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This note was originally published April 22, 2013 at 12:31 in Gaming


Average table revenues slowed dramatically this past week, averaging only HK$775MM per day, still up 1% year-over-year.  Our full-month projection for April is now for GGR of HK$25.5-26.5 billion, which represents year-over-year growth of +5-9%, down from our previous estimate of +11-15%.  We heard that hold may have been low this past week.


In terms of market share, MPEL and Sands China continue to track above recent trend.  Despite the softness this past week, we remain positive on MPEL, given its likely strong first quarter earnings report, continued market share gains, and relatively low valuation. 





Bullish TRADE! SP500 Levels, Refreshed



Below 1557 (TRADE bearish); above 1557, back to TRADE, TREND, and TAIL bullish. We call that a Bullish Formation.


If you want to get all beared up about something, short Bearish Formations (like Commodities or Mining Stocks).


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

  1. Immediate-term TRADE resistance = 1603
  2. Immediate-term TRADE support = 1557
  3. Intermediate-term TREND support = 1520

In other words, I got longer (gross and net) as we crossed and confirmed 1557. Can we snap that again? Sure. And there aren’t any rules against selling on that again either. But remember, that’s all immediate-term talk.


From an intermediate (TREND) perspective, both the US economy (Consumption Growth) and the SP500 continue to look bullish.


If the SP500 tests 1603, the VIX will probably have a 10-handle. At least that’s what my model is telling me.


Prepare for what most consider improbable, when it becomes more probable.



Keith R. McCullough
Chief Executive Officer


Bullish TRADE! SP500 Levels, Refreshed - SPX

Big Trouble In China

China is a big economic bubble ready to pop and this morning, it's looking like it may be ready to burst. Economic activity dried up with the Chinese Purchasing Managers Index (PMI) slowing sequentially to 50.5 versus 51.6 last month. In turn, Chinese stocks, which were moving to the upside constantly back in January, are taking a turn for the worse, with the Shanghai Composite Index closing down -2.2% this morning. As you can see in the chart below, Chinese stocks have been falling since Valentine's Day. No love for China? Apparently not.


Big Trouble In China - shcomp

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 80.51%
  • SHORT SIGNALS 78.32%

RAI Q1 – Less Volume, More Profit

RAI is on the tape with Q1 results - $0.03 better than consensus and maintaining full-year guidance.   We think the key theme across the release is lower volumes but better profitability, a state of nature that we think persists for the balance of 2013.

What we liked:

  • EPS of $0.72 versus consensus of $0.69
  • Maintained full-year guidance of $3.15 - $3.30
  • A substantial increase in cigarette profitability per unit year over year from $33.20 per thousand to $39.42 per thousand despite Q1 2012 being the most difficult comparison on this metric
  • Continued share momentum in Grizzly (+110 bps) despite a difficult Q1 comparison
  • A 4.6% increase in revenue per can at American Snuff (however, against a ridiculously easy comparison)
  • A 252 bps improvement in operating margins at American Snuff (comparisons get significantly more difficult as the year progresses)

What we didn’t like:

  • Total cigarette industry declined 6.1% against the easiest comparison of the year (Q1 2012 declined -4.0%)
  • RAI’s volume decline outpaced the industry (-8.7%)
  • Pall Mall declined against the easiest comparison of the year
  • Disappointing American Snuff volumes (+1.1%) as well as smokeless industry total volume (-1.4%)

At this point, we aren’t seeing a lot to do with the domestic tobacco manufacturers – the likely combination of weaker volumes and better profitability preserves guidance and consensus estimates, and the yields in the names are still chunky.  Our bias would be to be buyers on material weakness in RAI, LO and MO for trades, using the yields as a backstop.


Call with questions,




Robert  Campagnino

Managing Director





Matt Hedrick

Senior Analyst


In preparation for WYN's F1Q 2013 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.




  • As we grow internationally, specifically in countries such as China, there will be a dilutive impact on global RevPAR.
  • [Wyndham Exchange and Rentals] Excluding FX movements and acquisitions, adjusted EBITDA would be up slightly for the  year reflecting the weak economic conditions in Europe and the continued challenges in the broader timeshare industry
  • WVO will have difficult year-over-year comparisons in the first quarter based on an exceptionally strong quarter one in 2012 and the timing of some expenses on the sales side.
  • In the Rental business, the four tuck-in acquisitions we completed since August 2012 will add to our growth and represent new markets for the organic growth of this business. We see some macro challenges in Europe during 2013 in the Rental business, but we believe we have  budgeted and planned for these challenges appropriately in our guidance.
  • The deal pipeline is about the same as it was last year. It was pretty strong last year. We got a couple of deals done. We're not looking at anything that is much different from what we've done in the past.  But when we talk about tuck-ins, tuck-ins can be larger than $80 million or $30 million or $20 million
  • We haven't changed our capital allocation policy… We will keep our leverage ratio around 3.2 the way that the agencies calculate it, or 3.3, and that will allow us to add on more debt as we increase our EBITDA, which we said we would do because we don't look to improve that rating, but we want to stay where we are right now in investment grade

2013 guidance

  • Revenues of $4.925 - $5.100 billion
  • EBITDA of $1.140 - $1.165 billion
  • EPS of $3.57 - $3.70
  • Weighted average diluted shares of 140 million

Two Formations

Client Talking Points

Bullish Formation

There's a lot to get bullish on these days. The US dollar is certainly worth getting behind as commodities get destroyed across the board. You've saw what can happen to gold and copper is getting a beatdown that's even more severe. US equities are another market in bullish formation, and we like the S&P 500, Consumer Discretionary (XLY), US Consumer Staples (XLP), US Healthcare (XLV) and individual stocks by the way of Nike (NKE) and Starbucks (SBUX).

Bearish Formation

Now, it may seem obvious at this point but commodities are in bearish formation. We've been bearish on commodities for some time now as one of our big global macro themes. Particularly, we like shorting gold (GLD) and gold miners (GDX). We're also bearish on individual names like Freeport (FCX). And then we have Japan, where the Yen (FXY) has been in bearish formation for sometime thanks to the Bank of Japan's planning. Russia and Brazil are also in bearish formation due to their correlation with the commodity markets.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

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. 


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 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


"We do not want you to buy $CAT" -@KeithMcCullough


"Defining and analyzing humor is a pastime of humorless people." -Robert Benchly


Netflix shares rally 25% after earnings beat expectations.

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