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MCD SALES PREVIEW

McDonald’s will release January sales tomorrow before market open. 

 

McDonald’s has been one of our favorite stocks in the restaurant space and the company continues to take share from competitors domestically.   This month is not expected to yield any huge surprise as management guided to 5.5-6.5% global same-store sales for January during the earnings call on 1/24. 

 

Below we go through our take on what numbers will be received by investors as good, bad, and neutral MCD comps numbers by region.  For comparison purposes, we have adjusted for historical calendar and trading day impacts (but not weather).

 

Compared to January 2011, January 2010 had one less Saturday and one additional Tuesday.  We expect a negative calendar shift as a result.

 

U.S. – facing a compare of +3.1%, including a calendar shift of between -1.3% and -0.4% varying by area of the world:

 

GOOD:  A print of higher than 7% would be received as a good result as it would imply a sequential acceleration in two-year average trends on a calendar-adjusted basis.  Additionally, 7% is above the guided range for global January comps and, since the U.S. business represents 45% of the operating income of the company, healthy trends in the domestic market are good for the stock. We expect the US comp to come in at 7%.

 

NEUTRAL: A print of between 6-7% would be received as neutral as it would imply two-year average trends that are roughly flat on a calendar-adjusted basis.  Expectations for MCD are lofty as the sell off on strong 4Q11 results indicated, and any signal that things are slowing on the margin may lead to further declines in the stock.

 

BAD: A result of less than 6% would imply a slowdown in two-year average trends on a calendar-adjusted basis and, therefore, would likely be received as a poor result by investors.

 

MCD SALES PREVIEW - mcd sales

 

 

Europe – facing a difficult compare of +7.0%, including a calendar shift of between -1.3% and -0.4% varying by area of the world:

 

GOOD:  A result of 4.0% or higher would be received as a strong result as it would imply two-year average trends higher than those seen in December on a calendar-adjusted basis.  We are holding Europe to a high standard in our estimates as economic weakness has seen consumers seek out the value McDonald’s offers.

 

NEUTRAL:  A print between 3% and 4% would be received as neutral by investors, in our view, as it would signal a stabilization, rather than further expansion, of two-year average trends.

 

BAD:  A Europe comp of below 3% would be received as a bad print by investors as it would imply a slowdown in two-year average trends.  The consensus estimate for Europe comps is at 3.72%, per Consensus Metrix.

 

APMEA – facing a compare of 5.2%, including a calendar shift of between -1.3% and -0.4% varying by area of the world:

 

GOOD:  A result of 7% or higher would be received as a good result by investors as it would imply two-year average trends that are roughly flat on a calendar-adjusted basis.  The Chinese New Year fell on January 23rd in 2012 versus February 3rd in 2011 so we expect a positive impact from that on the company’s China business.  YUM also mentioned on its earnings call this morning that its business performed well in January. 

 

NEUTRAL: A result of between 6% and 7% same-store sales in January would be a neutral result for APMEA.

 

BAD:  A print of less than 6% in January would imply a significant slowdown in two-year average trends in APMEA on a calendar-adjusted basis.

 

Howard Penney

Managing Director

 

Rory Green

Analyst


PFCB: ANY TAKERS?

Looking at the past two transactions in the restaurant space, the implied range for the PFCB is $38-$50.  We are not saying that PFCB is going to get bought any time soon, nor are we saying that the stock is set to trade to $50, but applying the 8.7x EV/EBITDA multiple FNF paid for O’Charley’s implies a price of $50 for P.F. Chang’s.

 

This biggest issue facing PFCB coming into the 2/16 earnings release on is guidance for 2012.  While we hold a positive view of the direction the company is being taken by management, there are difficulties ahead that may bring guidance lower for 2012.

