Jim Chanos Bearish on Quick Service Industry, Pharmacy Benefit Management, Tesla ~ market folly

Monday, December 18, 2017

Jim Chanos Bearish on Quick Service Industry, Pharmacy Benefit Management, Tesla

Short seller Jim Chanos of Kynikos Associates recently sat down with CNBC for an interview.  Here's a summary along with video and the transcript.

On healthcare:  He thinks the new tax bill will cause the healthcare industry to see deflation.  "We've been looking at the rent-seeking companies, companies that we think have existed on the periphery of the healthcare economy that basically have went after these pricing sort of gamesmanship models.  And we think that's over. We think as the pie shrinks, it's going to be tougher and tougher to justify the ability of companies to hike drug prices 1,000% or charge commercial insurers five times what you charge medicare and medicaid in the case of dialysis ... We're still very negative on the PBM (pharmacy benefit management) space, Express Scripts (ESRX) came out and reaffirmed guidance, raise it this morning.  There's not reason for independent PBMs to exist, for example."

On Tesla (TSLA):  He's still short.  He thinks the company's equity is worth zero and other competitors are ahead of them in terms of autonomy for self-driving cars (citing Waymo, Audi, and others).  Says the problem is that the company can just keep raising capital and if that train keeps going then it's an issue.  But he's still very bearish on the company and sees the CEO Elon Musk as a bit of a showman constantly using hype, press releases and product launches. 

On fast food:  "I'd be short pretty much anybody in the quick service industry besides McDonalds.  MCD still calls the tune.  They're the 6 billion pound gorilla, so to speak.  They just went to a new value menu a few weeks ago, which always impacts the industry.  It's a dog fight."

He points to the companies' transition to the asset light model in the space.  He singled out Restaurant Brands (QSR), the owner of Burger King and Tim Hortons, which has been a hedge fund favorite.  He says while these companies are getting higher multiples for running an asset light model, look at how the franchisee is doing because the restaurants themselves still have to perform.  These restaurants are being hit with higher royalty rates and rising costs, so they're starting to struggle. 

On retail:  Chanos said they had a lot of exposure to the "well known shorts" in the retail industry but has covered them so they only have small exposure in that sector right now.  They think it will be a decent Christmas holiday shopping season so he'll probably re-examine them as they bounce into 2018.

Embedded below is Jim Chanos' interview with CNBC:

Video 1:

Video 2:

Video 3:

You can also read the full transcript here.

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