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ISLE YOUTUBE

In preparation for ISLE's F3Q earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.

 

 

ISLE COMPLETES SALE OF BILOXI, MISS. PROPERTY (NOV 30)

 

YOUTUBE FROM F2Q 2013 CONFERENCE CALL

  • "Cape is ramping up to our expectations."
  • [Nemacolin] "We're looking forward to an opening of the property in the summer of 2013."
  • [Lower capitalized interest] "until we ramp up in earnest in Nemacolin which will start to build up here, but, obviously with the project of less than half the size, it won't be of the magnitude that it has been."
  • [Corporate expense] "We've just had some costs that we've incurred related to a couple of disputed matters, or some legal matters that came up in the quarter. We wouldn't expect that to continue at that rate going forward."
  • [Capex] "But the balance of this year, we expect to be somewhere between $80 million and $90 million, probably $20 million to $30 million of that in Nemacolin, depending on how fast we get construction rolling. We still have a lot of settling up to do in Cape Girardeau and some stuff that wasn't paid for by the end of the quarter that's going on currently and will continue to go for the next little bit of time here until we get everything kind of wrapped up finally and then the balance of our maintenance capital for the rest of the year as well."
  • "The renovation of the Lake Charles hotel rooms will be done by the end of this calendar year."
  • [Acquisition strategy] "As our leverage gets down in a more kind of the lower fives or under five times, I think, that's probably when we would start to look at that a little bit. We're still probably somewhere between half a turn and a turn higher than ideally, I think, where we want to be leverage wise."
     

What’s Going on in Staples Today?

There are some unusually severe moves today across the sector – it strikes us as being partially driven by HF capitulation as lower multiple, lower quality names that are the usual targets for short sellers are outperforming the bulk of staples today.



Similarly, we are also seeing some modest outperformance in the higher multiple names, suggesting some additional short covering in what may be valuation shorts.

 

What’s Going on in Staples Today? - 2.19 Forward PE v perform today



However, short covering doesn’t seem to be the sole determinant of today’s stock price movements as seen below.  Nor are we seeing any meaningful disparity in performance based on beta.



What’s Going on in Staples Today? - 2.19 SI ratio v perform today

 

What’s Going on in Staples Today? - 2.19 Beta v perform today



Bottom line, it seems as if the HNZ transaction and the continued resilience of the market have caught some HFs offside, and we are seeing scrambling and associated “odd” moves as investors take down/take up exposure or reposition their books to reflect a more bullish stance.

 

Call with questions.

 

Rob

 

Robert  Campagnino

Managing Director

HEDGEYE RISK MANAGEMENT, LLC

E:

P:

 

Matt Hedrick

Senior Analyst




MGM YOUTUBE

In preparation for MGM's 4Q earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.

 

 

MGM RESORTS' COTAI LAND CONCESSION GAZETTED (Jan 9)

 

CITYCENTER RESIDENTIAL ANNOUNCES $119 MILLION BULK SALE OF 427 CONDOMINIUM UNITS AT VEER TOWERS (DEC 21)

  • Veer Towers 98% sold-out at deal closing

MGM RESORTS INTERNATIONAL COMPLETES LANDMARK REFINANCING TRANSACTIONS (DEC 20)

  • Entered into a $4.0 billion amended and restated credit facility, comprised of a $1.2 billion revolver, a $1.05 billion term loan A facility and a $1.75 billion term loan B facility
  • Issued $1.25 billion of 6.625% senior unsecured notes due 2021

 

