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TRADE: While the new burgers continues to help lift same-store sales trends, the combination of beef inflation and lower long-term guidance limits the current upside going into the company analyst meeting on January 30th. 


TREND:  We are cautious on this duration as rival brands continue to execute on their own remodel strategy.  CEO Emil Brolick has admitted that, while menu innovation is important, the full benefit won’t come through until the asset base is upgraded.


TAIL: We view the return of Emil Brolick as a boost to the long term prospects of the Wendy’s brand.  The company is still 6 months or so away from communicating lessons from the new remodel testing initiative. 


Grub Grade featured a story on the new Wendy’s burger being tested in select markets: a “Black Label” burger available in Bacon Portabella and Spicy Santa Fe varieties.  Here is a link to the article describing the product.


As we see the strategy from WEN unfolding, they want to keep the momentum from the new burger launch going.  The Wendy’s brand is a premium brand competing against the upstart burger chains like Smashburger and Five Guy’s.  Adding a premium burger with a higher price point will help to tier the menu and give customers another premium alternative.


The premium product has been in development prior to the Emil Brolick taking over as CEO but, we understand, the new burger was made a priority.  To us, that speaks to Brolick’s intention to focus on menu innovation to improve the image and broaden the appeal of the Wendy’s brand. 


The company’s first Investor Day since Brolick took over as CEO is scheduled for January 30th.  We believe the overall tone of the meeting will be positive but believe that the bar for EBITDA growth should be set slightly lower.  Additionally, expectations around the breakfast opportunity need to be reset lower also.  There are some difficult headwinds facing Wendy’s in the breakfast day part and we think they will take some time to resolve.




Howard Penney

Managing Director


Rory Green






Monitoring the Battleground States: Advantage Republicans

Conclusion: Given the tightness of national polls it is likely that the 2012 Presidential race occurs in a wider list of battleground states, similar to the 2004 election between Bush and Kerry.  Based on the economic performance of those states, the Republicans currently have a battleground advantage.


As the Presidential election accelerates in 2012, we are going to start closely monitoring the battleground states from an economic perspective to provide insights into the battle for the Presidency.  Battleground, or swing states, are those states in which no candidate, or party, has overwhelming support and thus the states are realistically up for grabs. 


In the electoral-college system, all but two states, Nebraska and Maine, are winner-take-all states.  In Maine and Nebraska, two electoral votes go to the candidate that wins a plurality in the state and then a candidate is allotted one additional electoral vote for each Congressional District in which they receive a plurality.   Maine is considered a Democratic state and has 4 electoral votes and Nebraska is considered a Republican state with 5 electoral votes.


Typically, candidates will limit allocating resources in the states in which they have a limited chance of winning or a very likely chance of winning.  Incremental spending in those states will not help the candidate’s chances of becoming President simply because of the winter-take-all system.  Beyond a simple majority, incremental votes do not help a Presidential candidate.


Professor Joel Bloom, a political scientist from the University of Oregon, has identified three key factors in identifying swing states: the results of previous elections, political party registration numbers, and statewide opinion polls.  For purposes of this analysis, we are going to focus exclusively on the results of previous elections as a gauge for the battleground states in 2012.  As well, given our expectation that the race for Presidency will be close, which is supported by InTrade (Obama is at 51.7%) and most national polls (the generic Republican candidate currently beats Obama), we will use 2004 as the best proxy for battleground states.  In 2004, the Republican candidate won 50.7% of the popular vote versus 48.4% of the popular vote for the Democrat and the states that were decided by margins of 5% are outlined in the table below:


Monitoring the Battleground States: Advantage Republicans - 1


In the table below, we’ve looked at the change in unemployment in these battleground states and also added in Florida, which wasn’t a battleground state in 2004 or 2008, but is likely to emerge as one again in 2012.


Monitoring the Battleground States: Advantage Republicans - 2


As outlined above, based on these key battleground states, unemployment has worsened in seven of them, improved in four of them, and stayed flat in one.  Traditionally, the incumbent gets blamed for the current state of the economy, a point we will touch on in bit more detail, so in this scenario the Republicans have an advantage in seven battleground states.  From an electoral vote perspective, the Democrats have the advantage in states with 54 electoral votes versus 84 for the Republicans.  In a tight national race, 30 electoral votes can obviously be critical when a candidate needs 270 to win.


Professor Bruno Jerome from the University of Paris presented a paper at the American Political Science Association annual meeting in September of 2011 in which he analyzed the impact of state unemployment on state level voting.  Based on his math, which looks at every Presidential election going back to 1952, he concluded the following:


“On average, a 1 point rise in the unemployment rate generates an electoral cost to the incumbent of 0.56% of the votes in a given state.”


Given the tightness of both national and local polls, even a 0.56% shift in the vote based on state level economic factors can be critical in determining the outcome of the election.  In our analysis, this suggests that Wisconsin could go Republican and Pennsylvania narrows to within a percent, so is solidly in play.


Clearly, the economic situation in the battleground states is only one factor in analyzing eventual outcomes for the election, but history suggests a very important factor.  Currently, it is advantage Republicans on this score.


Daryl G. Jones

Director of Research

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

Bullish TAIL: SP500 Levels, Refreshed

POSITION: Long Consumer Discretionary (XLY), Consumer Staples (XLP), Utilities (XLU) – Short Russell 2000 (IWM)


It’s healthy to see some European and American bank stocks struggle and, at the same time, see the market succeed. It’s about time economies (and their markets) are more about economies that the compensation mechanisms of the few.


Strong/Stable US Dollar = Stronger US Consumption, Confidence, and Employment. It also Deflates The Inflation that strangled Global Growth in 1H of 2011. That’s why I was bearish then and bullish now (from a price). Inflation adjusted growth matters in real-life.


Here are the 3 lines across my risk management model’s durations that currently matter most: 

  1. Immediate-term TRADE overbought = 1302
  2. Immediate-term TRADE support = 1287
  3. Long-term TAIL support = 1267 

While plenty of pundits and their perma-bull theses have changed over the course of the last 12 months, my process has not.


Cheers to a great start to 2012,



Keith R. McCullough
Chief Executive Officer


Bullish TAIL: SP500 Levels, Refreshed - SPX

@HedgeyeRetail #ICR (Updated)

We have updated this note to better accomodate viewing the larger images- there is no change to the content. 


@HedgeyeRetail was active on the twittersphere last week down in South Beach with notable commentary out of company presentations, management breakouts and Hedgeye sitdowns. Here’s a youtube of the team on Twitter throughout the course of the conference.


Of course, these are teasers for the masses. As Hedgeye clients, you get the full depth of our thought on any and all companies. Please ping us accordingly.


In addition to the @HedgeyeRetail Tweets, we have more detailed notes on many of the presentations and breakouts. We’ve also included a link to Brian’s Fast Money appearance on Wednesday afternoon regarding LIZ.


"Is LIZ the Best Retail Trade Today:"







@HedgeyeRetail #ICR (Updated) - TWEET image 6 



Keith managing risk around one of our high conviction TREND and TAIL longs by selling WMT from the Hedgeye Virtual Portfolio. To put it in his words… “USD down, Oil up, and WMT immediate-term TRADE overbought at a lower-high. McGough remains bullish on WMT's intermediate-term TREND, from a price. KM”

Absolutely no change to our fundamental outlook.




Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.51%
  • SHORT SIGNALS 78.32%