NKE: Fundamentals Turning Now

Takeaway: We think that the most significant factor that has been impacting $NKE's valuation and sentiment will turn on the margin this quarter.

Nike’s stock price is all about growth in Futures, right? We’d argue that the answer is ‘Not Necessarily’, and in this instance, we think Gross Margin matters much more.

Clearly, futures matter. We’d be foolish to suggest otherwise. Chart 1 shows the stock against the change in Global Futures. Not bad. Until recently, that is.

NKE: Fundamentals Turning Now - nk1


Chart 2. Once Nike’s Gross margin started to break down, the importance of futures was taken down a notch. It was ‘all about inventories and margins.’

NKE: Fundamentals Turning Now - nke22


Chart 3. Inventories, however, have turned a corner, and are again converging with Gross Margins. The company has nudged that perhaps they are up towards the back half. But we think they could be positive in the coming quarter.

NKE: Fundamentals Turning Now - nke3


For a stock that is so universally hated right now (note worst sell-side Buy Ratio in a decade), we’ve gotta think that it can only be a positive for the stock if we’re right that this factor is turning. (Chart 4)

NKE: Fundamentals Turning Now - nke4

Energy and Elections

WTI crude oil had a nice run from late 2008 until mid-2011. Since then, the price of oil has been all over the place. Really, it comes down to tonight's election results and whether Mitt Romney wins. If he does, that's bullish for the US dollar and bearish for oil. The opposite rings true if Obama is reelected.


Energy and Elections - oil

The Golden Election

During the 2008 presidential election, gold was still around $700/oz. Since then, the Federal Reserve and Ben Bernanke have deployed multiple rounds of quantitative easing, driving the price of commodities and gold up while devaluing the US dollar. As you can see, the price of gold has increased by nearly $1000 since the last election and is likely to continue to rise if Obama is reelected. On the other hand, a Mitt Romney win is expected to bring strength to the dollar which would drive gold's price lower.


The Golden Election - gold

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Can Romney Swing A Win?

Takeaway: Early voting shows consistent gains for Romney versus 2008 (which isn’t surprising), but the gains are big enough to matter in Iowa.

Early voting based on the most recent data shows Romney with a slight edge thus far. Let's examine some of the swing states in this election:


-Colorado -- Votes: 1.7 million ... Democrats: 35 percent ... Republicans: 37 percent ->  In 2008, was 38% for Dems and 36% for Republicans so 4% net gain for Republicans In 2008, Obama won by +9.0

--Florida -- Votes: 4.5 million ... Democrats: 43 percent ... Republicans: 39 percent -> In 2008, was 46% Dems and 37% Republicans so 5% net gain for Dems In 2008, Obama won by +2.8

--Iowa -- Votes: 640,000 ... Democrats: 42 percent ... Republicans: 32 percent – In 2008 was 47% Dems and 29% Republicans, so 8% net gain for Republicans In 2008, Obama won by +8.0

--Nevada -- Votes: 702,000 ... Democrats: 44 percent ... Republicans: 37 percent – Same as 2008


--North Carolina -- Votes: 2.8 million ... Democrats: 48 percent ... Republicans: 31 percent -> In 2008, Dems were 51.4% and Repubs were 30.2% -> 4% net gain for Repubs In 2008, Obama won by +0.3

--Ohio -- Votes: 1.7 million: Democrats: 29 percent ... Republicans: 23 percent _> A little unclear, but it appears that Romney has improved here as well.  While the date is much less clear, one county that people are pointing to is Cuyahoga County which went 68.5% for Obama in, early voting was down about 15%.  Further, Cuyahoga County has 208,207 fewer total registered voters in 2012 compared to 2008 Further, in 2008 33% of absentee ballots went to Democrats and 19% to Republicans, so a 8% net gain is fair here for Republicans. Obama won by +4.6% in 2008


In preparation for MPEL's F3Q 2012 earnings release Wednesday, we’ve put together the recent pertinent forward looking company commentary.



