I’ve come across an interesting setup in an industry I like.
The analysis comes from GLJ Research’s Gordon Johnson, an analyst whose work I follow and like, and I thought his latest note laid out a simple case worth sharing. Needless to say, none of what follows is guaranteed to play out, and these are simply Johnson’s estimates and conclusions, but they are worth a read.
As I’ve said in the past, Johnson is one of my favorite analysts on the street to read and gets a rare endorsement from me (I hate basically everyone selling sell-side style research). He is one of the last few analysts out there that seems committed to the truth….no matter how ridiculous it makes him look in the short term while he’s waiting for his theses to play out.
What caught my attention is that his thesis doesn’t require some heroic macroeconomic prediction or assume everything goes perfectly. Johnson’s argument is essentially that the numbers appear to be moving in one direction while Wall Street’s estimates are still moving in another.
The near-term setup could produce an earnings beat, while a contractual pricing reset next year could potentially add hundreds of millions of dollars to annual EBITDA. If Johnson’s analysis is right, the Street may be fading earnings at almost exactly the wrong time.
