Spring 2018

The pitch argues that Stericycle is facing significant headwinds due to regulatory challenges and declining demand for its services, which will negatively impact its financial performance.

The team believes that Credit Acceptance Corporation's business model is unsustainable due to increasing regulatory scrutiny and potential defaults in the auto loan market, leading to a decline in its stock price.

The pitch highlights concerns over Spotify's profitability and competitive position in the streaming market, suggesting that its current valuation is not justified given its financial metrics.

The team argues that C.H. Robinson is overvalued due to its reliance on a cyclical industry and potential disruptions from technological advancements in logistics.

The pitch suggests that Harvey Norman is facing challenges from changing consumer preferences and increased competition, which will adversely affect its sales and profitability.

The team believes that Digicel's bonds are at risk due to the company's high debt levels and challenging market conditions, making them a poor investment.

Mark Cooper discusses his positive outlook on Deere & Co. due to its strong market position and potential for growth in agricultural technology.

Stericycle is overvalued due to declining EBITDA, margin erosion from shrinking end markets, and value-destructive acquisitions that have strained its balance sheet. The company faces significant risks including potential asset impairments and ongoing scrutiny from the SEC regarding its accounting practices. With a target price of $38, there is an expected downside of approximately 40% over the next 18 months.

Credit Acceptance Corporation is recommended as a short due to projected EPS decline driven by flat growth in new loan originations, a declining yield, and increased provisions for credit losses. With a target price of $210, the stock presents a favorable risk-reward scenario with significant downside potential.

Credit Acceptance is facing declining loan-level returns and increasing provisions for credit losses, which will negatively impact its earnings. The company is under-provisioned compared to peers, and its current valuation suggests limited upside. We project EPS to decline by 13% over the next three years, leading to a price target of $210, which is 33% below the current stock price.

Spotify is a good product but a bad business due to its high payout to record labels and increasing competition from major tech players. The company pays out 52% of its revenue to the Big Three record labels, which control the majority of the market. This, combined with low barriers to entry for competitors, suggests significant downside potential for Spotify's stock.

Spotify's business model has negative economics due to high variable costs associated with paying record labels for each new user. The company is expected to fail to meet market expectations following unfavorable royalty negotiations, leading to a significant decline in stock price. The pitch suggests that Spotify is overvalued and offers an attractive short opportunity with a potential return of ~50% by 2020, predicting the stock will fall from ~$149 to below $75 per share.

C.H. Robinson is facing significant challenges from online travel platforms that are reducing demand for its services. The company's valuation is expected to compress as it misses consensus estimates, with projected EPS declining due to decreasing NAST spreads. A target price of $70 is set based on a 16x multiple applied to the estimated 2019 EPS of $4.31.

Harvey Norman is a fragile business at the peak of an economic cycle, facing structural challenges from competition and a lack of transparency from management. The sustainability of franchisee revenue is questionable, with many unprofitable locations that should be closed, which will impair the value of HVN's real estate. The intense competition and stagnant housing growth will further weaken the franchise network.

The thesis is based on the belief that Harvey Norman is overstating earnings and accumulating bad debt, particularly as franchise revenues and cash receipts have diverged significantly. The upcoming Australian Parliamentary Inquiry into the franchise industry and increased competition from Amazon are expected to exacerbate the company's challenges, leading to a potential decline in its stock price.

The DLLTD 8.25% Senior Unsecured Notes due 2020 are recommended for their attractive total return opportunity, driven by growth in wireless data and business solutions, improvements in cost base and free cash flow generation, and potential for rapid deleveraging as operational momentum translates into financial results.

Deere is undergoing significant internal changes that the market has not fully appreciated, including a modernization of its manufacturing process and a shift in sales compensation to focus on profitability rather than just sales volume. These changes, combined with cyclical and secular tailwinds in the agricultural sector, position Deere for a competitive advantage and potential growth.

We recommend a short on Stericycle (SRCL) with a price target of $38, presenting nearly 40% downside from today’s price of $61. We believe that unprecedented competition, a high fixed-cost structure, and a stretched balance sheet will drive declines through 2020. Accounting red flags and poor management bolster our thesis.

Non-bank lenders, including Credit Acceptance, are facing significant challenges as delinquencies approach 2009 highs despite low unemployment. The decline in used car prices and the erosion of competitive advantages, such as declining Dealer Holdback payments, suggest that the company's profitability is at risk. We believe that these factors will lead to a deterioration in Credit Acceptance's financial performance.

Digicel is poised for significant growth following a heavy investment cycle that has expanded its product offerings into cable and business services, alongside improvements in wireless services. With the completion of these investments, the company is expected to see a rise in earnings and free cash flow, particularly as it implements its 2030 Transformation plan aimed at improving EBITDA margins and reducing leverage.

Brad Headley, Ryan Darrohn, and John White are shorting C.H. Robinson due to concerns about its business model and market position, which they believe may not sustain its current valuation.