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CCL 3Q PREVIEW

Bad news expected

 

 

Weaker pricing but strong bookings (though not as strong as 3 months ago) may be the theme of CCL’s 3Q conference call next Tuesday.  But investors are already expecting soft business commentary.  While guidance may be lowered slightly, business is not that bad and we don’t expect the earnings release to be a big negative. But we are also not overly bullish on CCL for a couple of reasons: 1) Q4 North America pricing concerns; 2) valuation not cheap enough.

 

While we expect in-line results for 3Q due to good expense control, we are a little concerned about their 4Q guidance, particularly pertaining to North America.  According to our pricing database, Carnival’s Q4 pricing power in the Caribbean has been lackluster particularly for ships such as Glory, Liberty, and Miracle.  In addition, we are not seeing much positive pricing momentum for the rest of the North America itineraries.  As a result, CCL may lower the outlook for North America, which wouldn’t be surprising given the US macro environment. 

 

We are less concerned about the European outlook.  The company will address the many cancellations stemming from the unrest in that region.  However, we’re seeing pricing stability in some of the European itineraries which had taken a severe beating.

 

The stock is not super cheap as it is only down 11% since July 21 (Q2 earnings release); comparatively, RCL is 33% lower. CCL is currently trading at 11x forward earnings, above its trough March 2009 valuation of 8x.  Moreover, despite all the downgrades and negative sentiment from the sell-side, only 4% has been shaved from consensus FY2012 EPS since Q2 earnings.

 

Nevertheless, expectations are low going into the call. So unless guidance is a complete bomb, much of the bad news has already been reflected in the stock.

 

 

Q3 Detail:

 

Q3 2011: $1.63 EPS vs. consensus of $1.64 (guidance $1.60-1.64)

All numbers in Constant Currency unless otherwise noted.

Yields:

  • Net Yield per ALBD: 1.5% (5.8% in current dollars)
    • Fleetwide ticket yield of 1.6%
      • North America brand ticket yield: 3.9%
      • EAA brand ticket yield: -1.4%
  • On board yield: 1.5%

Revenues: $5.0BN, 2% higher than consensus

Costs:

  • Net Cruise costs per ALBD ex Fuel: 7.1% (in Current dollars)—lower end of guidance
  • Fuel: $682/metric ton; 848k metric tons consumed

Squeezy Returns: SP500 Levels, Refreshed

POSITIONS: Long Utilities (XLU), Short Industrials (XLI)

 

What a rip that was. Our old friend Squeezy The Short Seller’s Shark has returned.

 

This week was the 2nd up week out of the last 4 for the SP500. That puts it down for 6 of the last 8. So what to do with that? Embrace being Duration Agnostic. In Hedgeye speak, we’ll call this market Bullish TRADE and Bearish TAIL. 

  1. TAIL (long-term) resistance = 1265
  2. TRADE (immediate-term) resistance = 1220
  3. TRADE support = 1182 

In the end, the TAIL trumps the TRADE (that’s why we still have a big Cash position). But that doesn’t mean that in the right now that the TRADE can’t impact your returns. So the way I think about this from both a gross and net exposure positioning perspective is simple. 

  1. If the TRADE line of 1182 holds, I’m ok with expanding my gross and my net exposures on weakness
  2. If the TAIL line of 1265 holds, I’m ok with selling down gross exposure and tightening my net on rallies to TRADE line resistance 

That’s exactly what I did today. The best I can do from a net exposure perspective is use my LONGS minus SHORTS in the Hedgeye Portfolio as a hybrid way to express my risk management view in real-time. I realize that’s far from perfect, but I’m trying to communicate the general idea.

 

At this time yesterday, I had 14 LONGS and 7 SHORTS. Into this morning’s Squeezy covering to 1219, I moved back to 11 LONGS and 8 SHORTS.

 

Enjoy your weekend,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Squeezy Returns: SP500 Levels, Refreshed - SPX


Shorting EUR-USD

Position in Europe: Short EUR-USD (FXE)


Keith shorted the EUR-USD currency pair via the eft FXE in the Hedgeye Virtual Portfolio today with the pair trading towards the top side of our immediate term TRADE range of $1.34 - $1.39 and broken across our intermediate term TREND level of $1.39 (see chart below).

 

In the last two weeks the pair has seen significant swings based on the political rhetoric of Eurocrats – from those suggesting the imminent default of Greece to those stating that additional funding assistance will be provide to prevent a default. Yesterday’s news that the ECB is coordinating with the Fed, BOE, BOJ, and SNB to extend 3M dollar loans to Eurozone banks in an effort to ensure they have enough cash for the rest of the year has buoyed the pair, yet we’ll fade the news for a TRADE as we think it is but another near term filler in Europe’s sovereign and banking debt contagion "crisis". 

 

We’re waiting to hear if any major decisions are reached at the European Finance Ministers meeting in Poland today, including whispers of IMF chief Christine Lagarde’s Euro-TARP proposal. Trichet is due to give a speech at 8pm. We think Germany’s EFSF vote on September 29th is the main catalyst to keep front and center as it is the lynchpin for future policy decisions.

