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CRI Black Book Invite


Next Monday, October 15th at 1:30pm EST we will be hosting our CRI Black Book Conference Call.

Hedgeye Black Books are deep dive research projects, exposing all details of a company, examining past present and future, they are a tool to be saved. This presentation will discuss how the current macro environment and company specific data points are influencing CRI and the best way to play this stock moving forward. 

Topics of discussion will include:

  1. Product Differentiation: CRI is at a point where it is selling like product in very dissimilar channels. How much longer can it go before there is an impact to the P&L?
  2. The company is going from harvesting mode to investing mode. What are the margin and growth implications?
  3. A detailed look at demographics, and how shifting growth rate in different parts of the birth rate curve should impact CRI.
  4. The evolution of the competitive landscape - both at retail and wholesale. How closely is it tracking the change in demand?
  5. Ultimately, what do you do with the stock here?  

Please dial into the call 5-10 minutes prior to the start time using the information below:

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 225359#

* Call will be answered by a live operator and material will be distributed prior to the call.


If you have any questions please contact .


Not Funny: SP500 Levels, Refreshed

Takeaway: Whatever Biden was laughing at last night, the market didn’t find it funny.

POSITIONS: Long Utilities (XLU), Short Industrials (XLI)


As time, prices, and now politics change, we do. Whatever Biden was laughing at last night, the market didn’t find it funny.


Across the core risk management durations in our model, here are the lines that matter to me most:


  1. Immediate-term TRADE resistance = 1446
  2. Intermediate-term TREND support = 1419


In other words, this market is finally broken from an immediate-term TRADE perspective – and it’s happening on fundamentals = #EarningsSlowing. What was immediate-term TRADE support (1) is now resistance, and there’s nothing but net all the way down to TREND support of 1419.


If/when we test 1419, the question remains – with Bernanke wasting all his bullets ahead of the Election, and Earnings Season in full swing, what is the next catalyst for the bulls who chased The Bernanke Top (SPX 1474 on September 14)?


Enjoy the weekend – and keep moving out there,



Keith R. McCullough
Chief Executive Officer


Not Funny: SP500 Levels, Refreshed - SPX

Can China And Japan Reconcile?

Takeaway: The dispute may come to a close if all goes according to plan, but there's plenty of work to be done on both sides.

The ongoing protests and disputes between China and Japan over a territorial dispute may be coming to a close if all goes according to plan. Japanese Prime Minister Yoshihiko Noda has called for discussions between the two countries in order to hammer out some sort of resolution. Noda noted that without talks, both economies would continue to suffer. Last week’s Chinese auto sales numbers highlighted the problems with China-Japan tensions with September sales figures declining for large Japanese automakers. 


That being said, the respective populations of each country won’t tolerate weakness from their governments and Senior Analyst Darius Dale emphasizes that both countries will display accelerated levels of protectionism going forward, sans military intervention:


“The dispute is playing out exactly as we had anticipated in our SEP 19 note tiled: “ARE CHINA AND JAPAN HEADING FOR WAR?”, specifically in that the spat has caused a severe amount of economic hardship – mostly shared by Japan, which we outlined as having more to lose on that front (the SEP China sales figures from the large Japanese auto manufacturers were all down roughly 35-45% YoY; Japan’s Cabinet Office downgraded its assessment of the economy for the third-consecutive months – the longest streak since 2009). Moreover, the uncertainty over the future leadership of both countries (upcoming Japanese elections; Chinese leadership transitions) is contributing to what we’d highlight as a delayed response to diplomacy (i.e. “vice-ministerial discussions at an unspecified date” are probably not going to cut it). We continue to envision accelerating protectionism (either de facto or de jure – same result) and further economic pain as leaders from both nations are in a bind both culturally and politically.”

–Darius Dale, OCT 12, 2012


There’s a long way to go before this situation comes to a close, but Japan and China are taking a step in the right direction – at least for the sake of both economies.

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COH: Opacity Beware

Takeaway: We’re surprised that the market is glossing over Coach’s 8k about how it will be changing its reporting structure. Opacity is bad. $COH

We’re surprised that the market is glossing over Coach’s 8k about how it will be changing its reporting structure from retail/wholesale to Geographic regions. Coach is at a crossroads, and with the top line relying on new product categories and consumers (ie men) it needs to show the investment community more disclosure (which it has traditionally been very good about) rather than less.


We’ve got a mixed read on this. On one hand, companies don’t change up their reporting structure because business is ‘just trending so darn well’ -- ever. Restructuring makes modeling over the next four quarters very difficult, and it gives a management team plenty of opacity to hide behind if results fall short. Wall street usually sees through this.


On the flip side, we’re not suggesting a conspiracy theory here. Most restructuring structure events a) come at the request of independent auditors, b) are required to ensure that external financial reporting matches perfectly with internal business operational reporting. Coach is going more global, so it makes sense to report as such.


