Complimentary, accretive, and strategic acquisition for BYI.



BYI announces an agreement to acquire SHFL for $23.25/share in cash for total consideration of ~$1.3 billion (including debt of $8 million and cash of $41 million).  Once combined, BYI expects to achieve annual synergies of at least $30MM. The Company initiates fiscal 2014 guidance for Diluted EPS of $3.70 to $4.05, in-line with HE and consensus.



  • Accretive to EPS and FCF in 1st 12 months after expected close of transaction in C2Q 2014
  • BYI will gain significant share in the e-table market and in international markets i.e. Asia and Australia.
  • Fully committed debt financing - new $1.3MM term B facility and $138.4MM transaction impact on excess capacity on RC facility 
  • Bally has 660 gaming systems; will be poised for growth in FY 2014 and beyond 
  • Propietary table games will be a new opportunity segment for BYI
  • Transaction will increase Bally's international revenue as a % of total revenues from 16% to 24%
  • Bally/SHFL combo (incl $30MM synergies): 
    • LTM REVENUE: $1.252BN 
    • LTM FCF $204MM
  • SHFL had $124MM (LTM) in recurring revenues 
  • $30MM Synergies: economies of scale, supply chain, regulatory licensing, public company fees, marketing and tradeshows, facilities
  • Joint integration team will be formed
  • Comined debt/adjusted EBITDA expected to be 4.0x at closing
  • FQ4 2013 earnings will be disclosed August 15, 2013
  • F1Q 2014 - will see some impact from the transaction in terms of costs


  • Does not answer whether Gavin will be at the combined company post close
  • Any pushback from BYI customers given they're now selling across entire casino floor? Confident customers will be happy by the transaction.
  • Proxy will be out soon
  • Capital allocation strategy:  priority will be reducing debt levels
    • Target leverage level (pre-acquisition):  2-3x

Asian Contagion

Client Talking Points


With the exception of Japan, every single major Asian Equity market remains bearish TREND in our model. We called this #AsianContagion on our Macro Themes Call yesterday (let us know if you want the replay). India has inflation rising now that the Rupee is down -8% year-to-date vs US Dollar. The government there is rhetorically trying to defend the Rupee this morning. Action speaks louder than words. BSE Sensex down -1% on that tighter #confusion.


Spain? It's bearish TREND and breaking down faster this morning after failing to rally alongside everything else that ticks yesterday. It's down -1.5% for the IBEX right now as the Troika sniffs around Portugal (it doesn’t smell very good, evidently). Meanwhile, the Euro is failing at our TAIL risk line of $1.31 vs USD. That is still a big risk.


Brent is not letting up this morning. It's still a $109 handle. The immediate-term upside is to $110.29/barrel. This represents a sequential consumption tax for the world in Q3 versus Q2. No, this is most definitely not what 99% of the world's population needs – not now. Oil prices matter. We are watching this one closely. 

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.


Gaming, Leisure & Lodging sector head Todd Jordan says Melco International Entertainment stands to benefit from a major new European casino rollout.  An MPEL controlling entity, Melco International Development, is eyeing participation in a US$1 billion gaming project in Barcelona.  The new project, to be called “BCN World,” will start with a single resort with 1,100 hotel beds, a casino, and a theater.  Longer term, the objective is for BCN World to have six resorts.  The first property is scheduled to open for business in 2016. 


Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward.  Near-term market mayhem should not hamper this  trend, even if it means slightly higher borrowing costs for hospitals down the road. 

Three for the Road


My wife's pre game advice (as I was walking out the door): "play nice with the other tv people today"



History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by  controlling money and its issuance.

James Madison


The price of gold is off sharply from the record highs of 2011, when it touched $1,900 an ounce. Despite its gains this past week, gold is still down 24% since the beginning of the year.

Standing Up

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

“If someone picks on your brother and you don’t stand up for him, don’t bother coming home.”

-Larry Bird, quoting his father (paraphrased)


From a stock research perspective, the last couple of months at Hedgeye have been interesting.  Specifically, our Senior Energy Analyst Kevin Kaiser has been knees deep in a classic battleground stock: LINN Energy.  Kaiser has done an immense amount of independent work on the stock and concluded that the Company is overvalued.  In fact, our fair value estimates are more than 40% lower than the current stock price.


