Takeaway: The Washington-fueled global rally was as impressive as it was predictable. Now it's back to fundamentals over the short/intermediate term.

Risk Monitor / Key Takeaways:

The global rally fueled by the last-minute US debt ceiling increase was impressive. Anyone who still falls into the "de-coupling" camp would have a hard time arguing with the reality of last week's impressively high global/asset class correlation.


It's worth a quick mention that our proxy for risk throughout the dislocation was the interbank overnight markets, which showed consistent calm in the face of relentless media EOW coverage. The interbank measures, namely TED-Spread & Euribor-OIS, are building an increasingly reliable track record of throwing off correct signals without false errors. We profile them every week in our risk monitor.


Here are a few of the notable takeaways.



* Sovereign CDS – Sovereign swaps were tighter around the globe last week with the sole exception of the US, where swaps were flat at 34 bps. The real takeaway is the MoM change, particularly in Europe. Consistent with our 4Q13 macro theme of #EuroBulls, Portugal, Spain and Italy are tighter MoM by 136 bps, 35 bps and 33 bps, respectively. 


* European Financial CDS - Europe continues to dazzle. Only two EU financials widened last week, RBS (+1 bp) and Banco Popular (+19 bps). The rest of Europe was notably tighter. This continues a theme that's been in place for some time now. In fact, looking at the MoM trend, the mean/median change in EU financial CDS is tighter by 31/8 bps, respectively. 


* 2-10 Spread – Last week the 2-10 spread tightened to 227 bps, -7 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.


* High Yield – High Yield rates fell 25.2 bps last week, ending the week at 5.99% versus 6.24% the prior week.



Financial Risk Monitor Summary

 • Short-term(WoW): Positive / 6 of 13 improved / 2 out of 13 worsened / 5 of 13 unchanged

 • Intermediate-term(WoW): Positive / 9 of 13 improved / 1 out of 13 worsened / 3 of 13 unchanged

 • Long-term(WoW): Negative / 2 of 13 improved / 2 out of 13 worsened / 9 of 13 unchanged




1. U.S. Financial CDS -  It was a clean sweep for US Financials last week, with swaps tightening across the board as the government finally got its act together. The mean/median tightening across the sector was 20/13 bps, respectively. The most improved were MS, MBIA and MTG. 


Tightened the most WoW: MTG, MBI, MS

Widened the most/ tightened the least WoW: GNW, GNW, RDN

Tightened the most WoW: AXP, MS, ALL

Widened the most MoM: MBI, RDN, AGO




2. European Financial CDS - Europe continues to dazzle. Only two EU financials widened last week, RBS (+1 bp) and Banco Popular (+19 bps). The rest of Europe was notably tighter. This continues a theme that's been in place for some time now. In fact, looking at the MoM trend, the mean/median change in EU financial CDS is tighter by 31/8 bps, respectively. 




3. Asian Financial CDS - Tighter. Only Japan's Matsui was wider on the week (+3 bps). Chinese and Indian bank swaps were tighter across the boards, as were Japanese banks with the exception of Matsui.




4. Sovereign CDS – Sovereign swaps were tighter around the globe last week with the sole exception of the US, where swaps were flat at 34 bps. The real takeaway is the MoM change, particularly in Europe. Consistent with our 4Q13 macro theme of #EuroBulls, Portugal, Spain and Italy are tighter MoM by 136 bps, 35 bps and 33 bps, respectively. 








5. High Yield (YTM) Monitor – High Yield rates fell 25.2 bps last week, ending the week at 5.99% versus 6.24% the prior week.




6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 3.0 points last week, ending at 1811.




7. TED Spread Monitor – The TED spread rose 3.0 basis points last week, ending the week at 21.6 bps this week versus last week’s print of 18.56 bps.




8. CRB Commodity Price Index – The CRB index rose 0.5%, ending the week at 287 versus 286 the prior week. As compared with the prior month, commodity prices have decreased -1.2% We generally regard changes in commodity prices on the margin as having meaningful consumption implications.




9. Euribor-OIS Spread – The Euribor-OIS spread was unchanged last week at 12 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. 




10. Chinese Interbank Rate (Shifon Index) –  The Shifon Index fell 6 basis points last week, ending the week at 3.04% versus last week’s print of 3.10%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.




11. Markit MCDX Index Monitor – Last week spreads widened 12 bps, ending the week at 89 bps versus 101 bps the prior week. The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 16-V1.




