Position Monitor - Amazon Web Services...2019/10/02 · For Week of October 7, 2019 Health Care...

© Hedgeye Risk Management LLC.© Hedgeye Risk Management LLC© Hedgeye Risk Management LLC.

Position Monitor:

October 4, 2019

HC Employment, HCA, TDOC, DXCM

Tom Tobin, Managing Director, Health Care

@HedgeyeHC

[email protected]

Emily Evans, Managing Director, Health Policy

@HedgeyeEEvans

[email protected]

Hedgeye Health Care

William McMahon, Analyst, Health Care

© Hedgeye Risk Management LLC.

DISCLAIMER

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© Hedgeye Risk Management LLC. 3Data Source: Factset, Hedgeye

For Week of October 7, 2019

Health Care Position Monitor

DisclaimerHedgeye’s “bias” represents Hedgeye’s outlook on companies currently under Hedgeye’s review, or for which timing is not right for greater coverage. Hedgeye may or may not provide further commentary on any or allcompanies represented on the bench and representation of a company on the bench does not forecast whether Hedgeye will or will not issue any additional material on that company.

Best Ideas - LongsPrice

Mkt Cap ($B)

Trend TailBest Ideas - Shorts

PriceMkt Cap

($B)Trend Tail

LONG SHORT

Active Longs Active ShortsANTM Anthem, Inc. $ 241.20 $61.7B √ √ HQY HealthEquity Inc $ 54.40 $3.8B × ×

AMN AMN Healthcare Services, Inc. $ 54.54 $2.5B √ √ DVA DaVita Inc. $ 55.94 $9.0B × ×

THC Tenet Healthcare Corporation $ 21.24 $2.2B √ --- DXCM DexCom, Inc. $ 160.95 $14.7B × ×

ZBH Zimmer Biomet Holdings, Inc. $ 134.34 $27.6B √ √

TDOC Teladoc Health, Inc. $ 66.18 $4.8B √ √

ILMN Illumina, Inc. $ 301.69 $44.3B √ √

GH Guardant Health, Inc. $ 65.23 $6.1B √ √

Long Bias Short BiasHCA HCA Healthcare Inc $ 117.79 $40.2B --- √ ABBV AbbVie, Inc. $ 74.86 $110.7B --- ---UHS Universal Health Services, Inc. Class B $ 145.93 $11.9B --- √ MYGN Myriad Genetics, Inc. $ 29.04 $2.1B --- ---MD MEDNAX, Inc. $ 21.99 $1.9B --- √ EXAS Exact Sciences Corporation $ 92.70 $12.0B --- ---NVTA Invitae Corp. $ 19.28 $1.8B --- √ UNH UnitedHealth Group Incorporated $ 218.17 $206.8B --- ---SGRY Surgery Partners, Inc. $ 7.22 $0.4B --- √

GWPH GW Pharmaceuticals PLC Sponsored ADR $ 119.65 $3.7B --- √

TXG 10x Genomics Inc Class A $ 52.18 $4.9B --- ---


Health Care Labor Demand September 2019

4Data Source: BLS, Hedgeye Estimates

September 2019 Health Care Employment improved +422,000 year over year, the highest level in 15 years.

We define Health Care Labor Demand as the sum of net change inHealth CareEmployment plus Job Openings in Health Care. Absent technology that automates diagnosis and treatment, Health Care Labor trends should reflect underlying utilization.

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Health Care Labor Demand – YoY Change


Inclusive of Job Openings, the change in Health Care Labor slowed to 92K in September 2019.

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Health Care Labor Hours – YoY Change


Year over year demand for Health Care LaborHours decelerated sequentially in September. Comparessteepen over the coming4 months.

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Health Care Labor Hours – Rate of Change


The second derivative Health Care Labor Hours, or the change in change, declined more sharply in September against a more difficult comparison. The level of deceleration is similar to prior

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Health Care Employment

8Data Source: ADP, Hedgeye Estimates

ADP Employment report shows Health Care grew 2.46% in September 2019, flat sequentially from August.