YOUTUBE FROM 4Q CONFERENCE CALL

  • "We are managing our costs where we can and FTEs were down about 2% during the quarter."
  • "In Cotai, we have formally signed the land concession contract and have closed on a $2 billion credit facility, which along with our strong balance sheet and free cash flow, will give us the financial flexibility to expand in that region, strategically invest in our current resort and continue to maximize shareholder value."
  • "While our occupancy remained high at over 90%, our food, beverage, retail and entertainment were affected by the fact that we had over 100,000 less occupied room nights this year versus last year. These segments were also impacted by certain of the remodels and transitions in several of our buildings, and we expect that to turn as we bring these new amenities online in the upcoming quarters."
  • "We do expect our corporate expense to be higher here in the fourth quarter driven by the referendum expenses we're incurring and that'll be up in the fourth quarter in a range in kind of the mid $60 million level for corporate expense before our stock comp expense."
  • "We expect our stock compensation in the fourth quarter to be approximately $10 million to $11 million. Depreciation expense in the fourth quarter is estimated to be about $230 million to $235 million. Our interest expense in the third quarter was $276 million, including about $6 million from MGM China and about $17 million in non-cash amortization. And we estimate that our gross interest expense in the fourth quarter will be approximately $285 million."
  • "Viva ELVIS officially ends its run on August 31 and we're looking forward to the opening of Zarkana in November. The theater has been modified for the new show and the artists are completing their final rehearsals in anticipation of the opening November 9. We expect this new show will turn what was a loss to our business into significant profits, while also driving up ancillary business."
  • "Looking at the fourth quarter, we have some good things coming up. Great product offerings are coming online. Zarkana, the new Cirque show at ARIA opens next Friday. Blue Man Group is coming back to our family, opening up at Monte Carlo the following week. We will now have all of our rooms back at the MGM Grand and they're all online as that remodel program was completed in late September. We're still in the progress of remodeling the Bellagio Spa tower, which will be completed in mid-December, and we'll have more rooms in service in the fourth quarter. Despite having more rooms available, we are seeing a somewhat better rate environment, and expect that RevPAR in the fourth quarter will be flat to slightly up for the year. Of course, we are watching closely the impact of storm Sandy on these numbers, but we are optimistic with that forecast for the quarter."
  • "Looking out into 2013, we're very encouraged to see that convention bookings, our pace is up over 10% year-over-year with rate up. Although it's early, 2014 pace is even stronger. We're currently pacing to have about 15% more arena events between the Mandalay Event Center and the MGM Grand Garden Arena next year versus this year. We believe that the new restaurant, night club and entertainment offerings that we have underway will continue to not only enhance the customer experience, but drive increased profitability throughout our Strip properties."
  • [Macau] "The mass market continues to grow strongly. We are confident there. VIP market is consistent, but it certainly slowed up and what we're looking at is probably numbers of growth going forward more consistent with the GDP growth of China rather than some of these accelerated growth rates that we've seen over the last two or three years.... We're looking at moderating the growth rates around that 8% to 10% while that the mass market we would expect to grow somewhat faster than that."
  • "You still have a fragile consumer out there and they're continuing to kind of pick their spots. We are seeing, particularly in the third quarter, we saw more reliance on leisure customers, which is a lower spend overall type of customer that we needed to dip into a little heavier than we did last third quarter and that is a lower spending customer. Going forward, we think we'll see an increase in international travelers."
  • [Sandy impact]: "We're going to lose about 4,000 room nights. It's approximately about – close to $1 million of revenue." 
  • [Macau costs] "I guess just the general overriding market pressures that everybody's aware of labor and the potential for increases in labor cost going forward. So that would probably be the only significant issue as far as I see it....labor is 5.4% of overall costs."

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#AngryBears: SP500 Levels, Refreshed

Takeaway: There is no long-term resistance in the SP500 to the prior closing all-time highs (1565).

POSITION: 10 LONGS, 6 SHORTS @Hedgeye

 

Overbought signals come and go. They are very short-term in nature. We’ll get another one > 1528 in the SP500. But Bullish Formations (bullish TRADE, TREND, and TAIL) that are making higher-highs are tough to sell until you get those signals.

 

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

 

  1. Immediate-term TRADE overbought = 1528
  2. Immediate-term TRADE support = 1516
  3. Intermediate-term TREND support = 1458

 

In other words, higher-lows and higher-highs are bullish, until they are not – that’s why we are trying to dynamically measure exhaustion within this Bullish Formation. As volatility drops, exhaustion can get more exhausted than a classical technician thinks.

 

Long-term, as you can see in the 10yr chart there is no long-term resistance in the SP500 to the prior closing all-time highs (1565). The Russell2000 has been making higher-all-time-highs, every other day.

 

Keep moving out there,

KM

 

Keith R. McCullough
Chief Executive Officer

 

#AngryBears: SP500 Levels, Refreshed - SPX


TUESDAY MORNING RISK MONITOR: HOW LONG CAN GOLDILOCKS LAST?

