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SLOT CHANNEL CHECKS MOSTLY POSITIVE

Takeaway: Remain positive on IGT and BYI

Good feedback on IGT and BYI. Remain comfortable with estimates.

  • Our channel checks returned positive feedback on BYI & IGT
  • We remain comfortable with December quarter EPS estimates of an in-line $0.24 for IGT and beat for BYI at $0.80, respectively.
  • WMS appears to be struggling still
  • We believe that replacements (excluding Canada refreshes) trended up about 5% YoY in the December quater and the full year should shake out between 54-55k units, flat with 2011.  December is usually a better quarter for replacements than September.
  • 4Q will have a big drop in new openings and expansion units.  However, IL should generate a big sequential ramp which will compensate for a large portion of the overall drop. 
  • New openings and expansions that we believe shipped in the December 2012 Q include:
    • Cherokee Fort Gibson (OK) expansion:  220 slots
    • Ohiya Casino expansion (NE):  ~200 slots
    • Skydancer Hotel & Casino expansion (ND):  ~200 slots
    • Greektown expansion/refresh (MI):  185 slots
    • Ft. Randall Casino expansion (SD):  125 slots
    • Kansas Star casino expansion (KS):  430 slots
    • Magnolia Bluffs (MS):  600 slots
  • We estimate that there were approximately 2,000 VLTs shipped to IL in 4Q12 bringing the total to just over 2,800 installed at year end
  • Based on our channel checks, we think that international shipments will continue to be sluggish
  • Small & private supplier update:
    • AC Coin shut down at the beginning of January
    • Aruze is “killing it” and seeing some benefit from AC Coins getting yanked from the field. We have them achieving 2% market share in NA (without participating in Canada replacements in the December Q)
    • We continue to hear good things about Ainsworth
    • Konami had a rough quarter, shipping under 2,000 units which represents over a 35% YoY decline
    • Speilo share should be in the mid-teens, given their out-sized share of Canada replacements. Even without Canada though, they are a supplier we are keeping an eye on for share gains
  • IGT proxy fight is the talk of the town. While we get the sense that brain drain that we’ve previously written about is a thing of the past, we still believe that most employees are not Patti Hart fans

Materials & Dial-in for Q1 Macro Themes Conference Call

Materials & Dial-in for Q1 Macro Themes Conference Call - Themes.dialin

 

Please dial in 5-10 minutes prior to the 1:00pm EST start time using the number provided below and CLICK HERE to access the presentation. If you have any further questions email .

  • Toll Free Number: 
  • Direct Dial Number: 
  • Conference Code: 292394#

 

Each quarter, Hedgeye's Macro Team, led by CEO Keith McCullough and DOR Daryl Jones, hosts a Quarterly Macro Themes conference call with a presentation and a live Q&A session for participants. The call will highlight three themes representing significant developing sectors or macro trends for the quarter, analyzing potential impacts across various scenarios and identifying investment opportunities. The Q1 2013 Macro Themes Call will be held today, January 15th at 1:00pm EST.              

 

 

Q1 THEMES INCLUDE:

 

1) #GrowthStabilizing: 

Both our research and risk management indicators are signaling a shift away from #GrowthSlowing and have a bullish read-through for equities as fund flows move out of bonds. The risk of the U.S. Debt Ceiling remains a factor; however, we expect a rebound from the consumer as Bernanke's Commodity Bubble continues to deflate. 

 

2) #HousingsHammer: 

Housing market fundamentals continue to strengthen and are expected to maintain and possibly accelerate their momentum through 2013. We see changes in key housing metrics driving further upside that includes inventory levels, pricing and household formation.       

 

3) #QuadrillYen:

With the recent election of prime minster Shinzo Abe and his appointment of Taro Aso as finance minster, Japan looks to dominate the macroeconomic news flow out of Asia in Q1 as it pursues a variety of unconventional monetary and fiscal policies. Still our favorite short in all of Global Macro, we believe the yen will continue its descent vis-a-vis the U.S. dollar and the euro, imposing a variety of spillover risks for Japanese and international financial markets. 


Auto Sales Back On Track?

US auto sales are on the rise, leaping to 15.46 million and 15.3 million on a seasonally adjusted annual rate (SAAR) in November and December, respectively versus 14.22 in October. While the recovery has been rapid to the point of questioning if this kind of growth is ultimately sustainable, it’s nonetheless welcome data for industry suppliers. The US light vehicle fleet has been generally aging for over a decade but the current record average age of 10.8 years should continue to boost sales as consumers buy new autos.

