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NKE: Special Dividend No Brainer

Takeaway: With heavy insider ownership on top of a fat cash balance, $NKE is an obvious candidate for a special dividend.

We’re two weeks away from Nike’s quarter, and just over three weeks away from the deadline for the swarm of ‘special’ dividends that will fall into the 2012 tax year. There are factors for Nike that are worth considering.

  1. The company has about $3.2bn in cash, or $7ps, waiting to be deployed.
     
  2. There’s another $2bn in FCF over the next 12 months, or $4.40ps. Combined with current holdings, we’ve got net pro-forma cash balance of $5.2bn, or $11.40 per share. That’s 11.75% of NKE’s equity value.
     
  3. Though we still think that Nike is grossly under-levered with only $364mm in debt on a $15.1bn balance sheet, it’s unrealistic to think that it will take its cash to zero due to its sheer conservatism – especially in that it faces the same hurdles the same hurdles as other multi-nationals with repatriating cash with a tax penalty.
     
  4. But it has another characteristic that others do not…and that is the fact that management owns 21% of the stock, with Phil Knight himself owning 18% (with full control of the Board due to super voting rights in Class A/B share structure). Mr. Knight has been a very conservative seller of the stock over time, and sold hardly no shares since the first of several small 10b5-1s in 2005.
     
  5. We could comfortably leave Nike with $2.5bn in cash on the balance sheet over 12 months, leaving $2,000-$3,000 to distribute today. That accounts for around 5-6% of Nike’s current equity value. A $2bn dividend would be a $360mm paycheck for Phil Knight.

We don’t have a crystal ball as to the event or magnitude for NKE, but we see three distinct buckets of companies issuing these dividends. 1) Those that COULD, 2) Those that SHOULD, and 3) Those that THINK that they have the resources to do so, but will be regretting it in a year (like GES). Nike has ample opportunity for reinvestment in the business, but its ROE vs ROIC trend definitely suggests that it SHOULD give some back to shareholders.

 

NKE: Special Dividend No Brainer - 12 5 2012 12 45 53 PM


Hanging In: SP500 Levels, Refreshed

Takeaway: The SP500 continues to trade in a very tight Risk Range.

POSITIONS: Long Consumer Discretionary (XLY), Short Energy (XLE), Utilities (XLU) and Industrials (XLI)

 

Government catalyst ping pong. Fun. The SP500 continues to trade in a very tight Risk Range. After taking a peek below 1404 this morning, the ball popped right back up from under that water. Risk moves fast.

 

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

 

  1. Intermediate-term TREND resistance = 1419
  2. Immediate-term TRADE support = 1404
  3. Long-term TAIL support = 1366

 

In other words, a close below 1404 puts 1366 in play, fast. And a close > 1419 puts the pain trade back on the upside, faster.

 

In the meantime, the best I can do is buy red and sell green.

KM

 

Keith R. McCullough
Chief Executive Officer

 

Hanging In: SP500 Levels, Refreshed - SPX


PODCAST: Consuming The Market

On today’s morning investment call held for subscribers, Hedgeye CEO Keith McCullough discussed his reasons for buying the Consumer Discretionary ETF (XLY) yesterday and what’s happening in the current market environment. We bought the XLY on red and as you know, we don’t buy stocks on green - that’s a no-no. Another strategy is when you buy stocks when volatility is at 17 and sell stocks with volatility at 14. If you did that, you’re probably having a good quarter. Also: the top three sectors we like are consumer discretionary, consumer staples and healthcare. 

 

You can listen to our full morning call in the audio posted below.

 

 


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

Europe Retail Sales Slow

Retail sales in the Eurozone have been on the decline since 2005. After a bounce in 2009, sales continues to slow and have recently hit lows not seen since the end of 2009. The sharp drop in the last quarter shows that recovery in Europe is clearly far from over. With some countries experiencing 25% unemployment, it makes sense that households aren't spending their money frivolously. 

 

Europe Retail Sales Slow - image016


HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD

Takeaway: Home price appreciation is accelerating. Corelogic's early read on November trends suggests that momentum remains very strong.

