Key Takeaways

• We update our thinking on LYV 0.22%  given the return to profitability in recent earnings and the recent tragedy at the Astroworld Festival in Houston. Our thoughts and prayers are with all those affected.
  
• We update our thinking on Align Technologies (ALGN -0.75% ) to reflect recent earnings and price action.
  
• We update our thinking on Dexcom (DXCM -0.42% ) given recent earnings and performance.
  
• We update out thinking of Alibaba (BABA 2.02% ) given evolving developments in China and recent earnings.
  
• We address a recent multi-year deal between SFN companies (MGM -1.49% ) and (MSGE 0.08% ) and why we believe this deal and seasonals continue to bode well for both these names.

Click HERE to see the performance of all SFN stocks.

Update on Live Nation After Tragedy Strikes in Houston

Firstly, we want to start this update out by acknowledging the unfortunate human tragedy that occurred last weekend in Houston at Travis Scott’s Astroworld festival. Eight innocent people were killed in chaotic events, which are still being actively investigated, and hundreds more were injured. Before anything regarding the prospects of the company is discussed, the entire FSInsight team would like to offer our thoughts and prayers to the victims and their families.

Many investors may be confused as to how to proceed given that this tragedy and a blow-out earnings report occurred so closely to each other. Hence, we felt the need to provide some guidance to those who follow our column given the extraordinary and appalling course of events. We had mentioned in the risks section when we covered Live Nation that very public tragedies like this are a recurring risk in the live events industry. We recommended LYV 0.22%  on 6/24 when it was $91.99, and it closed yesterday $116.61.

We also mentioned that Live Nation, the largest operator in its industry, is partially able to absorb so many smaller operators because of the advantage of sharing liability and that given previous events it has hosted, it is usually well prepared for risks such as these.

Industry insiders also point out that in instances such as these, particularly when previous events involving the same artist have proved problematic, the liability usually falls primarily on the security companies and the cities/localities who approve relevant permits, although we are not experts in this field. We’re not sure of the contractual relationship between organizers, artists and owner, but if there’s a lack of provisions that indemnify each other then finger pointing between the three will arise, if not, they’ll be more unified.

In two past tragic events that LYV promoted and organized, the terrorist attack in 2017 at an Ariana Grande concert in Manchester and the devastating Las Vegas Route 91 music festival shooting, Live Nation was not found to have any liability not covered by existing policies. We suspect the case will be the same in this instance ultimately despite over a dozen lawsuits having been filed.

We are not experts on the course of events in this particular case and we would caution that anything can happen in the court of public opinion when an event results in the scale of tragedy that occurred in Houston last weekend. Similarly, we are not saying the company is not liable as we do not know the facts, we are merely using the outcomes related to similar tragedies in the past as a guide for the effect on the economic prospects of Live Nation. Nonetheless, Live Nation has just returned to profitability and there are many reasons to think 2022 could be one of the best years for live music yet.

We’d say the trend of the company beating earnings recently will remain intact. The return to profitability is positive and despite several terrible and similar tragic events in the past, the company has consistently delivered above-market returns and proved itself a good steward of shareholder capital.

If the company was unprepared, resulting changes to prevent similar outcomes at future events are unlikely to significantly alter their profitability. Most consumers go to see the artist they want to with little regard for who is organizing or promoting a show and so we’d say the type of brand damage we’d fear in a worst-case scenario is unlikely to impact the general tail winds for the live music industry’s largest operator.

The vast majority of the company’s events are lower risk and do not have an inherently edgy draw, based on roughness, like a Travis Scott concert. There have always been performers who partially attract fans by selling an unruly and visceral experience, but usually it does not result in death and carnage. Travis Scott himself has plead guilty to disorderly conduct partially for encouraging audiences to rush the stage in 2015 in Chicago and 2017 in Arkansas.

Ultimately, a lot of this will come down to what the Houston Police find in their criminal investigation. At this time, we are convinced that the thesis we had for introducing Live Nation in this column is still intact. Brian Rauscher’s Earnings Revision Model (ERM) is still positive on the name. We believe, partially based on the outcomes related to past tragedies, that the events and recent lawsuits are less materially relevant to the company’s prospects than the recent blowout quarter and the bullish prospects for pent-up demand and new advances in COVID-19 therapeutics.

Align Technologies Has Strong Q3 Earnings

We did our article on Align Technologies on September 30th when it was at $665.43. It closed on Tuesday, November 9 at $711 but dropped all the way to $589 in between. Partially because we were very confident in the Earnings Revision Model readings on the name, we did an update during this price weakness to let our clients and subscribers know that we still were bullish on the name. We understand it can be distressing when we recommend a name and it goes down, but we try to keep grounded in the data and rigorous analysis we use to select these names.

We believe the thesis we outlined in our article is still accurate and Brian Rauscher’s Earnings Revision Model continues to be positive on this name. We think this is a strong company with a sound strategy to continue above-market growth. It is the strongest brand in a desirable segment, and it has a lot of room to continue expanding its’ total addressable market.

The company’s third quarter earnings were very strong, and it reported total revenues up a very impressive 38.4% YoY. Importantly, the Imagine Systems and CAD/CAM services we mentioned as helping to boost network effects had record revenues of $178.3 million, which was op 57.3 million YoY. The recent development with regard to Pfizer’s highly effective anti-viral pill also leads us to believe that the company’s efforts to expand internationally will have less headwinds. The company also announced on November 1 that it was accelerating its buyback program.