 

In our view, we are likely seeing a bottoming process in PFCB earnings.  The timing or duration of this bottoming process largely depends on where guidance comes in.  However, even if management does guide down and EBITDA goes to $115 million from the current expected $125 million, the valuation range based on recent restaurant transactions is $35-46.  PFCB’s current EV/EBITDA NTM multiple is 6.4x having bounced from as low as 5x in 4Q11.  With the stock trading at $34, we do not see significant downside in this name, even in the event of a guide down.

 

If we wanted to recommend a stock that goes sideways, we would save ourselves the work and just direct you to WEN.  For upside to PFCB, management has to build credibility with the investment community that is has a plan to fix the business and expand the multiple further.  Part of that creditability will come from having a strategic direction that will help arrest the decline in the operating performance of the company.  Where we differ from most of the investment community as it relates to PFCB is that we believe management’s plan makes sense and that investors and analysts will get on board over the course of 2012. 

 

This stock is being valued lower than Ruby Tuesdays at current multiples which, we can only assume, means that consensus believes management is not improving the business.  As we wrote yesterday, we are buyers of PFCB on down days.

 

PFCB: ANY TAKERS? - pfcb matrix

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 

 

 


THE HBM: YUM, SBUX, WEN, DRI

THE HEDGEYE BREAKFAST MONITOR

 

MACRO NOTES

 

Comments from CEO Keith McCullough

 

Top 3 Most Read so far this morn on Bloomberg = Greece – means it probably doesn’t matter like it did 106% higher (FEB 2011):

  1. ASIA – follow the bouncing macro ball – China fails at TREND line resistance yesterday (down 1.7% overnight); Singapore’s PM warns of a Chinese “rough landing” ahead of this week’s China data; and Glenn Stevens at the RBA refused to cut Aussie int rates last night = inflation expectations in Asia rising like the chart of Brent Oil.
  2. OIL – so the price of Brent Oil is at $115.95 this morning = up +6% since the #SOTU and #BernankTax on the wk of Jan 23rd; since we know that inflation slows real-consumption growth, I think being long energy (XLE) and anything inflation really (as opposed to being long Consumer Discretionary (XLY) like we were before Jan 26th) is the right sector shift.
  3. USD – attempted to have an up day yesterday, then got pounded into the close; the US Dollar Index really needs to hold its intermediate-term TREND line of 78.69 support or Gold, Oil, etc can go a lot higher.

If I only had 1 live quote to make a call on the slope of Global Consumption growth, it would be Oil. Deep simplicity.

KM

 

SUBSECTOR PERFORMANCE

 

THE HBM: YUM, SBUX, WEN, DRI - subsector

 

 

QUICK SERVICE

 

YUM: Yum Brands reported 4Q11 EPS of $0.75 versus $0.74 consensus.  Comps in the U.S. were the big 4Q surprise, coming in at +1% versus -2.5% expectations.  China comps came in at 21% for the quarter versus 17% consensus.  See our note published last night for more details.  The earnings call is at 9:15 a.m.

 

YUM: KFC has opened a store in Ramallah, in the Palestinian territories.  A Pizza Hut is set to open next door.

 

SBUX: Starbucks is, from today, offering Starbucks Blonde Roast as a brewed option in stores across Canada.

 

WEN: Wendy’s shareholder Trian Fund has increased its stake to 27% from 23%.

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

COSI: This stock has been a rocket lately, up 13% on heavy volume yesterday.

 


CASUAL DINING

 

DRI: Darden CEO Clarence Otis has received a letter from Color of Change, an activist organization, complaining about apparent racism in hiring and promotion practices.  Capital Grille was singled out as rarely hiring African-Americans for high-paying jobs.

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

CHUX: Shares were acquired by Fidelity National Financial

 

THE HBM: YUM, SBUX, WEN, DRI - stocks

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – February 7, 2012


As we look at today’s set up for the S&P 500, the range is 23 points or -1.44% downside to 1325 and 0.27% upside to 1348. 

