Finally a catalyst?
BYI has underperformed IGT lately and really has traded in a fairly tight range for the better part of a year. We’d say this stock is in need of a catalyst and Thursday night’s earnings could be that catalyst. We project BYI to beat F2Q consensus by roughly 5% - revenue of $249MM and Adjusted EPS of $0.79. We expect BYI to exceed consensus in both gaming ops and gaming equipment sales.
We’re projecting $89MM of gaming equipment revenue ($11MM ahead of consensus) at a 47.7% gross margin ($6MM ahead of consensus).
We’re projecting $57MM of systems revenue ($2MM below the Street) at a 72.5% margin ($3MM below the Street).
We expect gaming operations revenue of $103MM ($5MM above the Street) at a 70.7% margin ($2MM above the Street).
Takeaway: Bulls will gloss over the mgmt chg, but Cole was the 2nd highest paid person at M, and was there for 40 years. He matters.
Macy’s announced after the close that Thomas Cole, Chief Administrative Officer, will be leaving the company in May 2013. Our sense is that Mr. Cole is leaving on his own accord and under good terms after 40 years at the company. That said, make no bones about it… Cole is important to the organization. Formerly a Vice Chair, he is responsible for orchestrating everything from internal audit, human resources, external affairs, systems, technology, logistics, credit, non-merchandise purchasing, sustainability, and store planning, design and construction. There’s a couple of other functions as well – all of which have been spread out to three existing and one new individual in the Macy’s organization.
The bulls – if they acknowledge this announcement at all -- will tout that this is a company with a deep bench, and that they are not concerned to see such an important executive leave the company. The reality is that if there is any positive it is that there will be $2-3mm in EBIT freed up with the departure of his compensation (only half a penny per share). Keep in mind that Cole was the second highest paid person in the company – making 20% more than CFO Karen Hoguet, the primary interface of the company to the Street.
Our sense is that whenever we see someone leave who has so many responsibilities and has greater tenure than anyone else on the org chart – it simply cannot be glossed over.
CEO Lundgren said as much in his quote
“Tom’s influence has been particularly profound over the past seven years as we integrated the acquisition of The May Department Stores Company, migrated to the nationwide Macy’s brand, developed new business and organization structures, aggressively pursued our omnichannel vision and improved our customer shopping experience. Tom played a key role in these subjects and many, many more.”
Macy’s remains one of our top short ideas.
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Today we bought Archer Daniels Midland Company (ADM) at $28.33 a share at 10:15 AM EDT in our Real-Time Alerts. We bought on red when our immediate-term TRADE oversold signal after an #OldWall downgrade. Hedgeye Consumer Staples Sector Head Rob Campagnino says manage the risk of the range into the EPS event (up and down). Still one of our top long ideas.
Takeaway: We've been vocal on our Macy's short call. The one you're hearing us get louder on is long JCP. No action yet. We're waiting on price.
Keith added M to our #real-time alerts on the short side into the close. That’s the trade you saw, because the stock call matched up with the research call.
The corresponding trade you have not yet seen is to long JCP. As we’ve hit on repeatedly over the past several weeks, we think that the improving sales trajectory in 2013 and incremental improvement in store layout and dot.com business will drive the stock higher this year – even if JCP needs to buy the better top line. That might not be the best ROIC decision, but we think that this stock will trade on revenue, not ROIC.
We’re not going to make many friends today in saying that given that nearly a third of the float is short. But we’d rather be right than make friends.
To be clear, if the stock call matched up to the fundamental call at the current price, Keith would have added it to our real-time alerts. He has not. Translation = he likes it lower. But if you are less price sensitive and want a contrarian idea that we think will gain momentum on the upside in 2013, this is absolutely one to consider.
This morning, the yield on the 10-year Treasury Note hit 2.0%, a level not seen since April of 2012. Despite moving back down to 1.95% shortly after, the 10-year continues to hold above our TAIL risk line of support at 1.84%. We could soon see the 10-year yield flirting with 2.4% over the next three months, particularly if our call on US unemployment stabilizing continues to take hold. #GrowthStabilizing is good for stocks, bad for bonds. Friday's jobs report should play a role in determining if a yield above 2.0% is here for good.