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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – June 13, 2013


As we look at today's setup for the S&P 500, the range is 29 points or 0.71% downside to 1601 and 1.08% upside to 1630.           

                                                                                                                    

SECTOR PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.87 from 1.90
  • VIX closed at 18.59 1 day percent change of 8.90%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Advance Retail Sales, May, est. 0.4% (prior 0.1%)
  • 8:30am: Init Jobless Claims, June 7, est. 346k (prior 346k)
  • 8:30am: Cont Claims, June 1, est. 2.978m (prior 2.952m)
  • 8:30am: Import Price Index, May, est. 0.0% (prior -0.5%)
  • 8:30am: Import Price Index Y/y, May, est. -1.4% (pr -2.6%)
  • 9:45am: Bloomberg June U.S. Economic Survey
  • 10am: Business Inventories, April, est. 0.3% (prior 0.0%)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 11am: Fed to purchase $2.75b-$3.5b in 2020-2023 sector
  • 1pm: U.S. to sell $13b 30Y bonds in reopening
  • 7:50pm: Bank of Japan meeting minutes for May 21-22

GOVERNMENT:

    • 8am: U.S. Energy Assn holds Energy Efficiency forum, w/ speakers Reps. Cory Gardner, R-Colo.; Peter Welch, D-Vt.; Paul Tonko, D.-N.Y.; Gov. Jack Markell, D-Del.; Senate Energy and Natural Resources Chairman Ron Wyden, D-Ore.
    • 10am: House Ways and Means Cmte holds hearing on taxation of multinational corporations
    • 10am: Senate Banking Cmte hears from FDIC Chief Economist Richard Brown, FDIC Inspector General Jon Rymer on lessons learned from financial crisis for community banks
    • 10am: FBI Dir. Robert Mueller testifies before House Judiciary Cmte oversight hearing
    • 10am: House Energy and Commerce panels holds hearing on DOE budget
    • 11am: Natl Governors Assn, Natl Assn of State Budget Officers hold conf. call briefing on biannual fiscal survey of states
    • 1pm: House Financial Svcs panel meets on “The Impact of Intl Regulatory Standards on the Competitiveness of U.S. Insurers.”
    • 2pm: House Judiciary holds hearing on SAFE Act, which would grant states, localities authority to enforce federal laws

WHAT TO WATCH

  • World Bank cuts global outlook on China slowdown, Europe
  • Clearwire board backs Dish’s bid over Sprint’s lower offer
  • House passes bill to limit CFTC’s cross-border swaps authority
  • IBM’s U.S. job cuts reach at least 1,300, employee group says
  • RBS tumbles after CEO departure as 2,000 job cuts planned
  • Apple’s Eddie Cue key to defense of e-book price-fixing case
  • U.K. lawmakers slam Google over “contrived” tax strategy
  • EU extends review of GE-Avio deal after commitments offer
  • Boeing loyalists’ patience tested; Airbus wide-body takes off
  • Retail sales in U.S. probably rose on pickup in car purchases
  • Nvidia CEO sees sales of chips for cars increasing to $1b
  • U.K. urged by EU to probe currency rigging in Libor’s wake
  • BlackRock wants to enter Danish pension market: Borsen
  • Tyco’s Kozlowski should be denied new hearing: parole board

EARNINGS

    • BRP (DOO CN) Bef-mkt, No est.
    • Casey’s General Stores (CASY) 4pm, $0.62
    • Restoration Hardware (RH) 4:05pm, $0.04

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Gold Imports by India Seen Tumbling as Curbs Boost Titan’s Costs
  • Silver Faithful Taking $5 Billion Hit in Crossfire: Commodities
  • Copper Resumes Decline as World Bank Cuts Global Growth Forecast
  • WTI Falls for Third Time in Four Days as World Bank Cuts Outlook
  • Metalor Set to Complete Singapore Gold Refinery by Year-End
  • Gold Declines in London After Earlier Getting Boost From Dollar
  • Crop Prices Extend Declines After U.S. Sees Increasing Supplies
  • Robusta Coffee at 17-Month Low on Supply Prospects; Cocoa Drops
  • World Food-Import Bill Seen Below 2011 Record at $1.094 Trillion
  • Ethanol’s Best Performance Since 2006 Falters: Energy Markets
  • Commodity Hedge Funds Said by FAO Finding Profits Harder to Make
  • Green Pool Cuts Sugar Surplus by 23% as Brazil Turns to Ethanol
  • Indonesia Completes Probe Into Freeport Grasberg Tunnel Accident
  • Force Majeure in Indonesia Leaves Japan Copper Smelters Looking

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EUROPEAN MARKETS


THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS


THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 

 

 

 

 

 

 

 

 


Trade of the Day: LNCO

Takeaway: We covered our Linn Energy short (LNCO) at 10:43 AM at $37.42.