Comparisons begin to steepen as we roll into 2020, but the current forecast calls for only a modest deceleration.

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Health Care Employment

9Data Source: Hedgeye Estimates

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Health Care vs Private Employment

11Data Source: ADP, Hedgeye Estimates

Health Care Employment as a percentage of Private has been trending higher since GDP growth peaked in 3Q18. The trend is inline with the previous growth scare of 2015 and 2016, and inline with 4Q06.

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HCA Same Facility Adjusted Admissions

12Data Source: Company, Filings, BEA, BLS, Hedgeye Estimates

Drawing on publicly available data, we have constructed same-facility adjusted admission algorithm for HCA’s same facility adjusted admission trend. The correlation is 0.89. The “walk forward” method test how the method would have behaved ahead of the quarterly release.

For 3Q19, the forecast is 2.6% versus consensus of 2.5%.

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Out-of-Sample Prediction Prediction (5% Confidence Interval)

Prediction (95% Confidence Interval)


HCA EV/EBITDA Multiple vs YoY EBITDA Delta


Growth comparisons remain difficult next few quarters and while the EV/EBITDA multiple has come in from 2018 peak.

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Beta – Performance by Quartile

14Data Source: Factset, Hedgeye Estimates

We’ve been combing through both style andfundamental factors to enrich our screening process. YTD performance across all Health Care stocks by beta quartile.

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Short Interest – Performance by Quartile

15Data Source: Factset, Hedgeye Estimates

YTD performance across all Health Care stocks by short interest quartile.

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CVS vs Medicare Advantage

16

Initially CVS has been a slow roll out. We are more optimistic about CVS versus Medicare Advantage as a longer term opportunity. For CVS, using telemedicine to target a long tail of related patient revenue makes business sense. After speaking to experts we are less optimistic about MA. To justify telemedicine, a plan needs to either increase reimbursement through higher STAR ratings or reduce costs, neither of which seem likely by offering Telemedicine to their beneficiaries.

Data Source: FactSet, Hedgeye Estimates

CVS added more states in 3Q19, so far no announcements


TDOC App Downloads and Active Users

17Data Source: FactSet, Hedgeye Estimates

Downloads were impacted by a tougher compare and a weak flu season early in 2019. MDLive and American Well do not show the same uptick in users and downloads.

User growth on a trailing 13 week basis through September 2019 was 23%, well above the negative trend in April 2019 and above June 2019.

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Performance by Short Interest Quartile

18

Among Health Care stocks, performance by Short Interest Quartile has been a useful factor in 2019. TDOC performance had largelyignored its 34% short interest this year. Shares are down 10% to start the quarter, and while it could be beta, mean reversion, or the threat of Amazon (which we doubt), it seems more likely to be short interest. In Quad 4 (growth slowing) high short Interest historically underperforms by a wide margin, and with weak ISM data, TDOC may just be catching up.


High Short interest is underperforming low short interest by 17% YTD

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DXCM | App Downloads


Dexcom G5/G6 and Abbott’s Libre downloads have been slowing through the summer months. Anecdotally physicians report patient reluctance to start or use CGM in warmer months. As a percentage of cumulative G5 downloads, G6 is at ~70%.

G5/G6 and Freestyle Libre


DXCM | CGM Claims


When a diabetic patient using CGM sees a physician, the CGM data is downloaded and reviewed, and the office submits a medical claim.

CGM Data interpretation medical claims volume and YoY#


Guardant test volume by cancer diagnosis code

Tissue Diagnosis Code CountLung C34 45%Breast C50 9%Colon C18 7%Prostate C61 6%

Pancreas C25 4%Intrahepatic bile ducts C22 3%Stomach C16 3%Unspecified C80 3%Rectum C20 2%Esophogus C15 2%Ovary C56 2%


Guardant test volume is predominantly tied to a diagnosis of Lung Cancer represented by an ICD code beginning with “C34.” The presence of additional codes demonstrates broader clinical use.


