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CONSUMER CONFIDENCE FALLS IN JULY

The University Of Michigan Survey Of Consumer Confidence Index collapsed in July.  The ongoing employment crisis, reduced home prices, and still-elevated gas prices are weighing on sentiment.  The embarrassing debacle in Washington is also likely causing concern. 

 

Looking at the components of the Index, it was telling that expectations came down so sharply, from 64.8 in June to 56 in July.  This is the lowest level since November 2009.  The overall Sentiment Index declined 7.8 points to 63.7 in July.  This month brought the largest decline since March and the lowest level for the Index since March 2009.   Current Attitudes declined by 6.2 points to 75.8, the lowest level since November 2009.

 

With GPD growth slowing to a measly 1.3% in the second quarter, the employment situation showing no real signs of turning around, and gasoline prices at $3.70 per gallon on a national basis, it makes sense that consumers are fearful.  The ceaseless media focus on the debt ceiling debate and the apparent incapability of the nation’s elected representatives to reach a resolution is also heightening concerns.

 

CONSUMER CONFIDENCE FALLS IN JULY - umich sentiment july

 

CONSUMER CONFIDENCE FALLS IN JULY - umich expectations july

 

CONSUMER CONFIDENCE FALLS IN JULY - umich attitudes july

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


CONSUMER CONFIDENCE FALLS IN JULY

The University Of Michigan Survey Of Consumer Confidence Index collapsed in July.  The ongoing employment crisis, reduced home prices, and still-elevated gas prices are weighing on sentiment.  The embarrassing debacle in Washington is also likely causing concern. 

 

Looking at the components of the Index, it was telling that expectations came down so sharply, from 64.8 in June to 56 in July.  This is the lowest level since November 2009.  The overall Sentiment Index declined 7.8 points to 63.7 in July.  This month brought the largest decline since March and the lowest level for the Index since March 2009.   Current Attitudes declined by 6.2 points to 75.8, the lowest level since November 2009.

 

With GPD growth slowing to a measly 1.3% in the second quarter, the employment situation showing no real signs of turning around, and gasoline prices at $3.70 per gallon on a national basis, it makes sense that consumers are fearful.  The ceaseless media focus on the debt ceiling debate and the apparent incapability of the nation’s elected representatives to reach a resolution is also heightening concerns.

 

 

CONSUMER CONFIDENCE FALLS IN JULY - umich sentiment july

 

CONSUMER CONFIDENCE FALLS IN JULY - umich expectations july

 

CONSUMER CONFIDENCE FALLS IN JULY - umich attitudes july

 

 

Howard Penney

Managing Director



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MPEL TRADE UPDATE

Higher estimates should continue the positive momentum in the stock.

 

 

Keith bought MPEL in the Hedgeye Virtual Portfolio today at $14.73 ahead of its upcoming Q2 earnings report.  The stock is trading close to a key TRADE support level.  MPEL has been our top idea for almost a year due to our projections of consistenly better than expected earnings.  The Q2 earnings release should be the best of the bunch and will likely be the next catalyst.  The company has gained market share YoY, despite Galaxy Macau opening on Cotai, and July share has been trending higher for MPEL so Q3 also looks like a big beat.  At 12x 2012 EBITDA, MPEL is still trading at a discount to most of the Macau players despite the huge outperformance of the stock.  Layering in the future development of the best site in all of Macau - Macau Studio City - completes the MPEL growth story.

 

MPEL TRADE UPDATE - MPEL

 


The Week Ahead

The Economic Data calendar for the week of the 1st of August through the 5th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.

 

The Week Ahead - cal1

The Week Ahead - cal2


THE HBM: SBUX, DNKN, PEET, GMCR, MCD, KONA, RT, PFCB, RUTH

THE HEDGEYE BREAKFAST MENU


Notable news items and price action in the restaurant space, as well as our fundamental view on select names.

 

 

MACRO

 

Consumer

 

Yesterday, the KC FED Manufacturing survey showed the pace of hiring slowed sharply, as the employment index fell by 13 points to 4, the lowest level since October 2010.

 

After improving modestly for two weeks, the Bloomberg consumer comfort index slipped to a two-month; all three components were lower in the latest week. Sentiment dropped 3.5 points, to -46.8 for the week ended July 24.

 

 

The Coffee Bubble Watch

 

It is ludicrous to pay a higher multiple for the Dunkin’ Donuts “growth” story than the growth that Starbucks promises.  Starbucks has delivered for years as a public company and is a global brand with quantifiable and undeniable appeal for consumers, globally.  Dunkin’ Donuts is a great but regional domestic brand with no track record as a public company.  Sure, the company plans to grow into new domestic markets but growth is expensive as BWLD discussed on its earnings call.  Furthermore, if the brand doesn’t resonate as much as expected in new markets, and the ROI doesn’t meet what the current multiple implies it should be, it could pop the Dunkin’ bubble.

 

 

Subsectors

 

Initial jobless claims dropping below 400k was a positive sign for employment yesterday.  Stocks reacted to the number positively at the open and QSR stocks caught a bid after trading softly recently. 

 

THE HBM: SBUX, DNKN, PEET, GMCR, MCD, KONA, RT, PFCB, RUTH - subsector fbr

 

 

QUICK SERVICE

  • Coffee is where the action is: 7 of the 10 best performing names in the QSR space are coffee related. 
  • SBUX reported strong EPS and comps for the third fiscal quarter after the close yesterday.  We see SBUX, even after the run that the stock has been on, as a far better deal for investors than DNKN.
  • MCD is to open one restaurant in China per day for four years.
  • MCD is adding a baguette bread stick to its menu in France.

 

FULL SERVICE

  • KONA continues to outperform. Consensus EPS have risen 170% since the company blew the doors off last quarter.
  • RT and PFCB have seen consensus estimates decline by 17% and 15%, respective.
  • RUTH company same-restaurant sales increased 5.8% at Ruth’s Chris Steak House and company same-restaurant sales declined -1.4% at Mitchell’s Fish Market.  EPS came in at $0.10 ex-items versus consensus $0.11.
  • RUTH also announced that Executive Vice President & Chief Financial Officer Bob Vincent will transition to a newly created position of Senior Vice President of Corporate Strategy, starting August 8th.  Effective the same date, Arne Haak will assume the role of CFO.  Mr. Haak comes from AirTran Airways, a subsidiary of LUV. 

THE HBM: SBUX, DNKN, PEET, GMCR, MCD, KONA, RT, PFCB, RUTH - stocks 729

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


Early Look

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