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -540 (-2253) 
  • VOLUME: NYSE 687.23 (-24.90%)
  • VIX:  17.76 3.86% YTD PERFORMANCE: -24.10%
  • SPX PUT/CALL RATIO: 1.78 from 1.29 (37.98%)

CREDIT/ECONOMIC MARKET LOOK:


USD – attempted to have an up day yesterday, then got pounded into the close; the US Dollar Index really needs to hold its intermediate-term TREND line of 78.69 support or Gold, Oil, etc can go a lot higher.

  • TED SPREAD: 45.71
  • 3-MONTH T-BILL YIELD: 0.07%
  • 10-Year: 1.91 from 1.91
  • YIELD CURVE: 1.68 from 1.68

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am/8:55am: Weekly retail sales
  • 10am: Fed’s Bernanke testifies to Senate Budget Committee
  • 10am: JOLTs job openings
  • 10am: IBD/TIPP economic optimism, est. 48.6 (prior 47.5)
  • 11:30am: U.S. to sell 4-week bills, $26b 52-week bills
  • 1:00pm: U.S. to sell $32b 3-yr notes
  • 3:00pm: Consumer Credit, Dec., est. $7b (prior $20.374b)

 GOVERNMENT

  • Republican presidential caucuses in Minnesota, Colorado, non-binding primary in Missouri
  • President Barack Obama speaks at White House Science Fair
  • House, Senate in session:
    • House Energy Committee marks up North American Energy Access Act, 9 a.m
    • House Appropriations panel considers GAO, CBO budget, 9:30am
    • House-Senate Conference meets on payroll tax-cut extension, 10am
    • House Education and Workforce Committee holds hearing President Obama’s recess appointments to the NLRB, 10am
    • Joint Economic Committee holds hearing on payroll tax- cut extension, unemployment benefits, 2:30pm

WHAT TO WATCH: 

  • Glencore agreed to buy Xstrata for $62b in the biggest mining  takeover
  • California, New York AGs still haven’t signed on to a proposed mortgage-foreclosure settlement
  • Fed Chairman Bernanke testifies before Senate Budget Committee on outlook for U.S. economy, monetary policy, 10am
  • Goldman Sachs said to be seeking outside investors for its REDI Technologies trading-software business
  • Oracle seeks new trial in suit against SAP: court filing
  • Toyota raised profit forecast for year on rebounding sales in the U.S.
  • UBS 4Q profit trails est.; investment bank posts second straight loss
  • SEC said to be near a proposal to shore up the $2.7t money- market fund industry, WSJ says

EARNINGS

  • Becton Dickinson (BDX) 6 a.m., $1.17
  • Emerson Electric (EMR) 6:45 a.m., $0.51
  • Broadridge Financial Solutions (BR) 7 a.m., $0.13
  • Church & Dwight (CHD) 7 a.m., $0.51
  • Scotts Miracle-Gro (SMG) 7 a.m., $(1.21)
  • TransDigm Group (TDG) 7 a.m., $1.25
  • AGCO (AGCO) 7:30 a.m., $1.33
  • Harman International Industries (HAR) 7:30 a.m., $0.74
  • Coca-Cola (KO) 7:30 a.m., $0.77
  • Perrigo Co (PRGO) 7:47 a.m., $1.15
  • Louisiana-Pacific (LPX) 8 a.m., $(0.20)
  • Magellan Midstream Partners (MMP) 8 a.m., $0.95
  • Martin Marietta Materials (MLM) 8:12 a.m., $0.39
  • Bell Aliant (BA CN) 8:19 a.m., C$0.38
  • Saputo (SAP CN) 9:37 a.m., C$0.63
  • Netgear (NTGR) 4 p.m., $0.64
  • Panera Bread (PNRA) 4 p.m., $1.42
  • Axis Capital Holdings (AXS) 4:01 p.m., $0.44
  • Cerner (CERN) 4:01 p.m., $0.53
  • Life Technologies (LIFE) 4:01 p.m., $1.04
  • Western Union (WU) 4:01 p.m., $0.40
  • Buffalo Wild Wings (BWLD) 4:01 p.m., $0.67
  • Waste Connections (WCN) 4:04 p.m., $0.35
  • CBRE Group (CBG) 4:05 p.m., $0.43
  • ValueClick (VCLK) 4:05 p.m., $0.40
  • Solera Holdings (SLH) 4:05 p.m., $0.68
  • Lincoln National (LNC) 4:10 p.m., $1.00
  • Two Harbors Investment (TWO) 4:10 p.m., $0.42
  • Walt Disney (DIS) 4:15 p.m., $0.72
  • Hartford Financial (HIG) 4:15 p.m., $0.60
  • RenaissanceRe Holdings (RNR) 4:30 p.m., $1.04
  • CYS Investments (CYS) 5:01 p.m., $0.51
  • RAL Holdings (RAH) 5:04 p.m., $1.37