The Promise of a Large TAM

ProductMarket Size (Patients in

Millions)

Expected number of test per patient

Market Size (in $ Million)

Guardant360 0.7 2 4000GuardantOMNI 3 2000LUNAR-1 15 1 15000LUNAR-2 35 30000

51000

22Data Source: Hedgeye Estimates, Company filings

Has suspicion of the SoftBank TAM crept into GH?

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Upside to Consensus 2H19

23Data Source: Hedgeye Estimates, Company filings

TAM fatigue or no, we can model upside to volume and revenue 3Q19

Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 2019Clinical Customers Test Volume, # of tests 7,246 6,369 7,027 8,596 9,521 11,875 13,190 15,332 49,918 Biopharmaceutical Customers Test Volume, # of tests 2,234 2,622 2,505 3,009 3,762 5,285 5,000 5,000 19,047 Total Test Volume, # of tests 9,480 8,991 9,532 11,605 13,283 17,160 18,190 20,332 68,965

Clinical Revenue 7.3 9.6 9.6 17.3 17.2 21.8 24.2 28.1 91.4 Biopharmaceutical Revenue 6.9 8.2 8.7 10.8 11.6 20.3 19.2 19.2 70.2 Development Services 2.5 1.6 3.4 4.8 7.8 11.9 7.0 7.0 33.7 Total Revenue 16.7 19.4 21.7 32.9 36.7 54.0 50.4 54.3 195.3

Clinical revenue per test 1,006 1,507 1,359 2,007 1,807 1,836 1,836 1,836 1,830.2 Biopharma revenue per test 3,089 3,136 3,491 3,603 3,093 3,834 3,834 3,834 3,687.9

An additional 5,000 tests at $1836.00 adds $9.1M to the topline above the $180-190M guidance. We backed into Biopharmaceutical testing and Development Service revenue. Consensus revenue for 3Q19 and 4Q19 is $45.7M and 50.2M, respectively.


Guardant Commercial Coverage



PAMA Data Collection/Reporting Schedule

Data Collection • Jan. 1, 2019 to June 30, 2019

Data Reporting • Jan. 1, 2020 to March 31, 2020

CLFS Rate Years • 2021, 2022 and 2023

25Data Source: Federal Register

Lots of incentive to stay Out of Network

Clinical Diagnostic Laboratory Test Advanced Diagnostic Laboratory Test

Data Collection • Jan. 1, 2019 to June 30, 2019

Data Reporting • Jan. 1, 2020 to March 31, 2020

CLFS Rate Years

• 2021 (Process Repeats Annually)


1

2

3

Key Thesis Points

Current guidance is 44,000-46,000 tests for 2019. Based on our Index, volume for 2019 will beat volume.

26

All else being equal, the additional clinical testing volume adds $10M to revenue compared to 2019 guidance of $180M to $190M.

Investor appetites for audacious TAM forecasts, such as GH’s $50B outlook, have soured in 2019. For GH, this has meant a 43% decline in shares from the peak to an EV of $5.6B. Any positive update along any of the clinical development programs could dramatically reverse sentiment.

Data Source: Hedgeye Estimates

On pace for 49,000 Clinical Tests

2019 Revenue forecast of $195M

Assume a Large TAM


AMN | Accelerating postings

27

We've had less success regressing to reported FTE counts, but activity appears to be accelerating. This data is updated weekly.


Tracker – New Per Day (Quarterly) v AMN Reported FTE

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Mar-2016 Jun-2016 Sep-2016 Dec-2016 Mar-2017 Jun-2017 Sep-2017 Dec-2017 Mar-2018 Jun-2018 Sep-2018 Dec-2018 Mar-2019 Jun-2019 Sep-2019

Tracker-New Per Day, Quarterly AMN Reported FTE


AMN Corelates to EPS


Formerly, AMN was most reliably valued on an EV/Sales basis likely due to the high incremental margin swings in business from a lower base.