This research has raised the ire of the Company’s management who has publicly refuted our thesis, has led to numerous ad hominem attacks from the likes of Jim “The Entertainer” Cramer, and also led to a letter to the editor of Barron’s from a large hedge funds that has accused the short sellers of LINN to be “unprincipled”.  (Ironic from a hedge fund that routinely shorts securities.)


Now, admittedly, when we think we are on to something we tend to go all in.  In this instance, that included presenting on the idea a couple of times, participating in the Barron’s article, and publicly defending our research and our analyst.  To Larry Bird’s quote above, if you are not going to defend your ideas and your teammates, don’t bother coming back to Hedgeye headquarters.


Late last night, we were rewarded for our hard work as LINN Energy announced:


“… that they have been notified by the staff of the Securities and Exchange Commission ("SEC") that its Fort Worth Regional Office has commenced a private, non-public inquiry regarding LINN and LinnCo. The SEC has requested the preservation of documents and communications that are potentially relevant to, among other things, LinnCo's proposed merger with Berry Petroleum Company, and LINN and LinnCo's use of non-GAAP financial measures and hedging strategy.”


Now to be fair, this is America, and certainly the Company is innocent until “proven guilty” by the SEC, but nonetheless this was part of our point in warning investors that some of LINN’s practices were likely to attract the scrutiny of the SEC.


As always, though, Mr. Market will ultimately let us know if we are correct in our research on this name.  After all, in the short run the stock market is a voting machine and in the long run it’s a weighing machine.


Back to the global macro grind . . .


Not surprisingly, one of our third quarter themes will be related to Asia, which has been home to much of the global equity market pin action this year.  As Keith noted this morning, the Yen is down for the fourth straight day versus the U.S. dollar.  In that time period, the #WeimarNikkei is up +6.4% and is once again back above our TREND line of support of 13,389.


The other noteworthy equity move in the region was from Australia.  In the land down under, Aussie stocks had their largest 1-day move in the last two years, up more than 2.5%.


The Reserve Bank of Australia left rates unchanged and also indicated that they are maintaining an easing bias with a scope to cut again. So, yes in U.S. dollar terms kangaroo pelts are cheap and getting cheaper!


The data flow out of Europe this morning is also universally supportive of more easing from the ECB.  First, French car sales came in at literally 20-year lows.  Second, Portugal’s Finance Minister resigns due to public discord over austerity.  Finally, it seems Greece may not be able to satisfy the Trioka in the next 3 days and concession will have to be reached on its next aid tranche.   This later point was obviously foreshadowed by Greek equities which are down -26% since May.


On a relative basis, the actions in both Japan and Australia, and data from Europe, are supportive of our bullish view of the U.S. dollar.   Currency trades on marginal moves in policy and, on the margin, the U.S. appears to be getting more hawkish as the rest of the world stays or gets more dovish.   Of course, as the facts change so will we and this is a big week for incremental data with U.S. payrolls being reported on Friday and the ECB meeting on Thursday.


Coming into the year, one of the asset classes we were most negative on was gold.  Primarily, this was due to expected U.S. dollar strength.  This thesis has played out in spades with gold down more than -25% in the year-to-date.   Currently, we have no position in gold, but continue to look for a re-entry point on the short side.  Consensus is still trying to call the bottom, but the reality remains that prolonged strength in the U.S. dollar will be a major headwind for gold.


Switching gears to the U.S., we will be hosting a call next week on July 9th to introduce a new investment theme on defense spending entitled, “Torpedoes in the Water?”  In summary, we are introducing a bearish view on many defense contractors, which have been outperforming industrials broadly, as we believe the earnings estimates are likely to go lower as a long term reduction in procurement spending sets in.  Email if you’d like to attend.


Our immediate-term Risk Ranges are now:


SPX 1592-1634

Nikkei 13398-14191 

USD 82.46-84.16

Yen 98.02-99.91 

Oil 102.26-104.86 

Gold 1174-1268 


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Standing Up - LINE 2


Standing Up - vp7 2

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

July 16, 2013

July 16, 2013 - dtr



July 16, 2013 - 10yr

July 16, 2013 - spx

July 16, 2013 - dax

July 16, 2013 - dxy

July 16, 2013 - oil



July 16, 2013 - ibex

July 16, 2013 - VIX

July 16, 2013 - euro

July 16, 2013 - yen

July 16, 2013 - natgas
July 16, 2013 - gold

July 16, 2013 - copper

Mrs. Market's Love

“I’m whatever I need to be.”