 

Auto Sales Back On Track?  - autosales


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Go With The Flow

Client Talking Points

The 10-Year Fight

The 10-Year US Treasury is testing its TAIL risk line of 1.84% this morning after flirting with 2.0% last week. Our current risk range for the 10-year is 1.84-1.94%, so a lot can happen today. You have to be ready to move with the markets and the newsflow at a moment’s notice and we’ll be prepared to buy or short Treasuries when our models tell us to do so. The big risk to #Growth right now is our government and the debt ceiling debacle that will occur in mid-Feb/early-March. Boehner vs ‘Bama will be the ultimate catalyst for the 10-year, so keep your eyes open and vision clear.

The Big Three

Our Q1 2013 Global Macro Themes call takes place at 1PM today. We’ll be live-tweeting it to our Twitter followers on @Hedgeye as we embrace social media and get feedback from our subscribers/followers. We’ll be focusing on #GrowthStabilizing, the housing market, and Japan’s economy and how they’re so keen on devaluing the yen. These three topics will become the focal point of our discussions over the next few weeks in addition to our regular commentary on the markets. One important thing to remember is that if you want to buy stocks, buy the ones that aren’t at 52-week highs; buy the names that have plenty of room to move to the upside.

Asset Allocation

CASH 55% US EQUITIES 15%
INTL EQUITIES 15% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 15%

Top Long Ideas

Company Ticker Sector Duration
ASCA

We believe ASCA will receive a higher bid from another gaming competitor. Our valuation puts ASCA’s worth closer to $40.

ADM

ADM has significantly lagged the overall market in 2012 over concerns that weakness in the company’s bioproducts (ethanol) and merchandise and handling segment will persist. Ethanol margins suffered from higher corn costs, as well as weak domestic demand and low capacity utilization across the industry. Merchandising and handling results were at the mercy of a smaller U.S. corn harvest. Both segments could be in a position to rebound as we move into 2013 and a new crop goes into the ground. With corn prices remaining at elevated levels, the incentive to plant corn certainly exists, and we expect that we will see corn planted fencepost to fencepost.

HOLX

HOLX remains one of our favorite longer-term fundamental growth companies given growing penetration of its 3D Tomo platform and high leverage to the 2014 Insurance Expansion from the Affordable Care Act.

Three for the Road

TWEET OF THE DAY

“Ugly Empire Fed... prices paid skyrockets; New Orders fall deeper into -ve territory, labor measures continue to be in contraction.” -@BergenCapital

QUOTE OF THE DAY

“A billion here, a billion there, pretty soon it adds up to real money.” -Senator Everett Dirksen

STAT OF THE DAY

U.S. December retail sales increase 0.5%; ex-autos rise 0.3%


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – January 15, 2013


As we look at today's setup for the S&P 500, the range is 21 points or 1.13% downside to 1454 and 0.29% upside to 1475.            

                                                                                                                   

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.58 from 1.60
  • VIX closed at 13.52 1 day percent change of 1.20%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am: ICSC weekly sales
  • 8am: Fed’s Rosengren speaks in Providence, R.I.
  • 8:30am: Empire Manufacturing, Jan., est. 0 (prior -8.1)
  • 8:30am: Advance Retail Sales, Dec. est. 0.2% (prior 0.3%)
  • 8:30am: Retail Sales Ex Auto & Gas, Dec., est. 0.4%
  • 8:30am: PPI M/m, Dec., est. -0.1% (prior -0.8%)
  • 8:30am: PPI Ex Food & Energy M/m, Dec., est. 0.2% (prior 0.1%)
  • 8:50am: Fed’s Kocherlakota speaks in Golden Valley, Minn.
  • 8:55am: Johnson/Redbook weekly sales
  • 10am: Bus. Inventories, Nov., est. 0.3%
  • 11am: Fed to purchase $750m-$1b in 2023-2031 sector
  • 11:30am: Treasury to sell 4W bills
  • 12:30pm: Fed’s Plosser speaks in Rochester, N.Y.

GOVERNMENT:

    • Senate not in session
    • House may vote on $17b in aid to victims of Hurricane Sandy
    • Obama vows no negotiations on debt ceiling
    • World Bank releases Global Economic Prospects report
    • FDIC board meets to consider final rules on appraisal requirements for higher-risk mortgages, 10am
    • Washington Space Business Roundtable discussion with NASA Deputy Administrator Lori Graver on transforming agency to 21st century agency of innovation, 11:30am
    • DOT, FAA hold meeting of Commercial Space Transportation Advisory Committee on early development of regulations to protect occupants of commercial spacecraft, 1pm

WHAT TO WATCH

  • JPMorgan ordered to fix controls, pay after Whale bet
  • U.K. regulator starts JPMorgan London Whale probe
  • Citi, JPMorgan, others post monthly credit-card delinquencies
  • Facebook hosts user event later today
  • Dell buyout announcement said possible as early as this week
  • Pfizer said to weigh purchase of Strides Arcolab Agila unit
  • Morgan Stanley said to cut 15% of Asia investment bank jobs
  • Mizuho to hire senior bankers in U.S., Europe on M&A push
  • Rogers to buy Shaw’s spectrum, cable unit for C$700m
  • Warner Music sued by Gershwin heirs over royalties
  • RBS may face $800m Libor fine as soon as next week
  • Housing recovery rescuing 8m underwater borrowers in U.S.