12. Chinese Steel – Steel prices in China fell 0.2% last week, or 7 yuan/ton, to 3499 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.




13. 2-10 Spread – Last week the 2-10 spread tightened to 227 bps, -7 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.




14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 1.8% upside to TRADE resistance and 2.8% downside to TRADE support.




Joshua Steiner, CFA


Jonathan Casteleyn, CFA, CMT



Another solid week out of Macau, albeit slower as expected as we move farther away from the holiday.  While average daily table revenues declined 15% from the prior week, on a YoY basis, ADTR grew 26%.  We’re currently projecting full month GGR (including slots) to grow 29-33% YoY.


In terms of market share, LVS and MGM continue to lag in October.  We’re hearing both are suffering from low relative hold.  We would argue that LVS will resume market share gains through the most of next year while MGM should struggle to hold its own.  Galaxy and SJM are having great months with share above recent trend.


What can slow the Macau mo?  We don’t see any big negative near-term catalysts although comparisons do get more difficult.  November, while strong, should show decelerating YoY growth and December may fall back into the mid-teens.





China Follows Through

Client Talking Points


Witness the solid market follow through following Friday’s China #GrowthStabilizing data for Q313 and September. The Shanghai Composite closes up another +1.6% overnight, leading Asian Equities. Look, if China bases here on the growth curve, an acceleration in 2014 could be next. We're watching this closely here.


Here's a straightforward equation for you: #StrongEuro = Strong Germany. Nope, you won’t get that from your Keynesian textbook (which is precisely why its truth). German PPI (producer prices) came in NEGATIVE in September at -0.5% year-over-year. Guess what? That is fantastic news for German producer margins. For more on this see our #EuroBull Macro theme deck


It's game time going into the jobs report (tomorrow) with the 10-year yield sitting right on @Hedgeye TREND line support of 2.58%. We have no position into going into this print. Why? We have no idea what this report will bring. Incidentally, Ben Bernanke wants to lean on the yield curve regardless, pandering the to the perma bond bull lobby not to taper. 

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

In line with our #EuroBulls Q4 theme, we’re long the German DAX via the etf EWG. With European fundamentals showing improvement off low levels, we expect outperformance from Germany, and in turn for the region’s largest economy to pull the rest of the region higher. ECB policy remains highly accommodative and prepared to aid any of its sovereign members to preserve the Union. Inflation remains moderate and fundamentals are positive: confidence readings and PMIs are up since June, with factory orders trending higher and retail sales inflecting to push the trade balance higher. Finally, the unemployment rate has held steady at the low level of 6.9%, all of which signals to us that Germany’s economic climate is ramping up. 


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.


Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road


Is the Italian 10yr going to drop below 4%? 4.18% last


Remember that not getting what you want is sometimes a wonderful stroke of luck. –Dalai Lama


In the first nine months of the year, global high-yield-bond issuance reached $378.2 billion, up by 27% on the same period in 2012, according to Dealogic, a financial-data firm.

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What's New Today in Retail (10/21)

Takeaway: UK retail stalls. JCP battles M on Thanksgiving. UA makes big splash in China. AMZN gives apparel a big shot in the arm. DG selling gas.



COH - Earnings Call: Tuesday 10/22 8:30 am

RSH - Earnings Call: Tuesday 10/22 9:00 am

TJX - Investor Meeting: Tuesday 10/22 1:30 pm




Footfalls dip 2.4% at UK retail stores in Sept



  • "Footfall in September was 2.4% lower than a year ago, down on the 0.9% fall in August. This compares with particularly strong figures a year ago when footfall rose 0.5% in September 2012."
  • "Footfall in shopping centre locations fell 2.9% compared with a year earlier, the twelfth consecutive month to report a decline in footfall."
  • "Helen Dickinson, British Retail Consortium Director General, said: Negative numbers across the UK are clearly a concern this close to Christmas, but there are a few factors at play. We’re comparing against a very strong September in 2012, when the post-Olympic period coupled with a cold snap unleashed pent-up demand for shopping trips to stock up on warmer clothing and back-to-school items.  In contrast, this year’s milder September has slowed the uptake of Autumn ranges, a trend reflected in our sales figures last week.'"


Takeaway: Traffic was down in every region and country -- that's arguably the most notable factoid.



JCP, M - JCPenney-Macy’s battle with Stewart coming to an end



  • "A New York judge is preparing to bring down his gavel on the epic battle between Martha Stewart, Macy’s and JCPenney — and the head that gets hammered could be Martha’s."
  • "State Supreme Court Justice Jeffrey ready to rule this week, sources told The Post."


