Housing: Let The Tailwinds Blow

The recovery in the housing market continues with the latest data from Corelogic showing home prices rose in November 7.4% year-over-year, a noticeable acceleration from October’s growth of 6.3% year-over-year. Corelogic's advance reading on December shows prices rising 7.9% year-over-year. Their distressed-excluded home price index is estimated to have risen by 8.4% in December.



Housing: Let The Tailwinds Blow - Corelogic 2 normal



An important note: the Consumer Financial Protection Bureau (CFPB) recently laid out its definition of a qualified mortgage (QM). Lenders and financial institutions alike were worried about a QM being too restrictive. It appears that nearly everyone is pleased with the final definition laid out, which includes restrictions involving a borrower’s “ability to repay”, income and assets, and debt-to-income ratio. It also protects borrowers from predatory loans and exotic mortgages. 


One important note, highlighted by Hedgeye Financials Sector Head Josh Steiner is as follows: “Any loan that isn’t considered a QM now becomes a subprime loan, and many banks will be unwilling to lend to non-qualified borrowers.”


"Ultimately, the CFPB’s new rules strike the right balance between responsible lending and mortgage availability but should have little impact on the current housing market. Potential borrowers that were unable to get loans in the past should still be unable," said Steiner.



Housing: Let The Tailwinds Blow - Corelogic YoY normal


Below we highlight three topics, for each company, that we are hoping to gain insight into from this week’s ICR conference. 


We list the companies we care about in order of appearance at the conference.


Wendy’s is a work in progress

  1. The focus will be on marketing with the value menu getting a lot of attention as it poses real competition versus McDonald’s $1 menu
  2. Has the company lined up capital for franchisee conversions?
  3. The pipeline of new products for 2013 will be another key focus


Jack In The Box remains a Hedgeye favorite

  1. Any indication of current trends following MCD’s move to value will be helpful
  2. Investors will seek to learn management’s view of beef prices
  3. Any commentary on margins at Qdoba will be keenly received by a skeptical investment community


Texas Roadhouse is one of our least favorite names in casual dining

  1. New unit performance and returns are the key issues for this stock
  2. Commentary on the company’s commodity basket inflation expectations will be valuable
  3. Sales trends in what has become an increasingly competitive sub-category


BJ’s Restaurants’ shares need a catalyst

  1. We will be trying to discern how much of an impact Chili’s is impacting their top line
  2. Will the company provide incremental color on its testing of TV advertising
  3. With ROIIC trending negative, we will be hoping to get a finalized picture of CapEx for 2013


Burger King’s shares not appealing in 2013 but TAST is a better way to play the story

  1. Are franchisees being won over to the reimaging program?
  2. How are sales trends looking in January?
  3. What are full year expectations for same-restaurant sales


Ruth’s Chris is a boring company and a boring stock

  1. Might the company go private?  We think it should
  2. What are the company’s beef inflation expectations
  3. What makes the company believe that it has additional pricing power above the current 2.4% of pricing


Cracker Barrel seems to have played out

  1. Is there any leverage in the business model?
  2. The activist attack is unrelenting; what is management’s stance
  3. Can the concept garner appeal outside of the core consumer base


Ruby Tuesday’s new CEO has his plate full

  1. What size is the Ruby Tuesday system going to be in five years?
  2. How is the brand going to position itself under new leadership?
  3. What is the new CEO’s legacy going to be


Bloomin’ Brands has top line momentum but consensus is tough to get to

  1. Consensus is baking in very high leverage in the P&L and we do not think it is justified
  2. Same-restaurant sales trends, particularly at lunch, will be a primary focus for investors and analysts at ICR
  3. When will the PE firms unload stock in 2013?


 Domino’s is one of the best-managed companies in the restaurant space

  1. We will be looking for commentary on international growth opportunities
  2. More specificity on the outlook for commodities, in particular cheese, would be helpful
  3. Investors will likely press management on growth in the domestic market also


Chipotle’s management team will likely enjoy another ICR lovefest, we think the bottoming process will take time

  1. Sales trends, obviously, are front-and-center
  2. What is the company’s outlook for pricing?
  3. How are new unit volumes trending?  Will unit growth expectations be slowed?



Howard Penney

Managing Director


Rory Green

Senior Analyst




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

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

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.              





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

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


Top Long Ideas

Company Ticker Sector Duration

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


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 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


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


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


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

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