LINsanity is on life support.
In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance
LAKE CHARLES CASINO (BUDGET/TIMING)
SPRINGFIELD SITE CONTROL
KANSAS CITY COMPETITION:
We’ve been bearish on CARBO Ceramics (CRR) for a few weeks now and last week’s earnings confirmed our concerns over demand for ceramic fracking proppant in the energy space. The stock sunk from $83 a share to $68 a share and has continued to sell off since then.
Hedgeye Energy Analyst Kevin Kaiser sees further contraction in CRR as ceramic proppant becomes more commoditized. We doubt that CARBO Ceramics can continue to trade at a 12x multiple on forward P/E as the downfall continues. Like other players in the energy space, CRR needs to lower guidance for the back half of 2012 and into 2013 as margins decrease and proppant costs come down. Looking at the chart below, you can see what the future holds for CRR.
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Volatility in Q2 regional performance continues. ASCA margins stopped going up, finally.
"The combination of new competition, construction disruption and a pull-back in consumer discretionary spending impacted the quarter."
- Gordon Kanofsky, Ameristar's Chief Executive Officer
CONF CALL NOTES
HIGHLIGHTS FROM THE RELEASE
Despite the hype surrounding the new JCPenney (JCP) stores due to rollout this year into 2013, we remain bearish on the stock, a call that we’ve stuck with for about a year now. Ron Johnson and executive management continue to fail to execute on their turnaround plan which has helped the stock fall from $40 a share to $20 a share in under a year.
JCP proudly announced the unveiling of its new store concepts yesterday in a release, showcasing the mini-stores for the Levi’s and Arizona brands. While the video they produced was entertaining, showing off their concept of a “denim bar,” the Hedgeye Retail team begs to differ noting that there are noticeable hiccups in the rollout.
The team checked out a JCP store yesterday and instead of a hip, modern concept, found a half-completed store that resembled a warehouse more than anything. The Arizona stores were not ready due to a late shipment of wallpaper and the entire store had construction going on for other mini-stores that gave the store an unsightly appearance.
Here are the takeaways from our team, along with some choice photos below:
• The women’s Levi shop is already open although there we no i-pads in sight. This could simply be a store that did not receive the full blown Levi “store” however notable given the “denim bar” innovation.
• The Arizona shops (both men’s and women’s) will not be opening on time despite having been scheduled to open with the Levi shop due to wallpaper arriving late. The images below show a view into the women’s shop which has no décor as well as the men’s shop which is just to the right of the store’s entrance; neither is complete.
• The overall atmosphere of the store has a warehouse feel despite the areas under construction being concealed. Interestingly, with 2-4% of the location’s selling square footage remaining under construction over the next 2 years, there were concealed areas with no work complete inside. Our sense is this area is sectioned off for the September shops but we found this interesting nonetheless given the amount of the store already under construction.
CLIENT TALKING POINTS
ADP numbers aside, everyone will truly be focused on the Federal Open Market Committee (FOMC) minutes and the language the Fed uses. Expect low volumes until the details are out; people want to know if we’re getting another dose of QE or not. If we do, gold and oil will rip to the upside. If not, expect King (US) Dollar to make an appearance. We’re of the belief that QE slows growth and simply hasn’t been working. Swallowing a bitter pill is difficult but necessary sometimes. Let’s see what Bernanke has on his mind later.
SOMEBODY GET ME A DOCTOR
Doctor Copper is back in play this morning. The #GrowthSlowing case in China does not bode particularly well for this commodity but ultimately, the fate of price lies in the hands of Ben Bernanke. The Federal Reserve Chairman has proven that he is willing to do anything to buoy commodity and equity markets, even if the rapid inflation includes feeling the heat at the pump and your local grocer.
GEITHNER THE GREAT
Tim Geithner has been making the rounds around the world, meeting with central planners cut from the same kind of cloth has he is. By that, we mean people who aren’t afraid of a bailout or five. He seems to forget that inflation is NOT growth. Per Keith in this morning’s Early Look:
“US Consumption represents the 71% that I don’t hear the Democrats talking about inasmuch as I didn’t hear the Republicans talking about it under Bush. That’s the 71% of the US Economy (GDP). And it’s been getting jammed by the likes of Bernanke and Geithner since at least 2006. Policies to debauch the Dollar and inflate oil prices at the pump are a colossal failure of Keynesian sense.”
Isn’t the global economy just peachy?
Cash: Flat U.S. Equities: DOWN
Int'l Equities: Flat Commodities: Flat
Fixed Income: UP Int'l Currencies: Flat
TOP LONG IDEAS
JACK IN THE BOX (JACK)
This company is transitioning from cash burn to $75mm annual free cash flow generation thanks to completion of a reimaging program and refranchising of JIB units. Qdoba is the leverage; a maturing and growing store base will bring higher margins. We see 8.5% upside over the next 6-9 months.
FIFTH & PACIFIC COMPANIES (FNP)
The former Liz Claiborne (LIZ) is on the path to prosperity. There’s a fantastic growth story with FNP. The Kate Spade brand is growing at an almost unprecedented clip. Save for Juicy Couture, the company has brands performing strongly throughout its entire portfolio. We’re bullish on FNP for all three durations: TRADE, TREND and TAIL.
LIFEPOINT HOSPITALS (LPNT)
We continue to expect outpatient utilization to pick up in 2H12 alongside stabilization in acuity with ortho and cardiac/ICD volumes supporting both pricing and inpatient admissions growth. Births should serve as a tailwind into year-end, recent and prospective acquisitions offer some upside to 2012/13 numbers and the in place repo offers some earnings flexibility. With European and Asian growth slowing, we like targeted domestic revenue exposure as well.
THREE FOR THE ROAD
TWEET OF THE DAY
“BREAKING: US mortgage demand (MBA weekly mortgage applications) falls for the 3rd consecutive wk (-2.3% wk-over-wk) $XLF” -@KeithMcCullough
QUOTE OF THE DAY
“It is nobler to declare oneself wrong than to insist on being right - especially when one is right.” - Friedrich Nietzsche
STAT OF THE DAY
Chinese PMI fell to 50.1 in July from 50.2 in June, falling below economists’ consensus estimate of 50.5.
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