I’m looking for a very strong Q1 from ASCA.  The Street is projecting $0.32 and $78 million in EPS and EBITDA, respectively, which look too low.  We believe the numbers could be as high as $0.38 and $82 million. 

ASCA: INCENTIVE TO BLOW OUT Q1 - asca q1 blow out

The loss limit removal appears to be having a greater revenue and higher margin impact on ASCA St. Charles and Kansas City.  ASCA seems to have figured out the marketing fairly quickly which should be on display in the Q1 results.  Importantly, they are probably only in the fourth or fifth inning of the full impact from the removal of the loss limit.  Q1 should also benefit from significant cost cutting with total annualized cost savings at $45 million already achieved by Q4 2008.  We estimate EBITDA margin will expand 80bps year-over-year despite flat revenues and new completion in Vicksburg, Council Bluffs, and of course, East Chicago.

There is an interesting twist to Q1 earnings.  ASCA may be in the market to float some high yield bonds or extend its credit facility so there is incentive to pry open the credit markets.  Recently, the company obtained a favorable amendment to raise the maximum senior leverage ratio in its covenant.  The next issue they must tackle is the maturity of the credit facility in November 2010.

Gaming debt seems to trade at a discount to similarly leveraged sectors.  However, the regional guys such as ASCA, PENN, BYD, and PNK are in much better shape than the Harrah’s, Station, LVS, and MGM’s of the world.  Yet, there seems to be no differentiation between the better credits in the space as the taint of bankruptcies and potential bankruptcies are forcing up yields for everyone.  Therein lies the incentive to post a good quarter to narrow the discount and possibly pave the way to hit the credit markets.

Look for a very good looking quarter from ASCA.


BKD, another positive channel check...

Here Little Sharky, Come And Get It: SP500 Levels, Refreshed...


It's 2:45PM here on the Eastern seaboard - what a beautiful day to watch our Sharky jump at the shorts (see chart below).


After wrestling above and below the Shark Line throughout the week (thick green line), I think we have ourselves the 3-day confirmation of the TREND that I was looking for here in the SP500. It's a bull Shark!


Technology (XLK), Consumer Discretionary (XLY), and Basic Materials (XLB) have been signaling a TREND line breakout throughout the week. The US market is now proving that it can hold higher lows no matter what the Financials (XLF) do. When those Financials get squeezed (like they are today), there isn't much left but a Pain Trade.


On an immediate term basis, my next line of SP500 resistance (red dotted line) is 861.


Have a great weekend,


Here Little Sharky, Come And Get It: SP500 Levels, Refreshed...  - SPX 

Keith R. McCullough
Chief Executive Officer

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Ugly Chart Of The Day: Into The Void...


POSITION: Short the UK via the etf EWU


We've yet to see positive deltas across our macro factor model for the UK and the recent lack of clarity from Bank of England Governor Mervyn King on monetary policy inspires little confidence for a near-term recovery there. 


This year we've had a consistently negative bias on Western Europe, especially with respect to the UK and Switzerland due to their leverage to financial services. We shorted the UK via EWU yesterday and Switzerland via EWL on 4/07. 


The decision not to cut confirms Gordon Brown and Co.'s policy of let's "wait-and-see" quantitative easing as the BOE and Treasury move forward with their March 5th plan to print money and purchase 75 Billion Pounds of government bonds and corporate paper. From a monetary standpoint we stand firm with our thesis that the BOE has done "too little too late" to manage the interest rate and now is running out of room to cut.


UK data continues to look bleak. Manufacturing dropped 6.5% in the three months through February and declined 0.9% in February M/M. Unemployment, though a lagging indicator, shows a sequential monthly uptick. PPI increased 0.1% in March M/M, or rose 2% on an annual basis, the slowest annual pace in 20 months. February's CPI reading came in at 3.2%, down from 5.2% in Q408; you can expect a sharp decline in inflation this year and next. Should consumer demand not pick up despite downward pressure on prices, the UK could be in for an even longer "wait-and-see" recession. We'll be focused on retail sales, housing prices, and mortgage applications to better understand the depth of the abyss.


As the BOE continues to issue and buy-up Treasuries and take on debt the Pound should depreciate; this will benefit exports and push down imports, which should improve the country's trade balance. Yet the Pound has been relatively resilient versus the Euro and USD and despite initial declines after the March 5th announcement, the Pound has traded higher in the last two weeks.


The lack of leadership by Brown to instill confidence in the UK's recovery continues to be a decidedly bearish signal for us, one we believe will drag recovery further out on the curve.


Matthew Hedrick

Ugly Chart Of The Day: Into The Void...  - letzteeeee

MSSR's volume picking up...


Malcolm Knapp reported that March casual dining same-store sales declined 4.9% and traffic declined 6.5%.  Both of these numbers represent a sequential slowdown from February when comparable sales decreased 4.0% and traffic fell 5.6%.  According to Malcolm Knapp, the last week of March was bad and was largely responsible for the drop off in sales relative to February (took about half a point off March same-store sales numbers).  This March slowdown in overall casual dining sales further highlights RT's improved performance as of late as the company stated that its comparable sales continued to improve in March off of February levels, further narrowing the company's gap to Knapp. 


On a quarterly basis, 1Q09 average casual dining same-store sales came in better than 4Q at -4.3% relative to -6% with traffic -6.0% in Q1 versus -7.7% in Q4.  Discounting is most likely driving the lion's share of this traffic improvement. 


I would have thought that a sequential slow down in Casual Dining same-store sales would have caused more of a disruption in restaurant stock performance.  Given the sector's stock performance of late, it appears that the market is more focused on costs and not sales.  Significant cost cutting, lower commodity costs and reduced labor costs are helping restaurant operators manage margins for the time being.  With cost cutting being "one time" in nature, it is only a matter of time before investors return to a more intense focus on same-store sales trends.





Hedgeye Statistics

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

  • LONG SIGNALS 80.47%
  • SHORT SIGNALS 78.70%