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MACAU ROI

This note was originally published April 15, 2013 at 18:25 in Gaming

  • WYNN leads the pack with an amazing 71% ROI (based on 2012 EBITDA) on Wynn Macau and Encore
  • LVS’s $4 billion and climbing investment in Sands Cotai Central has depressed its ROI
  • Peninsula investments earned much higher ROIs but Cotai still looks like a great investment

 

MACAU ROI - roi


INVESTORS NOT EXPECTING AN IGT BEAT

We think IGT has a lot of incentive to post a strong FQ2

 


Strong sales momentum, particularly in March, should contribute to an estimate-beating quarter in our opinion.  Our $0.32 EPS estimate exceeds consensus by $0.02 driven by a revenue estimate 3% higher.  Double Down (DD) could also outperform expectations as it did in FQ1.  Given the poor sentiment surrounding that acquisition, a DD beat could also be a catalyst.  Our sense is that any overall upside to EPS would be a surprise to the buy side. 

 

Going forward, we do not expect much change in F2013 guidance of $1.20 to $1.30 although a rise and narrowing of the range to something like $1.24 to $1.32 wouldn’t be surprising.  We remain at the top end of the guidance range (consensus is $1.26) which puts IGT’s valuation at slightly more than 12.6x FY2013 EPS.  On our FY2014 estimate of $1.45, IGT trades at only 11.3x.  Clearly at this valuation, IGT remains a “show me” stock for which every quarterly meet or beat could be impactful.

 

 

FQ2 DETAIL

 

We estimate that IGT will report $587MM of total revenue and adjusted EPS of $0.32, 3% and 5% ahead of consensus, respectively.  Product sales of $279MM at a 54% gross margin.

  • Our channel checks have indicated that IGT had very strong sales momentum in March, some of the best that the company has seen in years. We believe that some of the strength is attributable to ongoing promotions which offered incentives to order products prior to the quarter close.  We would expect to see a slower sales pace in April.
  • NA sales of $135MM and gross margin of $74MM
    • $143MM of NA box sales: 10,215 gaming machines at ASP of $14k
    • 7,915 replacements and 2,300 new units
      • ~800 shipments to IL
        • We heard some conflicting things here.  The company indicated that shipments should be up QoQ.  However, another one of our channel checks told us that IGT only shipped 775 units in the Q.
      • ~3,400 shipments to Canada
        • 1,375 to Saskatchewan
        • 1,500 to Manitoba
        • 500 to Quebec
      • 1,200 units to OH
        • 800 to Cincinnati
        • 400 to Thistledown
    • ASP’s should be down QoQ and YoY given the larger shipment to Canada of lower priced VLT machines
    • Non-box sales of $55MM, down a little QoQ.  1Q benefited from IP fees.
  • International sales of $80MM and gross margin of $40MM
    • $59MM of box sales:  3,700 units at an ASP of $15.8k
    • Non-box sales of $21MM
    • 50% gross margins

Gaming operations revenue and gross margin of $308MM and $190MM, respectively

  • End of Period install base of 57,632
  • Core gaming operations revenue of $249MM, implying an average win per day of $49/day
  • $59MM of interactive revenue
    • $46MM of DoubleDown revenue
      • During the JPMorgan conference, CEO Patti Hart indicated that DD revenues per user were trending at 31 cents.  In late March, IGT executives indicated that revenues per user and DAU’s were up QoQ and that the revenue momentum that they've seen the last few quarters in the business is continuing.
    • $13MM of other interactive revenue

Other stuff:

  • SG&A: $108MM
    • Management guided to a pace of $110MM/Q
  • R&D: $57MM
    • R&D is typically higher in 2Q
  • D&A: $20MM
  • Net interest expense: $21MM
  • 37% tax rate
  • Weighted average shares outstanding: 266.5MM
    • According to the Company, they were in a self-imposed black-out period due to the ADER proxy fight that ended March 5th.  The normal end of period black out period started up again on March 15th.  Therefore, we are fairly confident that IGT did not purchase much stock during the quarter.

