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DRI: The Unthinkable Long Case!

Takeaway: DRI: The Unthinkable Long Case

We will be hosting a black book conference call entitled "DRI: The Unthinkable Long Case" on Thursday, March 14th, at 1:00pm EST. to talk through our reasoning why we want to be Long DRI.  



  • Our previously "unthinkable" short case came to fruition, now widely known
  • Fundamentals of the core concepts
  • Limited downside in the share price  
  • A "win-win" scenario emerging for investors


Please email  or me to obtain the dial-in information for this call and a copy of the presentation.




Howard Penney

Rory Green

Talks Between the DOJ and Anheuser-Busch InBev "Progressing Smoothly"

It isn’t our habit to respond to Bloomberg articles, but we received some questions so we thought it might make sense to respond more broadly.  Just prior to the close, Bloomberg reported that talks between the Department of Justice and Anheuser-Busch InBev regarding the proposed transaction involving Grupo Modelo were “progressing smoothly”.  The article further suggested that the DOJ’s focus was on Constellation Brands’ plans to expand Piedras Negras (brewery in Northern Mexico).


The article went on to suggest that it was unlikely an agreement would be reached prior to March 19th (the date both parties agreed the pending litigation should be stayed until).

Three quick points:

  1. It appears to us that the DOJ wants to make certain that ABI will be removed from the business of brewing the beer that comes into the US.  This is unsurprising as the DOJ, in the original complaint, equated controlling the supply with de facto market share control.  Absurd? Yup, but the current deal structure should satisfy the DOJ on this count.
  2. It would also seem that the DOJ is comfortable with STZ being involved in the transaction (another frequent question) – in fact, it is unlikely that ABI would have reworked the deal in the fashion it did without at least a wink from the Justice Department that it could live with STZ as the owner of the Corona brand.
  3. The March 19th date isn’t a drop dead date – both parties agreed to the date, and both parties can agree to extend the date.  We are fairly certain any Judge would be happy to keep the negotiations going, particularly if progress is being made.  Most courts have better things to do.

So, to the extent that the facts contained in Friday’s article are correct, they are wholly consistent with our view of a high probability of the new deal structure gaining regulatory approval.  Having said that, we prefer the risk/reward profile on BUD (versus STZ), and think BUD can work toward $110 per share.  STZ has upside toward $50 per share, in our view, but more significant downside risk in the event the DOJ elects to revert to some of its prior irrationality.

Call with questions,




Robert  Campagnino

Managing Director





Matt Hedrick

Senior Analyst


The Economic Data calendar for the week of the 11th of March through the 15th of March is full of critical releases and events. Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.



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Today we bought Goldman Sachs (GS) at $153.09 a share at 3:38 PM EDT in our Real-Time Alerts. When markets rage, Goldman crushes it. Stock is immediate-term TRADE oversold within a Bullish Formation. Check out Hedgeye Financials Sector Head Josh Steiner's research note from yesterday. 



VIDEO: Making Moves In The Markets


Hedgeye's Director of Research Daryl Jones appeared on CNBC's Closing Bell Exchange this afternoon to discuss the S&P 500 and record highs being made in the US equity markets. Jones discussed how the strong outlook for the US dollar will be good for the American consumer and how derivative plays on housing are worth allocating capital to. He also reiterated his call made on CNBC last week that being bullish and overweight on US equities is the key to success.


You can watch Daryl's full appearance on CNBC in the video posted above.

Employment Data Confirming Bearish Casual Dining Stance

Comparing the job growth trends, implied by the BLS data released today, in limited service and casual dining suggests that the relative softness in casual dining trends is continuing.  


Knapp Track same-restaurant sales data track BLS employment growth data for the full-service restaurant industry.


Employment Data Confirming Bearish Casual Dining Stance - knapp versus full service employment growth



Employment growth by Age


Employment growth by age data continues to imply that quick service restaurants are benefiting from improving job growth in the younger age cohorts while casual dining struggles are being exacerbated by decelerating employment growth among some of that sector’s most important demographics.


The chart below illustrates continuing growth in the employment of 20-24 year old's while employment growth in the 35-44 YOA and 45-54 YOA cohorts declined in February, albeit at a lesser rate than in January. 


Employment Data Confirming Bearish Casual Dining Stance - Employment by Age



Industry Employment


If we assume that hiring within the restaurant industry serves as a proxy for operator confidence, it seems that QSR operators have a much different outlook than casual dining operators. 


The Leisure & Hospitality employment growth decelerated in February, suggesting that overall trends for the restaurant industry may be turning negative.   Quick service chains seems to be benefiting from casual dining’s malaise.


Employment Data Confirming Bearish Casual Dining Stance - restaurant employment growth



Howard Penney

Managing Director


Rory Green

Senior Analyst

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