Correlation Between 5Y 3Y 1Y

NTM EBITDA and EV 0.891 0.831 0.692

NTM Sales and EV 0.912 0.881 0.616

NTM Sales and Price 0.888 0.839 0.452

NTM EPS and Price 0.933 0.934 0.784

$10

$20

$30

$40

$50

$60

$70

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

9/1/

2014

12/1

/20

14

3/1

/20

15

6/1/

2015

9/1/

2015

12/1

/20

15

3/1

/20

16

6/1/

2016

9/1/

2016

12/1

/20

16

3/1

/20

17

6/1/

2017

9/1/

2017

12/1

/20

17

3/1

/20

18

6/1/

2018

9/1/

2018

12/1

/20

18

3/1

/20

19

6/1/

2019

9/1/

2019

Prce

($)

NTM

EPS

EPS Price


Upside to consensus


Our upside case is based solely on Nurse & Allied growth in the mid- single digits generating a high incremental gross margin contribution. OWS should benefit through ShiftWise, but we have not explicitly modeled the impact due to headwinds elsewhere in that business unit.

AMN Health Care Services, Inc.Financial and Valuation Summary Key Statistics

1Q19 2Q19 3Q19:E 4Q19:E 2019:E 2020:E Market Value ($MM) 2,245.9 Hedgeye Sales ($MM) 532 535 564 588 2,220 2,397 (-) Cash 40 Consensus ($MM) 532 535 563 584 2,214 2,377 (+) Total Debt 441

(+) Preferred Equity -Nurse and Allied Staffing (+) Minority Interest -Locum Tenens Staffing (+) Pension Liabilities -Other Workforce Solutions Enterprise Value 3,158.0

Hedgeye EPS $ 0.75 $ 0.77 $ 0.79 $ 0.82 $ 3.13 3.87 52 week High 65.81Consensus ($MM) 0.75 0.77 0.73 0.80 3.05 3.43 Current Price $ 55.59

52 week Low 45.04Hedgeye EBITDA 66.0 66.7 69.5 73.0 275.2 301 Avg Daily Vol (3 mo) 316,214Consensus ($MM) 66.0 66.7 67.0 72.0 271.7 300 Shares Out (000) 47.4

Short Interest 5.02%MultiplesEV/EBITDA 11.6x 10.5xP/E 18.5x 16.4x


Valuation


$70 Appears In Reach

Labor Disruption appears likely to accelerate, but we have not modeled that in either.

2019 EV/EBITDA 2020 EV/EBITDA7.5x 8.5x 9.5x 10.5x 11.5x 12.5x 7.5x 8.5x 9.5x 10.5x 11.5x 12.5x

19 E

BIT

DA

$ 260 32.7 38.2 43.6 49.1 54.6 60.1

20

EB

ITD

A

$ 280 35.8 41.7 47.6 53.6 59.5 65.4 $ 270 34.3 39.9 45.6 51.3 57.0 62.7 $ 290 37.4 43.5 49.6 55.8 61.9 68.0 $ 267 33.8 39.5 45.1 50.7 56.4 62.0 $ 300 39.0 45.3 51.6 57.9 64.3 70.6 $ 290 37.4 43.5 49.6 55.8 61.9 68.0 $ 310 40.6 47.1 53.7 60.2 66.7 73.3 $ 300 39.0 45.3 51.7 58.0 64.3 70.6 $ 320 42.2 48.9 55.7 62.4 69.2 75.9 $ 310 40.6 47.1 53.7 60.2 66.7 73.3 $ 330 43.7 50.7 57.7 64.6 71.6 78.5

$32.7 $50.3 $73.3 $35.8 $55.9 $78.5-41.9% -10.5% 30.3% -36.3% -0.7% 39.6%

2019 P/E 2020 P/E15.5x 16.5x 17.5x 18.5x 19.5x 20.5x 15.5x 16.5x 17.5x 18.5x 19.5x 20.5x

19 E

PS

$ 2.80 43.4 46.2 49.0 51.8 54.6 57.4

20

EPS

$ 3.65 56.6 60.2 63.9 67.5 71.2 74.8 $ 2.90 45.0 47.9 50.8 53.7 56.6 59.5 $ 3.75 58.1 61.9 65.6 69.4 73.1 76.9 $ 3.05 47.2 50.2 53.3 56.3 59.4 62.4 $ 3.85 59.7 63.5 67.4 71.2 75.1 78.9 $ 3.10 48.1 51.2 54.3 57.4 60.5 63.6 $ 3.95 61.2 65.2 69.1 73.1 77.0 81.0 $ 3.20 49.6 52.8 56.0 59.2 62.4 65.6 $ 4.05 62.8 66.8 70.9 74.9 79.0 83.0 $ 3.30 51.2 54.5 57.8 61.1 64.4 67.7 $ 4.15 64.3 68.5 72.6 76.8 80.9 85.1