Takeaway: It makes sense that Martha Stewart will be the big loser. Let's face it, she hardly has a good reputation as being the most ethical person after her insider trading prison-term. Then she tops it off by entering into an exclusive agreement when she already had one with another retailer. We can't imagine that anybody would want to go into business with MSO again.


UA - Under Armour Opens Experience Store in Shanghai 



  • "On Oct. 18, Under Armour Founder and CEO Kevin Plank and Under Armour athlete Michael Phelps hosted a grand opening event for the new Under Armour Experience at the Jing An Kerry Centre in Shanghai, China. The first-of-its-kind retail environment places storytelling at the forefront through a multi-dimensional short film that immerses visitors in the brand's world of making athletes better through passion and innovation."
  • A link to the video can be found here:


What's New Today in Retail (10/21) - chart1 10 21 chart1


Takeaway: Bold and smart move for UA. The company has outright failed in its initiative to grow outside the US over the past 5-years. Though this is a major step to boost its presence in the second biggest (soon to be biggest) market in the world.


SHLD - Embattled Sears Closes More Stores



  • "A grim indication of its financial struggles, Sears Holding Corp. is closing several stores in Mississippi, including seven Kmarts and five Sears stores."
  • "Howard Rieff, Sears Holdings director of corporate communications, said, 'The store closures are part of a series of actions we’re taking to reduce on-going expenses, adjust our asset base, and accelerate the transformation of our business model. These actions will better enable us to focus our investments on serving our customers and members through integrated retail — at the store, online and in the home.'”


Takeaway: Good move, but it needs to close about 3,988 more.


AMZN - Amazon Opens New York Photo Studio



  • "A new 40,000-square-foot photography facility that officially opened here Friday provides an idea of the e-commerce giant’s commitment to fashion. The entire space, which features 28 bays for styling, shooting and editing apparel, footwear and accessories, will hum with activity 24/7 when it’s fully up and running in the coming weeks, providing the online retailer with higher-quality product photos."
  • "While the company doesn’t break out sales figures for Amazon Fashion, the overall site’s gross trading volume last year was an estimated $95 billion."


Takeaway: This is a big strategic move for AMZN. It's apparel offering has been abysmal. Let's see if this studio can give the marketing and branding a shot in the arm.


JCP - J.C. Penney to kick off holiday shopping season on Thanksgiving



  • "J.C. Penney has joined the list of retail chains that plan to open their stores on Thanksgiving night to kick off the holiday shopping season."
  • "Penney will open most of its 1,100 stores at 8 p.m., the same as Macy's. Last year, Penney opened its stores at 6 a.m. on Black Friday, while rivals Macy’s and Kohl’s opened their doors at midnight."
  • "Penney had previously announced it is bringing back a holiday tradition that then-CEO Ron Johnson ditched last year: Stores will give away nearly two million holiday snow globes starting at 4 a.m. on Black Friday."


Takeaway: It didn’t take JCP long to match Macy's move to open up on Thanksgiving.  Even though the customer overlap is 30% at best, M can't be too pleased with the competition.


TGT - Target tests new Apple-like format in its electronics department



  • "The discount retailer recently remodeled the departments in several of its stores with waist-height, bright white tables and displays. The move fits a design trend seen in recent years at stores run by Apple Inc. and Best Buy Co. that gives shoppers more hands-on experience with the goods."
  • "And it comes at a time when electronics sellers are seeing a major shift in product mix as the space that used to be devoted to cameras — which are declining rapidly in sales — gives way to square footage for cellphones."
  • "Target is testing the format to give customers a more convenient way to interact with products and services, said spokeswoman Erica Julkowski. 'Guests are looking for more interactive ways to make purchasing decisions about the latest technology,' she wrote in a statement."


What's New Today in Retail (10/21) - chart2 10 21


Takeaway: Odd move at face value…but hey, f you can't beat 'em...


DG - Dollar General tests fuel stations



  • "Dollar General is opening its first fuel station, as part of a test pilot project. The new fuel pumps are located at the Dollar General Market in Hanceville, Ala."
  • "This pilot project is part of an agreement with Mansfield Oil, which provides fuel supply, distribution, delivery, and dispensing solutions to customers. Dollar General and Mansfield will evaluate the results of the pilot project during the next year and jointly assess expansion opportunities."


Takeaway: This actually makes a decent amount of sense in that the company has run out of new categories it can add to grow its same store sales. Too bad the price of a gallon of gas flies in the face of DG being a 'dollar store'.


