrent. The strength remains undeniable and leisure hotel bookings have surged towards pre-Covid levels (just shy of base line) and, meanwhile, alternative accommodation (AA) has blown past ’19 levels. Unfortunately, we cannot be so optimistic on corporate travel. It’s true that there is broader acceleration in forward bookings, but these bookings are still down ~40% vs pre-Covid levels and could represent a decent headwind to RevPAR acceleration in 2H’21.
In the charts, below we’re showing up to date bookings data from ADARA which highlights the difference in leisure hotel bookings and business hotel bookings for the US. The relative outperformance should continue to be a positive for the OTAs, particularly Expedia (EXPE) (Best Idea Long), while the business hotel bookings should results in relative underperformance for a number of hotel REITs and C-Corps.
We think the overhang from corporate and lack of weekday RevPAR acceleration has become more of a headwind for the more corporate travel exposed REITs and C-Corps.
BYD & PENN
Gaming stocks may be down, but the fundamentals sure don’t look down - they’re way up and accelerating big time. We 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.
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 10 states is still 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 posted big time growth, and LA knocked the cover off the ball yesterday with growth of 19% YoY in April. LA’s robust April could provide some additional insight as to how other mature markets in the Northeast and Midwest could perform when capacity restrictions ease up.
We remain long Penn National (PENN) and Boyd Gaming (BYD).
AMN
On Tuesday, AMN Healthcare (AMN) quietly announced what looks to be a large deal with legs. From the 8-K, we know that it is an $800 million deal with FEMA for vaccinators. These kinds of deals don’t come as a surprise to us given many of our recent field checks, most notably an Executive Insights staffing call with Robert Longyear of Wanderly/Avenue Health (available to HC Pro subscribers).
The contract is worded as an "Indefinite Delivery-Indefinite Quantity contract to provide contractor-managed medical professionals for COVID-19 vaccine administration in support of Federal vaccination assistance to state, local, tribal and territorial partners in the ‘East Zone.’” The initial term is six months, and the overall spend is not to exceed $800 million. There is potential for the contract to be extended.
AMN has been one of our best performing ideas to date. It has been a nearly perfect story and storm evidenced by its favorable valuation, inflation protection, and winning nature regardless of COVID-comp. We believe the stock will continue to rise from here, but caution that this will exacerbate everything else (i.e., FEMA will skew pricing in a strained environment/already tight labor market).
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
GameStop (GME) launched some PC gaming products this week including top of the line graphics card designed for the hardcore gamer while sold out quickly. This branch into PC gamin is important for a couple reasons. One is that the core gamer is one that generally plays on multiple platforms (i.e. consoles, PCs, mobile).
And the core gamer is actually one that has been alienated by GME’s historical inability to adjust to gaming trends and consumer preferences, so this is an important step in winning them back. Second, PC gaming is not dominated/controlled by a few ‘brands’ like you have in console platforms, so there is inherently more margin available by creating value for the consumer.
PC gaming includes many parts to the computer that can be sold, many peripherals (camera, mics, headphones, stands, monitors, controllers, etc.), and includes popular gaming space accessories like LED strips.
The punchline is there is a lot more to sell to this consumer, a lot more margin in every item than there is in consoles, and the value proposition of providing a one stop shop for the category is compelling to the core consumer. PC gaming can be a real profit driving category for GME.
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
Reviewing consensus expectations for Citi Trends (CTRN) the bar remains very low for the rest of the year. The year over year EPS expectations imply down 73% for 2Q, down 57% for 3Q, and down 39% in 4Q.
Sales expectations imply the year being relatively flat, so it would imply a massive year over year gross margin or SG&A pressure that just doesn’t seem likely from where we sit. And the consensus is likely low on sales given the tailwinds on spending for the core customer at CTRN.
We think earnings continue to beat, and given the unit growth and long term earnings algorithm for this name it can get a premium 20x+ multiple. We still see a lot of upside for CTRN.
PLCE
Children's Place (PLCE) announced 1Q earnings this week and put up a blistering $3.25 per share (vs the Street at $0.12). It’s beating for all the right reasons. Outsized full price comp, lower occupancy expense, and elimination of SG&A associated with money losing stores that are closed. Simply put, the company just put up 80% of the Street’s Full Year numbers in a seasonally weak quarter.
The crux of our call all along has been that capacity has come out of the kids space over the past four years at the same time PLCE has been walking way from -- ie closing -- marginal distribution such that the ‘dinosaur Mall’ is close to zero percent of the portfolio by the end of this year. 25% of sales are in high quality B malls, with the remainder in A malls.
The remaining 75% is permanently split between e-comm and strip malls -- a far better place to be in competing in this space.
This was the best retail print this quarter. AUR trends are absolutely killing it, and this is anything but a one-quarter phenomenon. This lasts 1+ years…with slow mean reversion.
ASPL
Click HERE to listen to Industrials analyst Jay Van Sciver discuss Wheels Up (ASPL) on The Call @ Hedgeye.