But even if 100% legit, it  does not change the fact that it opens the door for the company to back off it’s prior disclosure – specifically between performance by wholesale vs. retail. That’s a critical component to analyzing any company in this space.


The precise changes are not 100% clear. If the company will give all previous data and simply add another dimension, then this is great. But anything else is bad news from our perspective.


The crux of our call on COH is in the summary of our 9-factor fundamental model listed below. Revenue growth is slowing, and SG&A growth is accelerating. A low teens multiple seems cheap, but margins are at 32%, and we think that there’s a better shot that they come down before new product launches succeed to the point where they could add enough scale to improve margin.


COH:  Opacity Beware - cohttt



Takeaway: $JPM 3Q12 results were solid. A few hiccups (nonaccruals, NIM and loan growth), won't derail growth in tangible and improved returns.

This note was originally published October 12, 2012 at 07:59 in Financials

JPM's 3Q12 Results - Moving in the Right Direction

Overall, we found the JPM 3Q numbers solid. The company earned $1.40 vs. expectations for $1.21. We estimate core earnings were closer to $1.25, which adjusts for all of JPM's itemized one-time items except for their suggested litigation reserve add-back of 11 cents, which we regard as a recurring item until it isn't. 


Importantly, this quarter's results weren't driven as significantly by reserve release as we had expected, making it tougher for critics (like ourselves) to decry them as low quality results. Reserve release came in at 17-18 cents vs consensus expectations for 14 cents. As such, the core $1.25 number looks like $1.21 on an apples to apples basis. Given the apprehension that investors had going into the quarter we think an in-line to slightly better than expected result will be enough to keep the stock going higher through the election.


The three negatives in the quarter were that non-accruals ticked up 18 bps QoQ, NIM fell 4 bps (vs 1 bp expectations), and loans declined sequentially by $5.5bn (77 bps) vs. expectations for 1.5% growth.


The bottom line is that tangible book value per share improved again this quarter, growing by 5% sequentially. Return on capital (tangible), meanwhile, ticked up to 15.7% from 13.9%. Growing tangible and improving returns should support further multiple expansion.


We highlight the key takeaways, as well as our macro team's levels on JPM, in the three charts below.


JPM: QUICK TAKE ON 3Q12 RESULTS - JPM tang vs stock px


JPM: QUICK TAKE ON 3Q12 RESULTS - jpm earnings template




Joshua Steiner, CFA




Robert Belsky



Last Night's Debate







Last night’s debate was a fierce battle between Joe Biden and Paul Ryan over myriad issues. We may not be ready to declare a “winner” just yet, but one thing is certain: Biden laughed. He laughed, laughed and laughed some more. Keith sums it up best: Ryan looks like a rookie and Biden looks like a snake. There has been no material change on InTrade with Obama vs Romney, so the kid held his own.




#EarningsSlowing continues as companies like Norfolk Southern (NSC) and FedEx (FDX) get rocked when they offer lower guidance. JP Morgan (JPM) and Wells Fargo (WFC) were able to beat this morning, but keep in mind that earnings are peakish for a lot of names out there. Not everyone can pull a JPM and beat the Street. 






Cash:                UP


U.S. Equities:   DOWN


Int'l Equities:   Flat   


Commodities: Flat


Fixed Income:  Flat


Int'l Currencies: Flat  








Remains our top long in casual dining as new sales layers (pizza) and strong-performing remodels (~5% comps) should maintain sales momentum. The company is continuing to enhance returns for shareholders through share buybacks . The stock trades at a discount to DIN (7.7x vs 9.3x EV/EBITDA) and in line with the group at 7.3x.

  • TAIL:      LONG            



Emissions regulations in the US focusing on greenhouse gases should end the disruptive pre-buy cycle and allow PCAR to improve margins. Improved capacity utilization, truck fleet aging, and less volatile used truck prices all should support higher long-run profitability. In the near-term, Paccar may benefit from engine certification issues at Navistar, allowing it to gain market share. Longer-term, Paccar enjos a strong position in a structurally advantaged industry and an attractive valuation.

  • TAIL:      LONG



While political and reimbursement risk will remain near-term concerns, on the fundamental side we continue to expect accelerating outpatient growth alongside further strength in pricing as acuity improves thru 1Q13. Flu trends may provide an incremental benefit on the quarter and our expectation for a birth recovery should support patient surgery growth over the intermediate term. Supply costs should remain a source of topline & earnings upside going forward.

  • TAIL:      LONG







“If u just read the top/bottom line beats for these bailed out banks, you're being regressive - may as well use a walkman” -@KeithMcCullough




“A lot of fellows nowadays have a B.A., M.D., or Ph.D. Unfortunately, they don't have a J.O.B.” -Fats Domino




JPM Earnings: Top & Bottom line beats. $1.40 includes 18 cents reserve release vs. expectations for 14 cents




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