Q2 Macro Themes Call Today

Q2 Macro Themes Call Today  - 2Q13clients 04.16.13

 

Hedgeye's Macro Team, led by CEO Keith McCullough and DOR Daryl Jones, is hosting its highly anticipated Quarterly Macro Themes conference call with a presentation and a live Q&A session for participants. The presentation highlights the three most important macro trends that our team has identified for the quarter, analyzing potential impacts across multiple scenarios and identifying investment opportunities. The Q2 2013 Macro Themes Call will be held today, April 16th at 1:00pm EDT.              

 

 

Q2 THEMES INCLUDE:

 

#GrowthAccelerating: After a positive growth inflection in the U.S. macro data to start the year, the key risk management consideration from here is whether domestic growth can accelerate in the face of seasonal and fiscal policy headwinds. Alongside strong dollar benefits to discretionary demand, labor market, housing, and birth trends should remain supportive of consumption over the intermediate term. 

 

#StrongDollar: It all starts and ends with the Buck. We see a stronger U.S. dollar deflating Bernanke's commodity bubbles which should boost U.S. consumption. In particular, we highlight a bullish set-up for the USD versus the EUR and JPY.

 

#EmergingOutflows: Consistent with our call for continued U.S. dollar strength and commodity deflation, we think the very early innings of the next round of emerging market crises is upon us. Sustained USD appreciation exposes EMEs to a variety of economic risks that asset allocators have not had to appropriately discount for over a decade.

 

 

CALL DETAILS 

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 714341#
  • Materials: CLICK HERE (Slides will download one hour prior to the start of the call.) 


CONTACT

For more information please email .


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

Morning Reads From Our Sector Heads

Brian McGough (Retail):

 

J. C. Penney Taps Credit Facility (via WWD)

 

Howard Penney (Restaurants):

 

McDonald’s, Wendy’s improve health perception (via Nation's Restaurant News)

 

China Stuck With Sub-8% Growth as G-20 Confronts Slowdown (via Bloomberg)

 

Matthew Hedrick (Europe):

 

Portugal - Back In The Penalty Box (via Zerohedge)

 

Kevin Kaiser (Energy):

 

Brent Crude Below $100 (via WSJ)

 

Jay Van Sciver (Industrials):

 

Grainger Reports Record EPS Of $2.94 For The 2013 First Quarter (via Grainger)

 

Rob Campagnino (Consumer Staples):

 

10 Things Coke, Pepsi, and Soda Industry Won’t Say (via Yahoo! Finance)


 

 



What's Next?

Client Talking Points

Wait And Watch

It's tempting to want to buy US equities after a massive pullback like yesterday's, but no one ever lost money waiting on the sidelines and to watch what the market's going to do. Volatility spiked hard along with volume yesterday and the S&P 500 broke our TRADE line of support at 1557. This comes after the index hit a new all-time high of 1593 last week and was severely overbought. A lot of things can happen today so we'll feel this one out and either buy or sell when the risk management signals line up.

Go For The Gold?

Some people might be tempted to buy gold after it took nearly a 10% hit to the face yesterday. We're not one of those people. The fact of the matter is we have been discussing the bubble in gold since late last year and know that when you have a strong US dollar appreciating in value like we have the last few months, that its game over for commodities. People who want to short gold should pay close attention to the market and short on a bounce. You don't short anything at the bottom of a massive sell off. - even Bernanke can tell you that.

Asset Allocation

CASH 36% US EQUITIES 15%
INTL EQUITIES 15% COMMODITIES 0%
FIXED INCOME 6% INTL CURRENCIES 28%

Top Long Ideas

Company Ticker Sector Duration
IGT

Decent earnings visibility, stabilized market share, and aggressive share repurchases should keep a floor on the stock.  Near-term earnings, potentially big orders from Oregon and South Dakota, and news of proliferating gaming domestically could provide near term catalysts for a stock that trades at only 11x EPS.  We believe that multiple is unsustainably low – and management likely agrees given the buyback – for a company with the balance sheet and strong cash flow as IGT.  Given private equity’s interest in WMS (they lost out to SGMS) – a company similar to IGT that unlike IGT generates little free cash – we wouldn’t rule out a privatizing transaction to realize the inherent value in this company.

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

"Gold $GLD $GDX, etc is a certified gong show - we dont buy things that are crashing" -@KeithMcCullough

QUOTE OF THE DAY

"It is impossible to defeat an ignorant man in argument." -William G. McAdoo

STAT OF THE DAY

Housing Starts rose 7% in March to a seasonally adjusted annual rate of 1.04 million -- the highest level since June 2008.


