A REGIONAL RESURGENCE?

Bad weather in January and 1H of Feb may have masked strengthening regional demand. We think March will show a nice uptick that could reverse recent negative investor sentiment.

 

 

We’ve been no big cheerleader for regional gaming companies lately.  Revenue growth has been nonexistent, weather has been bad, and catalysts have remained elusive.  Investor sentiment now seems to be on the same page.  Well, we are turning the page.  The Street is comprised of slow readers.

 

January and February were not great months on an absolute basis for the regional gaming markets.  However, weather was an issue and probably masked some underlying strengthening of demand.  As can be seen in the following chart, actual gaming revenues in February was weak, contributing to lower stock performance.  February, however, was better, despite the weather although investors just looking at YoY change would’ve missed it.

 

Through our contacts, we are hearing March has been strong month to date.  We think March will generate YoY growth, better than February’s 3% decline and better than the sequential, seasonally adjusted prediction of down 1%.  A strong March should contribute to earnings upside for a couple of names in our universe.

 

A REGIONAL RESURGENCE? - regional

 

We favor pure play regional operators ASCA and PNK.  Both look like they will beat Q1 earnings estimates and carry large free cash flow yields.  ASCA, in particular, has a history of generating outsized investment returns when its FCF yield rises over 20% and the company begins to beat earnings expectations.  We believe we are in that scenario currently.

 

This resurgence may be no more than a trade.  Certainly, we still harbor macro concerns about whether this recovery is sustainable.  The American consumer faces significant hurdles.  Gaming has proven to be one of the most cyclical of the consumer sectors so any downturn should hit the casinos disproportionately as it did in 2009.  However, successful trades in gaming can pay investors annual and two year returns in a matter of months. 


Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more