THE HBM: SAFM, JACK, DPZ, MCD

THE HEDGEYE BREAKFAST MONITOR

 

MACRO NOTES

 

Commentary from SAFM earnings call

 

Joe Sanderson, CEO of Sanderson Farms, is not getting bullish:

 

“…you can pick up bits and pieces that would make you be optimistic, I think there is a huge desire, more of a desire to be optimistic than there are facts that would make you optimistic.”

 

SAFM is cautious on soft demand from the food service industry and the overall macro environment.

 

 

Comments from CEO Keith McCullough

 

Higher-Highs into another month-end markup – how exciting:

  1. MONTH-END – with an oversupply in the asset management industry we continue to see the last 6 days of the mth, trade significantly higher than the 1st 6 days of the new mth – this was the case on the way down (May-Sep 2011) inasmuch as it is on the way up. The SP500 has been up for 4 consecutive days, so they may as well make it 5 into mth-end and get it over with. AAPL is only up +17.5% for the mth. Probably doesn’t impact the indices, right?
  2. US DOLLAR – the next move here will be as critical as the down move has been since Bernanke signaled his Policy To Inflate on January 25th. Don’t forget that the USD is down -4.3% from its YTD high (that’s a lot) and that has had a huge impact on inflation expectations (TIP, GLD, OIL, etc). As we push past the LTRO (530B this morn) and into the March sov debt maturity spike in Japan (53T Yen), the USD should start trading on fresh factoring.
  3. OIL – 2 down days does not even a hyper short-term TRADE make. Both Brent and WTI have corrected to their most immediate-term TRADE lines of support ($122.01 and $105.46, respectively) and bounced. Bernanke’s semi-annual USD Debauchery speech is today, so that should be interesting to watch in real time vs TIP, GLD, OIL, etc. Inflation from here is not growth. Déjà vu Q1 2011.

 

India’s GDP growth dropped to 6.1% and is now a good 200-300bps below its inflation rate – that’s stagflation and that’s why India’s Yield Curve is now flat.

 

KM

 

 

SUBSECTOR PERFORMANCE

 

THE HBM: SAFM, JACK, DPZ, MCD - subsector

 

 

QUICK SERVICE

 

JACK: Jack in the Box Domino’s Pizza held its first Investor Day since 2008.  We got a picture of how the company will look post Jack in the Box refranchising.  The company is going from cash flow negative to cash flow positive and generating $75 million in Free Cash Flow beginning in 2015.  We will have a detailed post up later today.  The company is anticipating nearly 100% profit flow-through on incremental sales at Jack in the Box.

 

DPZ: Domino’s Pizza was downgraded to “Neutral” from “Overweight” at J.P. Morgan.  The price target is $38 per share.

 

MCD: McDonald’s announced that half of the 225-250 new units in China opening this year will be drive-thrus.  The company is also launching a new ad campaign in China touting food quality in an attempt to compete with KFC. 

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

DPZ: Domino’s traded up yesterday on the strong 4Q EPS beat. 

 

TAST: Carrols underperformed on accelerating volume.

 

 

CASUAL DINING

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

DRI, PFCB, EAT: Casual diners gained on accelerating volume yesterday.

 

THE HBM: SAFM, JACK, DPZ, MCD - stocks

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


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