Just Say No

This note was originally published at 8am on April 02, 2013 for Hedgeye subscribers.

“Do not suffer your good nature to say yes when you ought to say no.”

-George Washington

 

Raising a firm is something I struggle with sometimes. I endemically trust people who are on my team. I want to believe they’ll succeed. With time, I’m learning that saying yes to everyone’s individual wants isn’t the way to accomplish the team’s goals.

 

Wants versus needs – it’s an interesting discussion I often have with myself. Do I need to hire? Do I want to grow? Do I need to get bearish? Do I want to be right? Why not just let the market tell me what to do?

 

On that score, the aforementioned quote inspired me last night. It comes from Chapter 1, “The Early Years”, of Volcker – The Triumph of Persistence. It hung prominently in Paul Volcker’s father’s office, and was “burrowed into young Paul’s brain” (page 15).

 

Back to the Global Macro Grind

 

From a behavioral perspective, yesterday was one of the many fascinating market days of 2013:

  1. On the open, the SP500 tested another fresh all-time high at 1570
  2. Into the close, the SP500 tested (and held) our immediate-term TRADE line of 1556 support

Did you chase the open (buy high)? Did you sell the close (sell low)? Or at both psychological pain points in the US equity market day did you Just Say No?

 

Selling on green and buying on red is a lot harder than it sounds. Sometimes I have to physically force myself to do the opposite of what I feel like I should do (I get up from my desk and go for a walk). For me at least, feeling anything about macro market moves is usually my first mistake. The second is not trusting my signal.

 

So, just say no buds – it’s ok, really (so is talking to yourself). Oh, and don’t forget to #timestamp all of those decisions so that you are accountable to every time your process answers, as my 3 yr old daughter asks, “yes or no?” Buy or sell?

 

The decisions I made yesterday were as follows:

  1. Sold 3 LONG positions on the open (OZM, FDX, and HOLX)
  2. Shorted 1 core short idea at 10:18AM (Basic Materials, XLB)
  3. Bought/Covered positions between 12:50PM and the close (CJES, EWM, IWM)

Now some will call that whatever they want to call that. I’m just calling it out as what I did. Whenever I do something, I consider the 2 big parts of our process (the Research View and the Risk Management Signal):

  1. Research View: on the margin, the ISM report released at 10AM EST was bearish (that’s why I sold FDX and shorted XLB)
  2. Quantitative Signal: both the SP500 and Russell2000 held immediate-term TRADE support (that’s why I bought IWM)

Within a 15 point (-0.7%) intraday move on a no-volume day (actually a big move considering how few and far between down moves in US stocks have been), you might just say that I said no to fear – and worked the top and bottom ends of my risk range, both ways.

 

Some call it trading. Others call it timing. Many call both trading and timing bad things – and for good reason. If I didn’t have a repeatable process to signal a probable risk range, I wouldn’t be risk managing intraday moves either.

 

No matter what I said yes or no to yesterday, now I have to deal with today:

  1. ASIA: mixed as Equity Indexes continues to make higher-lows and higher-highs; Yen overbought; Nikkei oversold.
  2. EUROPE: strong moves from important support levels for both the DAX and the FTSE on ok PMI data
  3. USA: US Dollar remains Strong Like Bull; 10yr Yield at low-end of our risk range; US Equity futures up

So, we’ll start the day with 13 LONGS and 8 SHORTS @Hedgeye. Two of those 8 SHORTS are Treasuries (TLT) and the Yen (FXY). And the question I have in my mind is why wasn’t I more aggressive getting longer?

 

It’s in my nature (no matter how bullish I am on US growth or stocks) to be relatively conservative in my net long positioning. But Mr Market doesn’t care about my nature. So I have to work on finding a way to just say no more to my natural instincts.

 

Our immediate-term Risk Ranges for Gold, Oil, US Dollar, USD/YEN, UST 10yr Yield, VIX, Russell2000, and the SP500 are now $1592-1605, $108.95-111.44, $82.53-83.38, 93.07-96.12, 1.83-1.94%, 12.14-14.34, 935-955, and 1557-1572, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Just Say No - Chart of the Day

 

Just Say No - Virtual Portfolio


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