EARNINGS:

    • Lennar (LEN) 6am, $0.45 - Preview
    • Canadian Satellite Radio (XSR CN) 7am, C$0.02
    • Commerce Bancshares (CBSH) 7am, $0.72
    • Ironwood Pharma (IRWD) 7am, $(0.49)
    • Forest Labs (FRX) 8am, $(0.08) - Preview
    • Interactive Brokers (IBKR) 4:01pm, $0.21
    • Fulton Financial (FULT) 4:29pm, $0.20
    • Linear Technology (LLTC) 5pm, $0.39

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Platinum Jumps to Three-Month High on Production Cuts, Tops Gold
  • Gold Forecasters Splitting on Peak for Bull Market: Commodities
  • Oil Trades Near Four-Month High on Colder Weather, U.S. Economy
  • Maturing North Sea Oil, Gas Production Needs More Drilling Rigs
  • Wheat Advances a Third Day as Cold Weather Threatens U.S. Supply
  • U.K. Natural Gas for Today Falls on Milder-Than-Forecast Weather
  • Cocoa Advances by 0.4% in New York, Reversing Earlier Decline
  • Palm Exports From Malaysia Slump in First 15 Days of Month
  • India May Export More Wheat From State Reserves to Cut Inventory
  • China Mills Reluctant to Restock Iron Ore as Prices Reach Highs
  • Red Kite Says Tin to Outperform Copper as Super Cycle Continues
  • Gas Exports From U.S. Surge as Sanctions Undermine Iran: Freight
  • Wheat Premium Over Corn Seen Widening on Feed: Chart of the Day
  • Copper Falls for Third Day on Concern Crisis Is Hitting Germany

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 


THE M3: SMOKING BAN; PACKAGE TOURS; SHUIKE SMUGGLERS; S'PORE FINES

The Macau Metro Monitor, January 15, 2013

 

 

GOVT ASKS FOR UNDERSTANDING ON CASINO SMOKING BAN macaubusiness.com

Chief Executive Fernando Chui Sai On said that while the the government is strictly enforcing the partial smoking ban in casinos they are still fine-tuning some of the rules.  The partial smoking ban that took effect on January 1, allows casinos to have smoking areas in up to 50% of the gaming floor area. The rules do not set up a minimum ratio for the number of slots and tables to be included in smoking and non-smoking area. 

 

PACKAGE TOURS UP BY 8.6% IN NOVEMBER macaubusiness.com

According to the Statistics and Consensus Service, visitor arrivals on package tours grew 8.6% YoY to 854,000 in November. Below are the statistics by origin:

  • Mainland (643,000): +9.4%
  • Taiwan (60,000): +26.4%
  • South Korea (44,000): +59.6%
  • HK (28,000): -25.2%

MAINLAND CUSTOMS CRACK DOWN ON 'SHUIKE' SMUGGLERS macaubusiness.com

In 2012 customs officers in Guangdong province cracked down on 9,741 'shuike' smuggling cases involving MOP1.72BN, which included 11 smuggling gangs.  'Shuike' refers to people who visit HK and Macau at least once daily to smuggle goods (electronics, milk powder, food, etc) from the two cities into the mainland. According to Luo On, an official of the Guangdong provincial government, “The growing number of shuike smugglers has affected the normal operation of checkpoints in Shenzhen and Zhuhai.” 

 

MBS, RWS FINED FOR BREACHING SOCIAL SAFEGUARDS channelnewsasia.com

MBS and RWS were each fined by the CRA (Casino Regulatory Authority of Singapore).  RWS was fined S$230,000 for the breach of social safeguard requirements during the period between November 1, 2011 and April 30, 2012. RWS also faced 3 fines on 3 additional breaches during the same timeframe: S$40,000 for failure to properly enforce valid entry levies on Singaporean citizens and permanent residents, S$40,000 for failure to prevent entry of 3 excluded persons, and S$20,000 for the admission of two minors. 

 

MBS fined for breaching 3 social safeguards: S$35,000 for failure to properly enforce valid entry levies on Singaporean citizens and permanent residents, S$80,000 for failure to prevent entry of 6 excluded persons, and S$15,000 for the admission of a minor into its casino. 


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