Melco Crown Entertainment Announces Signing of Commitment Letter for Its Senior Secured Credit Facilities for the Development of Studio City (10/19)

  • US$1.4 billion senior secured credit facilities (with both Hong Kong dollar and U.S. dollar tranches) which is expected to consist of: (i) a US$1.3 billion equivalent delayed draw term loan facility and (ii) a US$100 million equivalent revolving credit facility, both of which will mature 5 years from the signing of definitive legal documentation.
  • MSC remains on track to open mid-2015





  • "Our rolling chip segment continues to be impacted by our table optimization strategy. This strategy has resulted in further tables being shifted from Altira to City of Dreams, as well as the movement of some tables from VIP to mass during the second quarter of 2012. While somewhat disruptive as it is happening, this initiative should set us up favorably going forward."
  • "The market-wide mass market table game segment continues to demonstrate strong year-over-year growth, expanding over 33% during the second quarter of 2012. This once again reinforces our mass market focus strategy, particularly at the higher end of the market, which we believe will provide a more stable, loyal, and profitable customer base for the foreseeable future."
  • "Total depreciation and amortization expense is expected to be approximately US$90 million to US$95 million, corporate expense is expected to come in at US$18 million to US$20 million, and net interest expense is expected to be approximately US$23 million to US$25 million."
  • [Studio City] "So again, we're very confident to have gaming as part of this exciting, integrated resort. And I would like reemphasize that after the land grant stage, whether it's us or any of our competitors, we are going down the same route in terms of applying for gaming or gaming tables."
  • [Mass hold rate] "We said 25% to 30%, and we're quite confident in COD will be very, very high end of that range going forward because of our enhancement of the efficiency on the floor during the last few quarters."
  • [5th tower at CoD] "We are short of rooms at City of Dreams, and tower five has always been in the plan. And given our strength in mass and also the fact that we do need more rooms going forward; we're at 90% plus occupancy every single day of the year not just on weekends. We have completed all of our conceptual designs for that tower. And I can assure you, when it's built, it's going to be the ultimate art piece in Macau....again, it's subject to the government processes because this started as a apartment hotel in the early days, so we do need to have the land re-gazetted. But as soon as that is done, we would like to begin construction of that as early as next year."
  • [International opportunities] "We have continued to do a lot of research and field work and lobbying work in both Taiwan and Japan. We are very encouraged by the passing of the referendum in Matsu. So we're studying. We're waiting for the next move from the central Taiwanese government, and at the same time, we are looking at those places with keen interest."
  • "I think on the new supply in the second quarter in Cotai, we do experience some of our lower-end customers moving across the Cotai area. But the good news is, starting from third quarter July, we see a lot of these customers coming back, and we have a fantastic July rebound in that sense."
  • "We see some more promotional activities in Macau. And I think the mid to lower end of the market is more sensitive to the promotional activities, i.e., we see some of the changes when the other properties are doing these promotional activities. So I think we are still maintaining our premium position in COD, and we are very positive on the long-term development of that particular segment."
  • "We've really spent our time and effort into improving the product of our VIP, knowing that there's been disruption. Inevitably when you renovate a VIP room, you will disrupt the business there. We have to close off sections of it. And I think that's why, on top of the general market trends, you are seeing some slowdown in terms of some of our VIP business."
  • "On the cost side, I think we maintain a very, very lean operation teams in Altira there for the last, almost last two to three years' time. So I guess it's more about the productivity of the tables that we are working on Altira. Recently, I think the productivity level at the moment is actually improved to almost the highest time in the last."
  • [Altira] "So with the current run rate, I think we will see some continuous improvement in the EBITDA generated by this property going forward."
  • "More aggressive approach to comping rooms, in other words, expanding our casino block within our hotels. And that's what's resulting in a higher promotional allowance."

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

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