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

 

OIL – so the price of Brent Oil is at $115.95 this morning = up +6% since the #SOTU and #BernankTax on the week of Jan 23rd; since we know that inflation slows real-consumption growth, we think being long energy (XLE) and anything inflation really (as opposed to being long Consumer Discretionary (XLY) like we were before Jan 26th) is the right sector shift.

  • Farmers Plan Biggest Crops Since 1984, Led by Corn: Commodities
  • Corn Falls as U.S. May Plant Most Since 1944; Wheat Declines
  • Glencore’s 2011 Trading Earnings Slide on Cotton Plunge, Metals
  • Copper Falls for Second Day as Chinese Output Growth May Slow
  • Sugar Falls as Brazil’s Production May Increase; Cocoa Drops
  • Oil Trades Near Six-Week Low on Forecast of Rising U.S. Supplies
  • Gold May Decline as Dollar Strengthens Amid Greece Bailout Talks
  • Sugar May Fall 20% This Year Before Second Consecutive Surplus
  • Russia May Not Need to Limit Grain Exports, Producers Union Says
  • Billion-Ton Coal Market Looms as India Increases Sea Cargoes
  • Glencore, Xstrata Deal to Squeeze Japan Coal After Fukushima
  • Carbon Capture Projects Imperiled by Worst-Case Scenario: Energy
  • Tanker Rates Seen at Four-Year High as Refineries Shut: Freight
  • Copper Stockpile Drop May Herald China Revival: Chart of the Day
  • Glencore Agrees to Buy Xstrata for $41 Billion in Shares
  • Distressed Ship Owners to Rise as Rates Plunge, Fitch Says

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


THE HEDGEYE DAILY OUTLOOK - 6

 


ASIAN MARKETS


ASIA – follow the bouncing macro ball – China fails at TREND line resistance yesterday (down 1.7% overnight); Singapore’s PM warns of a Chinese “rough landing” ahead of this week’s China data; and Glenn Stevens at the RBA refused to cut Aussie interest rates last night = inflation expectations in Asia rising like the chart of Brent Oil.

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team

 


THE M3: S'PORE TOURISM; SLOT RULES

The Macau Metro Monitor, February 7, 2012

 

 

SINGAPORE TOURISM VISITORS JUMP TO RECORD 13 MILLION IN 2011 AS CASINOS LURE GAMBLERS Washington Post

A record number of visitors came to Singapore last year as new casinos lured gamblers, the Singapore tourism authority said. Visitor arrivals rose to 13.2MM, up 13% from 2010.  About 2.6MM Indonesians visited Singapore last year, followed by tourists from China, Malaysia and Australia.  Arrivals from China surged 35% in 2011.

 

NEW RULES FOR SLOTS IN MACAU Macau Business

The Gaming Inspection and Coordination Bureau has released new Macau-specific technical standards for electronic gaming machines.  Among the new rules, it is stated that “any electronic gaming machine [that] plays a game that is recognizable to be a simulation of a live casino game ... must have an identical RTP [return to player rate]”.  The new rules will come into effect on Friday but a grace period applies until October 1.



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