DUFRY
We're buyers of Dufry (DUFRY) on the heels of the Q1 trading update. Did the company knock the cover off the ball on the top line? No. How could it? International travel is still at a standstill. But we're seeing clear sequential improvement.
The company tracked 78% below 2019 in 4Q20, and is now tracking at -68%. Dufry Americas (NA, LA, SA) is tracking the best of all the regions, which is tracking 63% below 2019 levels. Recent datapoints out of Europe (46% of sales) are bullish with travel restrictions easing in the coming months, and we think that -- like in the US -- there is significant pent-up Leisure demand. Management noted sequential improvement in March < April < May, which is exactly what we want to see.
Our only knock on the quarter is that the company downplayed the success we think it's having right now in Hainan. Market share is currently ~8% with just 3000 square meters of space. An additional 30,000 square meters is opening in August. By the time this Hainan project is completed, Dufry expects to have nearly 40,000 square meters worth of retail space.
FAII
Fortress Acquisition Corp II (FAII) reported this past Thursday. From the report, it is clear that visits per day solidly progressed throughout the quarter. During the call, management attributed this progression to the re- opening within health care finally getting started (lagging behind many other sectors). CEO, Labeed Diab, said the team saw, “overall volume steadily increasing through the first quarter as COVID-19 vaccination rates rose and the United States gradually [re-opened].”
Going further, he noted that some geographies are already exceeding “100% of pre-COVID visit volumes, [while] others are still in process of recovering.” These quotes from the call provide direct evidence for our thesis, and we believe physical therapy is a great way to play it following a relatively synonymous haircut across the sector.
All in all, ATI “visit volumes were in the high 70%'s of pre-COVID levels as we entered 2021, increasing to approximately 83% as we exited April 2021." We remain long FAII on our Hedgeye Health Care Position Monitor.
PLBY
A big piece of the Playboy (PLBY) story is how Brand Chief Rachel Webber is changing the perception of the bunny to consumers to capture a younger demographic. Playboy was originally a brand with roots in counterculture that had interviews with such people as Dr. Martin Luther King and written pieces by authors such as Kurt Vonnegut.
Unfortunately, those roots got lost in the magazine’s later and more racy years, but now with no magazine and a strong creative team the bunny is poised for success. On the company’s earnings call CEO Ben Kohn noted that ecommerce Playboy shoppers are 80% under age 44, 60% under age 34 and 55% of them are female. The brand work done by Rachel Webber bringing the brand back to its roots is already paying dividends, but also has long term value and runway attacking the younger consumer.
Our own consumer survey showed that young people are less turned off by the brand and more indifferent, meaning as the branding message grows, there are large amounts of customers to win in the lower age brackets.
PSA
It was a big positive to see Public Storage (PSA) ramp up its external growth expectations - they are targeting ~$800 million of acquisitions plus $700 million of new developments annually funded through internally generated funds and new issuance of unsecured debt.
Developments have a long tail to stabilize (usually in excess of 3-5 years), but carry juicy 8.0% targeted unlevered yields. With the stock trading at close to a 4% cap rate, if the deals "pencil" then PSA should be making that trade all day.
The one concern we have on the development front is on the land availability and cost side - we lobbed a question in on whether PSA would consider building a land bank to lock in inventory today given its balance sheet capacity, but it went unanswered. It could be something to consider, as it has become a long-term strategic advantage for PLD for example which is in a similar scale position within its own subsector
MUDS
Topps (Mudrick Captial (MUDS) is one of the most recognizable brand names in collectibles, trading cards, and memorabilia. It has four 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.
Confections is a fine ‘staple-like' slow growth cash generator; gift cards a fine high margin side business.
The real investment opportunity here is around the collectibles business, and more specifically the rapidly growing digital collectibles market. A market leader in physical collectibles, Topps is innovating in physical collectibles as it grows its ecommerce offering and it continues to expand into new sports/categories with new licenses while also pursing further regional growth. The real Tail opportunity here is in digital collectibles.
Digital content affords Topps the opportunity to benefit from the massive secondary collectibles market where it has historically not been able to recognize economic gain, even when much is being generated around Topps products.
Digital enables this both through transaction fees for digital content trading on the Topps site/platform, and through royalties on NFTs.
The NFT market looks to be in its very early innings, and NFT art and collectibles are showing huge potential. We can’t think of a more relevant and trusted brand to capitalize on NFT collectibles than Topps.
PLUG
Plug Power (PLUG) Warrants & Largest Customers:
- Given the COVID shift to online ordering, 2020 was a big year for warehouse equipment like forklifts. PLUG and other materials handling names could face post-pandemic business headwinds.
- If the product is so great, why are they providing this dubious warrant incentive to get Amazon to buy it? Amazon ended up getting paid hundreds of millions of dollars…functionally by PLUG shareholders.
- Capital raise + Auditor accounting issues: In addition to the costly drop in the share price on the restatement for the buyers of the offering, it may make future offerings harder. PLUG will likely be a litigation target for years, with investors uncertain about claims on balance sheet cash. The underlying business is not self-funding so far, at least in the financials we have.