Dexcom Earnings Suggest Thesis Remains Intact

We did our article on this company on July 8, 2021, and it closed at $445.97 that day. It closed on November 9 at $637.05. We believe this is a great company with a very desirable product and a close connection and alignment with the needs of its customers. We had mentioned that this company got emergency approval for its product in a hospital setting and the results were very favorable for patient outcomes and for reducing costs. This name may be a little tactically extended, but if you already own it, we’d suggest continuing to hold it. Pullbacks will likely be a buying opportunity.

Given that COVID-19 severely strained our already ramshackle healthcare system, we believe the company is in a sweet-spot. It offers a product that not only significantly increases the quality of life of its customers but also assists in reducing costs for a system where costs are burgeoning.

The EPS came in at $.89 cents a share, which was 43.5% higher than the consensus estimate of $.62 cents. Total revenues also grew at 30%, which was significantly higher than the consensus estimate of 6.2%. The uniquely beneficial product, rising consumer awareness and the Earnings Revisions Model readings on this name (which have been positive since it was in the 300s) make us confident that our thesis is well intact and that this company will continue above-market growth. We suspect efforts to penetrate the Type 2 diabetes market will be fruitful.

Alibaba Has Been A Tough Name, But We See Light On Horizon

We did our article on Alibaba on July 1st when the stock closed at $221.87. It closed yesterday at $160.25. We will concede that it has been a tough name since then given the turmoil in Chinese industry as the CCP continued its crackdown across several dimensions. Fundamentally, we still believe our thesis on the company is correct and there are very few places in the market where you can find cheaper growth.

One of the unforeseen developments that occurred because of the pandemic’s widespread economic consequences was that it highlighted the importance of cloud. Without the cloud services provided by leading companies, the economic effects of COVID-19 would likely have been more far reaching and more devastating. We’d say that BABA is the leading Chinese cloud player and as we mentioned, is still very central to the Chinese economy in many ways.

One mitigating factor we see to the recent crackdowns is that the CCP is still wary of its international image, if only for self-serving reasons, and the Beijing Winter Olympics are approaching. We’d also say that it is encouraging that Jack Ma recently conducted his first public trip to Europe since he disappeared from public view about a year ago.

Nobody bats 1,000 and we realize that we were likely a little early to make a bullish call on BABA, but we still think our fundamental thesis is intact. We will give an update if we change our minds and particularly if the price collapses down to the $129 or $130 level, but generally we see this stock as having a very good risk-adjusted return at these levels and again Brian’s ERM work continues to be positive.

There are upcoming positive catalysts like Single’s Day in China that is approaching on November 11th which should positively affect the company’s largest segment, China Retail. Other positive developments include the company’s chipmaking and the continued growth in cloud computing, which we think will continue adding to the growth picture over the foreseeable future.

MGM and MSGE Partnership Will Likely Be Fruitful; Reiterating Bullish Call on Both Names

We recommended MGM -1.49%  on March 27th at $37.68 and it closed yesterday at $47.44. MSGE was covered on August 19th at $61.55 and closed yesterday at $81.50. We are still bullish on both names and are happy to see their partnership.

In wake of the current case roll over and the development of Pfizer and oral COVID treatments, “back to normal” names are more appealing than ever. In fact, as we’ve recently noted, these developments suggest that the pandemic is likely becoming an endemic. Dr. Scott Gottlieb agrees.

With the end of COVID’s threat in sight, companies that rely heavily on in-person activities should realize the pent-up demand accrued over a long pandemic. MGM -1.49%  and MSGE 0.08%  stand out to our team. With the holiday season just a month away, the NBA and NHL seasons recently beginning, and the NFL season half underway, the timing for this demand outburst could not be more perfect. MSGE 0.08% ’s Madison Square Garden is home to the Knicks and Rangers as well as many other notable events such as new years’ annual Jingle Ball. MGM is the proprietor of 29 unique hotels and casinos and operates BetMGM, which specifically benefits from the active sports seasons.

On Tuesday morning, NY legalized sports betting and BetMGM announced a partnership with MSG. Given MSG’s massive NY presence and BetMGM’s dominance in the sports betting industry, the synergistic effect should prove incredibly lucrative, especially given the surrounding circumstances.

From a price perspective, MGM -1.49%  has outperformed EVERY single “Holiday Season” (starting mid-October with the beginning of the NBA / NHL seasons and ending mid-January) over the past 5 years. And, as shown below, it seems this year’s “Holiday Season” rally is currently underway:

On average, MGM -1.49%  has gained 19.3% each holiday season, outperforming the S&P by 13.9%. While we’re only about a third of the way through this year’s “Holiday Season,” MGM -1.49%  is currently underperforming the S&P despite a 6.5% gain (which is also roughly a third of the average total performance):

The 2021 “Holiday Season” relative underperformance suggests that MGM -1.49%  will likely push higher towards relative outperformance as it’s done EVERY year for the past 5 years. And, amidst the current “everything rally,” this push higher could prove to be quite significant. This likelihood is further enhanced by current price action and the surrounding circumstances (pent-up demand, approaching endemic, MSG partnership, sports betting legalization, etc.).

A similar outlook can be applied to MSGE 0.08% . Since its inception last year, MSGE 0.08%  appears to have followed the same trajectory. MSGE 0.08%  posted a roughly 45% gain over its first holiday season, substantially outperforming the S&P. While MSGE 0.08%  continues to outperform the S&P this “Holiday Season,” it is still way off previous outperformance. Further, current gains of about 17% are also roughly one third the previous gain. We’ll likely continue to see positive performance with this year’s “Holiday Season” rally clearly underway.

MGM -1.49%  and MSGE 0.08%  are both very emblematic of our Epicenter stock thesis. The waning impact of COVID and positive developments on therapeutics alone are enough to warrant bullishness. Pairing that with the seasonal patterns, partnership synergies, and legalization benefits increases our conviction on the names because of multiple and converging favorable tailwinds.