$43.4 $55.3 $67.7 $56.6 $70.2 $85.1-22.8% -1.7% 20.3% 0.6% 24.8% 51.2%


ILMN | NIH Funding Rolling 12 months

31

NIH funding is highly seasonal, weighted toward the last months of the federal government’s September fiscal year end. 2018 was one of the best years on record for NIH due to 21st Century Cures and grant activity for fiscal 2019 was down substantially for the first half of the year. Through the second half of the fiscal year, these charts show a dramatic improvement on a rolling 12 month basis to flat as of 9/14/2019.

Funding for Genomic Research

0

500

1,000

1,500

2,000

2,500

3,000

3/1

/20

08

8/1

/20

08

1/1/

200

9

6/1/

200

9

11/1

/20

09

4/1/

2010

9/1/

2010

2/1/

2011

7/1/

2011

12/1

/20

11

5/1/

2012

10/1

/20

12

3/1

/20

13

8/1

/20

13

1/1/

2014

6/1/

2014

11/1

/20

14

4/1/

2015

9/1/

2015

2/1/

2016

7/1/

2016

12/1

/20

16

5/1/

2017

10/1

/20

17

3/1

/20

18

8/1

/20

18

1/1/

2019

6/1/

2019

Gra

nts

Fu

nd

ed

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

3/1

/20

08

8/1

/20

08

1/1/

200

9

6/1/

200

9

11/1

/20

09

4/1/

2010

9/1/

2010

2/1/

2011

7/1/

2011

12/1

/20

11

5/1/

2012

10/1

/20

12

3/1

/20

13

8/1

/20

13

1/1/

2014

6/1/

2014

11/1

/20

14

4/1/

2015

9/1/

2015

2/1/

2016

7/1/

2016

12/1

/20

16

5/1/

2017

10/1

/20

17

3/1

/20

18

8/1

/20

18

1/1/

2019

6/1/

2019

Tota

l Fu

nd

ing

(Th

ousa

nd

s of

Dol

lars

)

Data Source: NIH, Hedgeye Estimates


ClinVar

32

ClinVar variant and condition submissions by gene continue to increase through 9/2/2019.

Submissions continue to increase

-

10,000.00

20,000.00

30,000.00

40,000.00

50,000.00

60,000.00

1/1/

2016

3/1

/20

16

5/1/

2016

7/1/

2016

9/1/

2016

11/1

/20

16

1/1/

2017

3/1

/20

17

5/1/

2017

7/1/

2017

9/1/

2017

11/1

/20

17

1/1/

2018

3/1

/20

18

5/1/

2018

7/1/

2018

9/1/

2018

11/1

/20

18

1/1/

2019

3/1

/20

19

5/1/

2019

7/1/

2019

9/1/

2019

Total Variants

-

200.00

400.00

600.00

800.00

1,000.00

1,200.00

1,400.00

1/1/

2016

3/1

/20

16

5/1/

2016

7/1/

2016

9/1/

2016

11/1

/20

16

1/1/

2017

3/1

/20

17

5/1/

2017

7/1/

2017

9/1/

2017

11/1

/20

17

1/1/

2018

3/1

/20

18

5/1/

2018

7/1/

2018

9/1/

2018

11/1

/20

18

1/1/

2019

3/1

/20

19

5/1/

2019

7/1/

2019

9/1/

2019

Total Conditions

Data Source: ClinVar, Hedgeye Estimates


For more information, contact us at:

33

[email protected](203) 562-6500

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