 

Next Thursday, on September 22nd, 2011, the Hedgeye Macro Team will be hosting a conference call to discuss the future of the Eurozone and the implications for global markets. The call will focus specifically on three topics:

  1. Review of the history and structure of the Eurozone
  2. Assessment of the current situation and imminent risks and opportunities
  3. Analysis of potential and realistic scenarios to solve the crisis in Europe

Please contact  if you do not currently subscribe to our Macro vertical and would like to attend this conference and receive the materials. 

 

Matthew Hedrick

Senior Analyst

 

Shorting EUR-USD - 1. heut


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THE HBM: PPC, MCD, MSSR, DRI

THE HEDGEYE BREAKFAST MENU

 

Notable macro data points, news items, and price action pertaining to the restaurant space.

 

MACRO

 

Subsectors

 

Food processing stocks have been performing well over the last week, primarily due to strong price gains in PPC, which is the worst performing stock in the subsector on a one-year, year-to-date, six month, and three month duration. 

 

THE HBM: PPC, MCD, MSSR, DRI - subsectors

 

 

QUICK SERVICE

  • MCD is planning to open 25 new restaurants per year in South Africa while doubling revenue over the next four years, according to BusinessDay.

 

FULL SERVICE

  • MSSR was rated “New Buy” at Capstone, the price target is $9.
  • DRI was on the receiving end of some high praise from Michelle Obama.  The First Lady called the company’s commitment to cut calories and sodium in its meals by 20% over a decade “a breakthrough moment in the restaurant industry”.

THE HBM: PPC, MCD, MSSR, DRI - stocks 916

 

 

Howard Penney

Managing Director

            

 

Rory Green

Analyst

 


Food inflation is far worse in grocery stores than restaurants


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - September 16, 2011

 

As we look at today’s set up for the S&P 500, the range is 34 points or -2.57% downside to 1178 and 0.24% upside to 1212.

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels 916

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - global performance

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 1586 (1430)
  • VOLUME: NYSE 964.01 (-11.2%)
  • VIX:  31.97 -7.6% YTD PERFORMANCE: +80.11%
  • SPX PUT/CALL RATIO: 1.28 from 1.45

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 35.02
  • 3-MONTH T-BILL YIELD: 0.0000
  • 10-Year: 2.0828 from 2.0820
  • YIELD CURVE: 1.894 form 1.893

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 9 a.m.: Long-term TIC flows, est. $30.0b, prior $3.7b
  • 9:55 a.m.: UMichigan Confidence, est. 57.9, prior 55.7
  • Noon: Flow of funds
  • 1 p.m.: Baker Hughes rig count

 

WHAT TO WATCH:

  • Treasury Secretary Geithner in Poland to participate in a meeting of European government finance officials
  • Jefferson County, Ala., votes on JPMorgan settlement; if it’s rejected, county may declare what would be biggest municipal U.S. bankruptcy
  • Air France-KLM plans to order $12b worth of Boeing 787’s
  • UBS has credit rating put under review by Moody’s, citing “ongoing weaknesses in the group’s risk management and controls”
  • FDA holds meeting to get feedback on recommendations for changes to 510(k) approval process for medical devices
  • Apollo Management is likely soon to bid $22-$24 a share for 99 Cents Only, the New York Post said
  • KKR has raised more than $1b for its first fund to originate debt for takeovers
  • ITC said it will review a judge’s finding that HTC infringed two Apple patents
  • Blackstone agreed to buy Mint Hotels group for $947m
  • Goldman said it’s shutting Global Alpha fund
  • No IPOs are expected

 

COMMODITY/GROWTH EXPECTATION

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

MOST POPULAR COMMODITY HEADLINES FROM BLOOMBERG:

  • Crude Oil Heads for Fifth Weekly Gain in London on Europe Plan
  • Copper Rises for Second Day on Reduced European Crisis Concern
  • Corn Rises, Cutting Weekly Drop, as Lower Prices May Spur Demand
  • Freeport’s Indonesia Strike May Cut Output by 230,000 Tons
  • Sugar Declines Amid Weakening Demand; Arabica Coffee Advances
  • Gold May Fall as ECB Coordinates With Fed to Lend Banks Dollars
  • Rice Imports by Bangladesh May Miss Forecast on Output
  • Palm Oil to Climb on Soybean Oil Supply Cut, Demand, Mistry Says
  • California’s Carbon Commanding ‘Real Prices’: Energy Markets
  • Commodities May Dip to Lowest Since November: Technical Analysis
  • Rio Cuts Debt Costs Amid Record-Low Yields: Australia Credit
  • Miner’s Body Found by Emergency Workers at Flooded Welsh Pit
  • De Beers to Move Diamond Trading to Botswana From London
  • Gold May Gain on Physical Buying, Europe Concern, Survey Shows
  • BP Wins U.S. Dismissal of Some Investors’ Derivative Spill Suits
  • Silver May Drop to $38 by End of September: Technical Analysis
  • BHP, Vale, Rio ‘Cheap’ on Catastrophic Fears: Chart of the Day

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - daily curreny view

 

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

Howard Penney

Managing Director

 

 


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This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

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