Takeaway: Europe's malaise lasts two weeks while the muni market pushes to new highs. Yields widen while risk declines; a very favorable backdrop.

Key Takeaways:

 

* In spite of the sentiment asymmetry (Financials sentiment remains an 8-9 on a 10 scale based on current levels of short interest), pressing the risk side of the trade continues to work for now. While we remain cautious that the data will show signs of turning in the intermediate term, the short-term shows no red flags as yet. For now, higher-beta Financials should continue to outperform.

 

* TED Spread – The TED spread fell 3.3 basis points last week, ending the week at 19.11 bps this week versus last week’s print of 22.4 bps. For reference, this is the lowest level for the TED Spread since a brief stint in late July 2011 in the 16-19 bps range.

 

* Markit MCDX Index Monitor – Spreads on 2016 muni bonds tightened by a further 10 bps, ending the week at 90.25 bps versus 100.49 bps the prior week. This index has been rapidly declining since year-end, and has been generally trending lower since its late 2011 highs (230 bps) following a call for the conditions of the municipal finance sector to deteriorate significantly. 

 

* 2-10 Spread – While spreads tightened 3 bps in the latest week to 171 bps, the trend here has been generally higher over the last two months. Spreads are up 30-40 bps since mid-December last year. 

 

Financial Risk Monitor Summary

 • Short-term(WoW): Positive / 6 of 12 improved / 0 out of 12 worsened / 7 of 12 unchanged

 • Intermediate-term(WoW): Positive / 7 of 12 improved / 2 out of 12 worsened / 4 of 12 unchanged

 • Long-term(WoW): Positive / 9 of 12 improved / 1 out of 12 worsened / 3 of 12 unchanged

 

TUESDAY MORNING RISK MONITOR: HOW LONG CAN GOLDILOCKS LAST? - 15

 

1. American Financial CDS -  All U.S. financials tightened except for Sallie Mae (+8 bps), Aon (+2 bps) and Marsh & McLennan (+7 bps). Large-cap U.S. Financials continue to post steadily decreasing risk profiles. Swaps tightened for 24 out of 27 domestic financial institutions.

Tightened the most WoW: RDN, MET, PRU

Widened the most WoW: MMC, AON, SLM

Tightened the most WoW: AGO, RDN, MBI

Widened the most MoM: MMC, COF, SLM

 

TUESDAY MORNING RISK MONITOR: HOW LONG CAN GOLDILOCKS LAST? - 1

 

2. European Financial CDS - EU financials CDS was near universally tighter last week, with the exception of Greek banks. The largest improvements were at French, Spanish and Italian banks. British and German banks were also improved.

 

TUESDAY MORNING RISK MONITOR: HOW LONG CAN GOLDILOCKS LAST? - 2

 

3. Asian Financial CDS - Swaps of major Aisan Financial companies were lower across the board with the exception of Daiwa, which was wider by 8 bps. Chinese banks posted the largest improvement.

 

TUESDAY MORNING RISK MONITOR: HOW LONG CAN GOLDILOCKS LAST? - 17

 

4. Sovereign CDS – Italy, Spain and Portugal posted sharp improvements with swaps tightening 30, 29 and 13 bps, respectively. Ireland was close behind with 12 bps of tightening. Portugal remains the most risky major EU country (ex-Greece) at 382 bps. Spain is next at 255 bps. The recent run-ups in these countries have faded and they are again trading near their multi-year lows. 

 

TUESDAY MORNING RISK MONITOR: HOW LONG CAN GOLDILOCKS LAST? - 18

 

TUESDAY MORNING RISK MONITOR: HOW LONG CAN GOLDILOCKS LAST? - 3

 

TUESDAY MORNING RISK MONITOR: HOW LONG CAN GOLDILOCKS LAST? - 4

 

5. High Yield (YTM) Monitor – High Yield rates fell 3.2 bps last week, ending the week at 6.08% versus 6.11% the prior week.

 

TUESDAY MORNING RISK MONITOR: HOW LONG CAN GOLDILOCKS LAST? - 5

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 3.6 points last week, ending at 1769.

