THE HBM: MCD YUM BWLD PNRA CMG

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MACRO NOTES

A HOUSING BOMBSHELL - The issues with employment, housing and policy-induced stock market volatility continue to weigh on economic growth and our overall prosperity.. For the week ending October 14, 2011, the MBA mortgage app composite index fell 14.9% WoW. The purchase index dropped 8.8% reinforcing the downward trend since April. Housing demand continues to struggle as homebuyers remain concerned over further price declines. The refinance index also plunged 16.6%, due in part to a jump up in mortgage rates. 

Headline consumer prices rose 0.3% in September (in line with consensus), but accelerated to 3.9% YoY. The energy index accelerated to 19.6% from 18.5% YoY and food prices accelerated to 4.75 from 4.6% YoY.  Inflation is not raging out of control, but is showing a worrying tendency to stickiness.

As we head into the EPS season the Hedgeye Restaurants Alpha list has MCD, YUM and EAT as LONGS and BWLD, PNRA and DNKN as SHORTS.

SUB-SECTOR PERFORMANCE

Food processing continues to gain ground as we continue to “Deflate The Inflation”.  In that same vein, Keith bought is now long the XLY.  As Keith said yesterday “The US Consumer Discretionary is making a credible threat to establish a bullish TREND as US Dollar strength continues to “Deflate The Inflation”..

THE HBM: MCD YUM BWLD PNRA CMG - hrmsp

THE HBM: MCD YUM BWLD PNRA CMG - hfbrd

QUICK SERVICE

Sonic (SONC) 4Q EPS missed estimates and SSS remain challenged.  We cannot get behind the LONG side of this story. Although, comparisons get get very easy next quarter.

THE HBM: MCD YUM BWLD PNRA CMG - sonc

Arby's new marketing campaign, featuring the "Good Mood Food" original song, was named one of the worst ads in America by Consumerist.com.  Arby's "Good Mood Food" was listed as an "original jingle that should be junked."

CMG initiated neutral at UBS - We still have CMG missing estimates this quarter by $0.04.

MCD - Janney franchise survey confirms our bullish thesis on MCD

FULL SERVICE

CAKE EPS AMC the bar is set low for CAKE Consensus EPS growth is 2% on 4% sales growth.  That being said, this is going to be a challenging quarter for the company - The trends in California could be an issue

BWLD EPS AMC - the consensus is at $0.59, which represents 25% EPS growth vs 16% in 2Q11.  The revenue growth estimate of 26% also looks aggressive.

CHUX - announced a sale-leaseback of 50 units to STORE Capital, and plans to use the $105 million from that sale, plus cash reserves, to pay off debt. The stock was up 13.9% on big volume.

THE HBM: MCD YUM BWLD PNRA CMG - hbm

Howard Penney

Managing Director

            

Rory Green

Analyst