-Gemma (Sons of Anarchy)


Sons of Anarchy is not Married With Children; and Gemma Teller Morrow is not Peggy Bundy. Katey Sagal won a deserved Golden Globe in 2011 for portraying pretty much everything you probably aren’t married to.


Probably is the right word to use there – because you never know. There are some unique characters on Old Wall and I’ll never rule never out of the question. There’s always a chance!


There’s also a chance that you are feeling the market’s love right about now. After 8 consecutive up days for the SP500 and yet another all-time closing high, I think it’s time we start calling Mr. Market. Mrs. Gemma would like that.


Back to the Global Macro Grind


USA style Charming, CA. Yep. Not only is that the name of the fictional town in Sons of Anarchy, it’s also what Mrs. Market has delivered you, on no-volume, for July to-date:

  1. SP500 and Russell2000 closing at all-time highs of 1682 (+18% YTD) and 1043 (+23% YTD), respectively
  2. Consumer Discretionary (XLY) and US Financial (XLF) stocks lead at +25.6% and +25.2% YTD, respectively
  3. US Equity Market Volatility (VIX) to 13.79, which is -23.5% YTD

You can twist it, whine about it, love it, kiss it, and/or yell about it – this USA stock market move is whatever she wants to be. Despite US Equity volume being down -31% versus my TREND based average yesterday (that’s bad), you have to deal with the game that’s in front of you. There is a real-time score.


On yesterday’s Q3 Global Macro Themes conference call (ping if you’d like the replay), I focused a lot on the flow. No, I don’t mean Charlie Hunnam’s flow (he’s the buff blond who plays Jax Teller in Sons). I mean Mrs. Market’s flow.


If you didn’t know that capital flows, now you know. Capital flows chase performance both ways too – that’s why we call them inflows and outflows. One of the main assets Mrs. Market (USA Equities) has going for her now is that capital is running out of places to go.


Since our Top 3 Macro Themes for Q312 are:


1.       #RisingRates

2.       #DebtDeflation

3.       #AsianContagion


Our New Haven, CT club’s strategy suggests you should not be flowing fresh assets into:

  1. Commodity Bubbles
  2. Sovereign Debt Bubbles (USA, Japan, Namibia, etc.)
  3. Asian Equities (ex-Japan)

And we aren’t particularly keen on buying anything (currencies, stocks, or bonds) in Europe right now either.


So… where does the flow go?


Yep, right back into the mother’s milk of all things liquidity:

  1. US currency
  2. US stocks

Now don’t get me wrong here - there are plenty of dysfunctional (and illiquid) equity markets out there in this world that are performing marvelously YTD. Check out the ghost of Chavez’ devalued peso past – Venezuelan stocks are +165% YTD, baby!


I know, you like it when Mrs. Market talks perf to you like that, don’t you bros. So why not chase some of the mo mo and triple down on the 3x Abu Dhabi ETF or something like that too? Dubai and Abu Dhabi are ripping, +47% and +44% YTD, respectively!


#kidding (not on the illiquid equity market performance part though)


2013 Reality Flow Show: there are only two really deep and liquid markets that are really ripping:

  1. USA
  2. JAPAN

And in a world of #RisingRates, #DebtDeflation, and #EmergingOutflows – don’t let anyone from b-school teach you otherwise bros - size and liquidity definitely matters right now.


So where do you go from here? Stay with the process and wait for the next pullback to immediate-term TRADE supports for both the SP500 and the Russell 2000 (and probably the #WeimarNikkei too).


While chasing markets up here isn’t my style, I always need to remind myself that Mrs. Market doesn’t particular care about anyone’s style. Her rules are simple – and everyone eventually needs to be whatever her performance chasing year-end bogeys become.


Our immediate-term Risk Ranges are now as follows (we also have 12 daily Global Macro ranges in our new Daily Trading Ranges product, fyi):


UST 10yr yield 2.45-2.76%


Russell2000 1018-1054

VIX 12.77-15.16

USD 82.45-83.78

Brent Oil 107.04-110.29


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Mrs. Market's Love - Flows


Mrs. Market's Love - vp 7 16

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 80.52%
  • SHORT SIGNALS 78.67%