• The call plus


    The Call @ Hedgeye Plus

    Our favorite, high-conviction stock ideas and CEO Keith McCullough’s Macro overlay. Exclusively on Hedgeye TV.


From a macro stand point we are at 96% cash. From a sector stand point we suggest that cash is also king but staying with low expectation names is a must. The largest players in the QSR segment have been an island in the storm for most market participants. They are also the names with the biggest expectations; growth had been driven by the strong international markets and the weak dollar. Those that have been hiding in a China story are about to see the other side of that trade. The other big negative for the larger QSR names is valuation. YUM and MCD are trading at or near historically high multiples. One last thing, the credit crunch will hurt most of these companies, as franchisees will have a more difficult time getting capital and the cost of capital is rising.

Once again, I am ranking the names in order of yesterday’s stock price performance worst to best:

TAST – A BKC franchisee that owns two regional brands with significant exposure to Florida. TAST has a leveraged balance sheet, with rising food and labor costs. On current numbers the stock is trading at 7x NTM EPS.

WEN – Looking for more clarity as we move into 2009, but it will face some challenges getting incremental customers in 2009. Could be a good place to hide, as expectations are low and the brand is strong

CKR – A regional player with a management team more concerned about the luxuries in life, like a private plane. CKR will be fine but will never get any respect because of management.

JBX – A strong, well run company. Unfortunately, $0.40 to $0.50 of JBX’s EPS growth comes from selling stores to franchisees. Once management get off this drug it’s safe to get in.

KKD – The shrinking violet…..

DPZ – Anything with leverage will get crushed and they have got it. Top line trend appear to be improving.

BKC – The best days are behind them and the street is universally bullish. I’m not a fan. A large part of the company’s success is the resurgence in the advertising campaign and that is definitely cyclical.

YUM – Where do I begin with this one? Without China there is not much here, because the U.S. business is a disaster. Management has leveraged the balance sheet at just the wrong time!!

SBUX – It’s been beaten and beaten again. We are closer to the bottom than the top. Not much management can do to offset the macro. Definitely low expectations

MCD – I still contend that 2009 is shaping up to be a disappointment for MCD. Definitely high expectations!