Book the tidy 3.9% gain. We are simply risk managing the range in one of Hedgeye Jedi’s Kevin Kaiser's best short ideas. He remains “The Bear” on Linn Energy.

 

Trade of the Day: LNCO - lnco


WOOF: MIXED EMOTIONS

Takeaway: WOOF’s fundamentals appear to be improving into 2Q13; we’re leaning long on the stock, but remain on the sidelines for now.

This note was originally published June 07, 2013 at 12:00 in Healthcare

HEALTHCASTER

04 JUNE 2013 

 

WOOF: MIXED EMOTIONS - dog

 

Fundamentals Improving

We have been stalking WOOF on the long side for some time given our expectation for accelerating volume trends in 2013.  However, we had been expecting 1Q13 weakness, which is why we have avoided the name to date. 

 

Fundamentally, our view hasn’t changed.  We’re still expecting a recovery in 2Q13 SS Animal Hospital Metrics; partly because the 1Q13 comp was so difficult, but also because the 2Q13 comp is artificially deflated by utilization pull-forward into 1Q12 from the unusually warm winter.  Additionally, 2H13 will also have additional tailwinds (see link below for more detail)

 

WOOF: 1Q13 Headwinds Preceding the Recovery

03/15/13 11:52 AM EDT

http://app.hedgeye.com/feed_items/27277

 

We are already seeing signs of a rebound.  Veterinary Employment (our best read into WOOF SS Animal Hospital trends and one of two inputs in our WOOF regression model) is accelerating on a y/y basis into 2Q13.  

 

WOOF: MIXED EMOTIONS - WOOF Regression 2Q13

<chart7>

 

 

Stock Setup Mixed 

While 1Q13 results disappointed (worse top-line miss in almost 3 years), the stock rallied on the company's newly-created stock buyback program and a synthetic guidance raise (WOOF began excluding acquisition-related amortization from non-GAAP EPS).

 

The stock is no longer screening as a clear-cut long given its recent outperformace. However, we have a bullish bias on the stock given our expectation for accelerating organic growth, which do not believe the Street fully appreciates.

 

 

WOOF: MIXED EMOTIONS - WOOF Dash 1  6 7 13

WOOF: MIXED EMOTIONS - WOOF Dash 2  6 7 13 

WOOF: MIXED EMOTIONS - WOOF Dash 3  6 7 13

 

 

POSITION MONITOR: The Hedgeye Healthcare Position Monitor is a reflection of our fundamental view on the stocks listed. The TOP IDEA’s section represents our highest conviction ideas.  

 

WOOF: MIXED EMOTIONS - position monitor

 

 

ECONOMIC RELEASES 

6/07/13 - Nonfarm Payrolls, Consumer Credit

 

 

Thomas W. Tobin

ttobin@hedgeye.com

  

Hesham Shaaban, CFA

hshaaban@hedgeye.com


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.

Keith's Top-5 Tweets Today

Takeaway: Here's a quick look at Keith's top tweets.

Keith's Top-5 Tweets Today - twitter

 

Get the Dollar right, and you'll get a lot of things big Mac-ro right

@KeithMcCullough 3:22 PM

 

Bond bulls $TLT getting murdered by US #GrowthAccelerating scares in bond yields, even on stock down days

@KeithMcCullough 3:10 PM

 

$AAPL acts like 100 lbs of poop in a zip lock bag

@KeithMcCullough 10:11 AM

 

Biggest opportunity in the market is that everyone has to do Macro, and few have a macro process- long-term opportunity

@KeithMcCullough 10:07 AM

 

This market is in its most confusing spot of 2013 - doing a lot of watching now $SPY

@KeithMcCullough 10:02 AM


VFC: Investors Ignoring the BIG Question

Takeaway: The real question for VFC...Why remain an 'above-avg' portfolio instead of entering the seller's market and downsizing to a GREAT portfolio?

CONCLUSION: We think that VFC succeeded in focusing investors on the big picture at its Analyst Day, but there is still a massive 'trust me' element to this model. Granted, management has earned the benefit of the doubt, but a lot needs to go right to hit its targets. We think the bigger question people are not asking is why this company has five different Brand Coalitions and is operating an 'above average' portfolio, instead of downsizing to a portfolio that is truly 'great'.  After all, it's a seller's market.