*** Tune in for our call this Friday at 11am: "Could Housing's Recovery Go Parabolic in 2013?" ***

Dial in:

Code: 314729# 

 

Home Price Trends Continue to Accelerate

Yesterday's Corelogic home price data release makes adds evidence to the argument that housing's recovery is accelerating. October home prices rose 6.3% YoY, which was a sharp acceleration from September's YoY growth of 5.2%. More to the point, Corelogic has for the last few months provided an early read on the following month. Based on this early read, they estimate that home prices rose 7.1% in November. Moreover, the distressed-excluded home price index is estimated to rise by 7.4% in November. We think it's also worth pointing out that that there was an upward revision of sorts to this October number. One month ago, when Corelogic gave an early read into October pricing, they estimated prices rose by 5.7%. The actual data came in at 6.3%. This month, they're estimating November at 7.1%. 

 

We'll discuss why animal spirits are taking hold in housing on our conference call this Friday. 

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - CL   YoY

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - CL   YoY CL  CS  FHFA

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - CL   Distressed vs non distressed

 

Demand Reinforces Price

Mortgage demand rose +0.1% week-over-week. While +0.1% is nothing to write home about, it is noteworthy in that it is coming off a relatively high base, and marks the fourth consecutive week of positive WoW improvements. In fact, 13 out of the last 16 weeks have been positive.

 

Refinance applications rose 6.0% last week while the average rate on a 30-yr FRM declined 3 bps to 3.40%.  QTD refinance applications are 41% higher than they were in 4Q11.

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Shark

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Refi ST

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Mortgage Rates

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Shark LT

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Refi LT

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - YoY

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Purchase QoQ

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Refi QoQ

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Composite QoQ

 

Joshua Steiner, CFA

 

Robert Belsky


REMINDER AGRICULTURAL EXPERT CALL; DIAL-IN AND MATERIALS

Please CLICK HERE to access the presentation. Dial in 5-10 minutes prior to the 11:00am EST start time using the number provided below. If you have any further questions email .

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 611762

REMINDER AGRICULTURAL EXPERT CALL; DIAL-IN AND MATERIALS  - Ag.Call

 

Restaurant Tickers Affected:

DRI, BLMN, TXRH, WEN, JACK, MCD, PNRA, PZZA, DPZ, YUM, CAKE, EAT and CMG

 

Food Processing Tickers Affected:
TSN, SAFM, SFD, HRL, PPC, CAG, DF and MON 

 

 

Today at 11:00am EST the Hedgeye Macro Team and Restaurants Team will be hosting an Agricultural and Consumer Economics Expert Call with Professor Darrel Good of the University of Illinois. Good has been part of the faculty since 1976 and took part in developing a comprehensive farm risk management website (www.farmdoc.uiuc.edu). His efforts are now focused on the performance of grain futures contracts as well as corn and soybean yield trends. 

  

Topics will include: 

  • Supply side - planting intentions and farmer's economics
  • Demand side - key drivers of demand - ethanol, protein, consumption (domestic and abroad)
  • General long-term trends to think about for farming - utilization, fertilizers, seed evolution
  • Thoughts on USDA projections, and their historical accuracy and what the implications are now
  • View on supply, demand, key drivers and prices for:
    • Corn
    • Wheat
    • Soybeans
    • Cattle
    • Chicken  

 

Good's Background

Darrel Good has a comprehensive understanding of the agricultural markets and economic implications. "There was a time period in the early seventies when grain markets changed dramatically," said Good. "Russia started importing grain, prices just exploded to the upside and there was renewed interest in markets and prices. I was hired to help develop a very extensive educational program in marketing and risk management."  

  • Professor in the department of Agricultural and Consumer Economics, is marking his 33rd year with the University of Illinois
  • Good and two other faculty members developed a seminar called "Price Forecasting and Sales Management"
  • One of the founding members of the farmdoc team
  • He writes one of the featured newsletters on the farmdoc site, Weekly OUTLOOK , and he is a primary contributor to the AgMAS section
  • Current research includes:
    • Evaluation of the pricing performance of agricultural market advisory services
    • Evaluation of USDA production and price forecasts

Evaluation of pricing performance of Illinois corn and soybean producers  


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