 

TUESDAY MORNING RISK MONITOR: HOW LONG CAN GOLDILOCKS LAST? - 6

 

7. TED Spread Monitor – The TED spread fell 3.3 basis points last week, ending the week at 19.11 this week versus last week’s print of 22.4. For reference, this is the lowest level for the TED Spread since a brief stint in late July 2011 in the 16-19 bps range.

 

TUESDAY MORNING RISK MONITOR: HOW LONG CAN GOLDILOCKS LAST? - 7

 

8. Journal of Commerce Commodity Price IndexThe JOC index fell -1.2 points, ending the week at 11.54 versus 12.7 the prior week.

 

TUESDAY MORNING RISK MONITOR: HOW LONG CAN GOLDILOCKS LAST? - 8

 

9. Euribor-OIS Spread – The Euribor-OIS spread was unchanged at 13 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. 

 

TUESDAY MORNING RISK MONITOR: HOW LONG CAN GOLDILOCKS LAST? - 9

 

10. ECB Liquidity Recourse to the Deposit Facility – Deposits with the ECB Liquidity Facility continue to drop. Deposits are currently 124 billion Euros, down from 400 billion Euros in mid-2012, and down from over 800 billion throughout the first half of 2012. The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis.  

 

TUESDAY MORNING RISK MONITOR: HOW LONG CAN GOLDILOCKS LAST? - 10

 

11. Markit MCDX Index Monitor – Last week spreads on 2016 muni bonds tightened by a further 10 bps, ending the week at 90.25 bps versus 100.49 bps the prior week. This index has been in total freefall since year-end, and is generally trending lower since its late 2011 highs (230 bps) following a call for the muni market to deteriorate. The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 16-V1. 

 

TUESDAY MORNING RISK MONITOR: HOW LONG CAN GOLDILOCKS LAST? - 11

 

12. Chinese Steel – Steel prices in China were flat last week at 3,790 yuan/ton. While there is some concern this morning about Chinese property values, the price of Chinese steel has been moving generally higher since late November of 2012. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.

 

TUESDAY MORNING RISK MONITOR: HOW LONG CAN GOLDILOCKS LAST? - 12

 

13. 2-10 Spread – Last week the 2-10 spread tightened to 171 bps, -3 bps tighter than a week ago. Bigger picture, however, the 2-10 yield spread has been tracking generally wider since mid-December of last year, when it was in the mid-130 bps range. We track the 2-10 spread as an indicator of bank margin pressure.

 

TUESDAY MORNING RISK MONITOR: HOW LONG CAN GOLDILOCKS LAST? - 13

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 1.0% upside to TRADE resistance and 1.5% downside to TRADE support.

 

TUESDAY MORNING RISK MONITOR: HOW LONG CAN GOLDILOCKS LAST? - 14

 

Joshua Steiner, CFA


Good Growth

Client Talking Points

Level Playing Field

You can fight the market all you want, but sometimes, you have to go with the (fund) flow. Any permabears that have stayed short the S&P 500 since November 2012 are cringing as they wake up to margin calls and headaches that won’t go away. Our strategy in the global macro arena has been to stay long the US dollar while short the Japanese Yen, long US and Asian equities (staying away from Europe) and short gold and Treasuries. You’ve seen the run up in the US stock market and the beatdown Treasuries, gold and the Yen have received since then.  It’s all part of deflating the inflation that was originally brought on by Ben Bernanke and his posse at the Federal Reserve. Commodity prices coming down help spur consumption which in turn, helps spur growth. Growth = good. Simple as that.

Asset Allocation

CASH 52% US EQUITIES 15%
INTL EQUITIES 15% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 18%

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.

FDX

With FedEx Express margins at a 30+ year low and 4-7 percentage points behind competitors, the opportunity for effective cost reductions appears significant. FedEx Ground is using its structural advantages to take market share from UPS. FDX competes in a highly consolidated industry with rational pricing. Both the Ground and Express divisions could be separately worth more than FDX’s current market value, in our view.

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

“Back from lunch to hear the rumour of S&P downgrade of UK tonight ... hmmm” -@NicTrades

QUOTE OF THE DAY

“Before God we are all equally wise - and equally foolish.” -Albert Einstein

STAT OF THE DAY

SPX risk range = 1516-1524 as volatility gets crushed


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 80.30%
  • SHORT SIGNALS 78.51%
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