 

DETAILS

We've read through a lot of commentary about the VFC analyst day, and as quantitatively concise as the company's targets are, there were elements of the presentation that we don't think are well represented in the risk/reward. The general sentiment sounds something like  a) Same 'ol great quality management, b) aggressive 10% global sales growth targets (presuming acquisitions come through), c) a hockey stick acceleration in EBIT margins from 13.5%-16.0%, d) $18.00 in EPS in 5-years (better than the $17.00 in '17 that they are setting as 'official' goals), and e) a 300-400bp improvement in ROIC. 

 

Presuming the company hits its goals, the stock is trading at 10x that earnings number today, or 17x 2013. IF you believe these targets and think that current peakish multiples can hold for another 5-years, you're looking at about a $300 stock in 5-years  (1827 days, but hey, who's counting?), or a 10-12% CAGR in VFC's stock.   That's nice, but a lot needs to go right for it to happen, and the end result is a return that we'd consider 'about average'.

 

There's something about the crux of the presentation that did not sit well with us, and that's the lack of detail around how VFC is going to achieve these targets. We understand that it's hard to give such specific detail for a company with a portfolio of 27 brands.  But there was very much a feel of 'trust us…we'll do it.'  In fact, their overall tone was about as bullish as we've heard any management team in a long while.  And when we marry such a bullish tone with high yet unsubstantiatiated targets (that the Street will blindly bake right into their models), it makes us a bit weary.

 

In fairness, this is a management team that has earned our respect in executing upon its promised goals. So when they say they're going to do something, it means they're probably going to do it.  But adding $5.2bn to a $5.9bn Outdoor and Action Sports business over just 5-years? That's a big big number, and the supporting context was sparse.

 

The BIG Question

Regardless of the targets, here's a bigger question for us… The company plans to add $6.4bn in revenue over 5-years. Yet $5.2bn, or 81% of that is in the Outdoor and Action Sports arena.   They are making it clear that the Outdoor business is diversifying both geographically and seasonally to maximize growth potential while mitigating volatility.   It accounts for 55% of sales today, and within 5-years' time should be 64% of sales.  That's great. But the simple question is…"Why not 100% of sales instead of 64%? Why do they have the other four brand coalitions a all?"

 

We could justify being in the denim business. It owns two of the most stable and steady brands in the business in Wrangler and Lee.  In addition, it has a mid/high-teens margins and the highest ROIC at the company since it owns a significant portion of its own manufacturing facilities.

 

But as for its' other three Coalitions? Contemporary (7 for all mankind), Sportswear (Nautica), and Imagewear (Majestic)… why is it in these businesses at all? The brands are all what we'd consider 'average to above-average.' But we're only interested in owning brands that are truly 'Great'. VFC has three great brands. The North Face, Vans and Timberland, and they are all in the Outdoor Coalition. The other brands that are on the bench as being 'potentially great' (such as Smartwool, Napapijri, Reef, and Lucy) also happen to be in the Outdoor group.

 

We're not suggesting that VFC gets out of the 'portfolio of apparel brands' business. But simply that a more focused 'portfolio of Outdoor/Action Sports brands' might make a lot more sense. At a minimum, we'd pay a higher multiple for it. For example, the company is now trading at about 14x TTM EBIT. Two points of multiple expansion on a smaller, but more focused portfolio of outdoor and Jeanswear brands yields an immediate return 14% above current levels -- and that's before considering what we think would be between $1.5bn and $2bn ($13-$18/share) in proceeds from the rest of the portfolio.  This is wishful thinking, as we don't think VFC would ever consider going there. But this is where we think the most value would be created for shareholders.


HEARD ON THE AM CALL: MIND THE DOLLAR

Takeaway: The US Dollar is the most important thing in my model right now.

(Excerpted from this morning's Hedgeye conference call)

 

The US Dollar is the most important thing in my model right now. It is literally sitting right on its trend line. To a penny.

 

HEARD ON THE AM CALL: MIND THE DOLLAR - DXY

 

This is like a golf ball sitting right on the edge of a hole.

 

What are you going to do? Blow on it? You’ve got to wait. You’ve got to watch.

 

If you’re an intermediate term, or long term investor, you should just wait. Why wouldn’t you just wait? Eventually someone’s going to blow on that ball one way or another. It’s either going to go into the hole, it’s going to go in the hole or it’s going to break down.

 

The point here is that if the USD breaks its trend line, that would be something new. That’s not something we’ve seen for six months. It’s our Hedgeye Chart of the Day. It’s the most important thing in my notebook this morning. It’s obviously something I am focused on.

 

Bottom line: I’ll say this until I’m blue in the face. If you want to get Global Equities right, you have to get the US Dollar right.


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