TCS - The Container Store files amended S1


  • "This is The Container Store Group, Inc.'s initial public offering. We anticipate that the initial public offering price will be between $14.00 and $16.00 per share."
  • The Container Store will offer 12.5 million shares.


Takeaway: Good concept, and it should be a good deal. We'll watch this one with keen interest.


AMZN - The big grey box in Leipzig where Amazon staff have found their voice



  • "Leipzig...this summer it became the first of Amazon's sites to see repeated strike action over pay and working conditions."
  • "Earlier this month the service workers' union Verdi warned that there could be more strikes before Christmas after Amazon refused to enter negotiations about a collective wage agreement that would comply with standards in the German retail sector. Mail order businesses are supposed to pay workers between €11.47 and €11.94 an hour, at least €1 more than Amazon's German workers earn."


Hutchison Considers Retail IPO



  • "Li Ka-shing’s Hutchison Whampoa Ltd. is considering a plan for an initial public offering of its A.S. Watson & Co. unit, a retailer with 11,093 stores that sell things as diverse as aspirin, Bordeaux wine and Apple Inc. iPods in 33 countries. A.S. Watson—which operates Superdrug in the U.K., Kruidvat in the Netherlands and Belgium, and Watson’s and ParknShop in Asia—had first-half sales of 75.8 billion Hong Kong dollars (US$9.8 billion)."
  • "The offering could take place in coming months and could raise $8 billion to $10 billion, depending on how the company is structured, making it the biggest deal in the world this year. People familiar with the matter said the IPO could take place in Hong Kong, Europe or some combination."




ShopperTrak: Shutdown Drove Down Store Traffic



  • "Figures from retail traffic counter ShopperTrak revealed a 7.5 percent decline in foot traffic from prior-year levels during the seven days beginning Sept. 29…"
  • "The drop in shopping activity was somewhat less marked during the second week of the partial closure of the government, with foot traffic down 7.1 percent in the week ended Oct. 12. The year-over-year decline in the Washington market, home to many of the approximately 800,000 federal employees furloughed during the shutdown, stretched to double digits, with traffic off about 11.4 percent in the area during the second week of the month."


ILO Unveils Bangladesh Program



  • "The International labor Organization is slated to give the green light on Tuesday to the launch of a better work program for Bangladesh that is expected to cover 500 garment factories over a three-year period, senior ILO officials said."
  • "Retailers such as Wal-Mart, Gap Inc., H&M, and Inditex, which are already active in similar ILO schemes in other countries, are expected to be invited as stakeholders in the new voluntary scheme."



D.C.'s Delusion

This note was originally published at 8am on October 07, 2013 for Hedgeye subscribers.

“The greatest obstacle to pleasure is not pain; it is delusion.”

-Stephen Greenblatt


That’s one of the best quotes from one of my favorite books this year, The Swerve. “Nature ceaselessly experiments… the swerve is the source of free will…” (pg 189). But your boys Bernanke, Boehner, and Obama will have none of that.


Nope. No more nature, gravity, or truth – it’s all about partisan fear-mongering for political gain. And if you don’t like it, too bad – even buying Gold won’t save you now.


The cover of The Economist this week says “No Way to Run A Country”, the US stock market says US Equity Futures down 17 handles this morning, and the bond market? Well, it doesn’t care about this whole “default” thing. Delusion reigns in D.C. instead.


Back to the Global Macro Grind


This remains the 1st US stock market correction of 2013 that I haven’t been buying on red. Friday was only the 3rd up day for US equities in the last 12 (when Bernanke wrongly decided to Burn The Buck by not tapering).


Down Dollar + Rates Down = US Stocks Down - that’s precisely what you’ll see again this morning. From a US growth expectations perspective, that’s not good.


Some might argue that US futures down 17 is a “capitulation” signal – but context, when considering the emotion of it all, is always critical. At 1671 (my next line of immediate-term TRADE support), this will only be a -3% correction from the SP500’s all-time closing high. That’s hardly a capitulation. That’s a start.


