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THE HEDGEYE BREAKFAST MONITOR

MACRO NOTES

Comments from CEO Keith McCullough

Another low-volume rally to a lower-high in US stocks as the interconnectedness of Asia’s slowdown gets ignored by consensus (so 2008).

  1. ASIA – Chinese stocks down again overnight, taking out their lows from last wk that were established prior to their rate cut (lower-lows) as the rest of Asia continues to print slowing econ data (PMIs) and countries cutting rates (Australia last night) are seeing their markets fall on that news (Australia down -1.3%). Get Growth Slowing right, you’ll ultimately get the stocks right.
  2. EURO – big league failure at my immediate-term TRADE zone of 1.35-1.36 resistance, again, yesterday. We think the EU Summit is a liability now that expectations/hopes are so high – or is it fear? Tough to discern if institutional investors are more afraid of missing a “year-end rally” than understanding what it means if there is no Eurobond (ie money printing backstop to bail out German and French banks).
  3. YIELDS – it’s trivial to realize that European bond yields continue to make a series of higher lows – that now includes German Bund Yields which are trading back up to 2.24% this morn (10s) and +18bps wider than USTs. Spread risk remains our focus. UST yields are actually lower for the week to date with 10s down at 2.06%, signaling US Growth Slowing Sequentially in Q4 vs Q3.

Next catalysts = Chinese economic data for NOV (thur) and an ECB rate cut (thur). Both should perpetuate what you see on your screen this morning (weaker Asian equities and weaker Euro).

KM

 

SUBSECTOR PERFORMANCE

THE HBM: SBUX, DNKN, DPZ, DRI, BWLD, KONA - subsector fbr

 

QUICK SERVICE

SBUX: Starbucks has processed more than 26 million mobile payments since January, according to the company. Of the $2.5 billion loaded on to Starbucks cards in fiscal year 2011, $110 million was loaded on to cards via Starbucks mobile apps.

DNKN: Dunkin’ Donuts was reiterated “Equalweight” at Barclays.  The price target is $27.

DPZ: Domino’s Pizza was cut to “Hold” at Feltl.

PZZA: Papa John’s was cut to “Sell” from “Hold” at Feltl.

 

CASUAL DINING

DRI: Darden Restaurants lowered FY12 EPS growth guidance to 4%-7% from 12%-15%.  Sales growth guidance was cut to 6%-7% from prior 6.5%-7.5%.  Preliminary 2Q EPS came in at $0.41 versus consensus at $0.54.  The company estimates that 2Q same-restaurant sales for 2Q will be approximately +6.8%, +6.0% and -2.5% for Red Lobster, LongHorn Steakhouse and Olive Garden, respectively.  The company also announced the acquisition of certain assets of Eddie V’s Restaurants during the second quarter.  Closing costs associated with the purchase negatively associated EPS by roughly $0.01 and the acquisition is expected to be neutral to EPS for the full fiscal year. The stock is down roughly -9% premarket.

BWLD: Buffalo Wild Wings was downgraded to “Hold” at Feltl.  We have been bearish on this name and believe that 1Q12 will pose some serious issues for the company.

KONA: Kona Grill has appointed Marci Rude to the new position of vice president of development.

 

THE HBM: SBUX, DNKN, DPZ, DRI, BWLD, KONA - stocks 126

Howard Penney

Managing Director

Rory Green

Analyst