Moreover, it’s important to realize that growth “Style Factors” in our model have barely corrected at all:

  1. LOW YIELD STOCKS (i.e. growth stocks) are still +32.2% YTD (vs High Yield Stocks +11%)
  2. TOP 25% EPS GROWTH (by SP500 quartile) = +28.8% YTD

Then you have all the 2013 US Growth Pain Trades:

  1. HIGH SHORT INTEREST stocks (by SP500 quartile) = +24.9% YTD
  2. HIGH BETA STOCKS = +25.0% YTD
  3. SMALL CAPS (Russell2000) = +27.0% YTD

In other words, given Bernanke re-established his Policy To Inflate (via Down Dollar) and D.C. has gone full gong show at the same time, the US #GrowthAccelerating style factor embedded in Friday’s closing prices is almost absurdly high!


Then there’s Institutional Investor sentiment:

  1. TREASURIES: there’s still a net short position (futures/options data) of -57,902 contracts in 10Y Treasuries
  2. SP500: there’s a net long position of +10,393 in SPY (vs. the 6mth avg of +6,397)
  3. II Bull/Bear Survey: ramped +93%! last week (to the bullish side) from the AUG low

That’s right. By my scorecard, US institutional sentiment just got completely whipsawed again. At the late AUG lows, there were only 37% of investors in the Bull/Bear survey who admitted they were “bullish”, then the SP500 proceeded to rip them a +100 handle move to an all-time closing high in SEP. #wonderful


Now, after chasing growth expectations into the SEP highs, Wall Street is caught off-sides again this morning – too long = wrong. So watch the relationship between US Equity performance and US Equity volatility (VIX) from here. I’m already net short in our #RealTimeAlerts signaling product (6 LONGS, 7 SHORTS), but I’d get really net short on a VIX breakout > 18.98.


For front-month fear (VIX), 18.98 is our TREND line of resistance. The corollary to that line = SP500 TREND support of 1660. We haven’t seen either of those lines violated (the wrong way, respectively) since November of last year. And I have no delusions that the #1 risk to growth has always been what’s on your screen this morning – government.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.60-2.68%

SPX 1671-1704

Nikkei 13821-14269

VIX 15.64-18.21

USD 79.81-80.85

Brent 107.81-108.97


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


D.C.'s Delusion - Chart of the Day


D.C.'s Delusion - Virtual Portfolio


Takeaway: PNRA remains on the Hedgeye Best Ideas list as a SHORT.

First, we'd like to say that we do not believe management has adequately recognized the seriousness of the situation they find themselves in.  Therefore, it goes without saying that, in our opinion, earnings estimates are too high for the remainder of 2013 and 2014.


We’ve recently spoken to an unnamed industry insider in order to clarify our understanding of the cycle that many companies in the restaurant industry tend to go through.  Typically, when a concept gets in trouble, the management team’s decision-making process tends to follow a certain pattern:

  1. Overconfidence – The concept loses its value proposition when management raises prices too aggressively or lowers the quality of food.
  2. Stage 1 Denial – Consumers catch on and begin to frequent the concept less often.  Traffic begins to decline and management usually begins to blame the weather or another external event.
  3. Stage 2 Denial – In an effort to avoid the inevitable and appease the street, management begins to accelerate growth through the form of new unit acceleration or the acquisition of new brands.  Normally, the core business continues to deteriorate alongside a decline in ROIIC (return on incremental invested capital).
  4. Stage 1 Panic – Analysts begin to catch on and management responds by slowing new unit growth, although often not by enough.  The core business continues to decline, as senior management begins to replace the operating team.  Simultaneously, the search for a new advertising agency begins.
  5. Stage 2 Panic – Now it really begins to get ugly, as management sacrifices margins to increase customer counts by implementing a deep discounting strategy.  It then becomes clear that major changes need to be made across the enterprise.
  6. The Healing Process – Management decides to stop growth and attack the middle of the P&L.

Starbucks, Brinker, and McDonald’s are all companies that have successfully worked their way through this cycle, as management from their respective companies aggressively cut CapEx and began to grow it very conservatively for the next few years.  By slowing growth and attacking the middle of the P&L, EBITDA began to consistently increase in each situation.  In our view, SBUX and EAT are currently two of the best managed companies in the restaurant space.  DRI, on the other hand, is a company which, similar to PNRA, is currently going through this cycle (Stage 2 Panic).  But, unlike DRI, PNRA is in the early stages.


While 2Q was a disaster for PNRA and a number of analysts have downgraded the stock recently, we are sticking with our short thesis.  We believe the stock will continue to underperform until the healing process begins.  Last quarter, management warned investors that 2013 would be more volatile than expected and that this trend should continue for the next 3-4 quarters.  Looking past 3Q13, we believe the challenges the company faces will extend into 2014.  How far into 2014 these challenges will persist depends on how management reacts to them.


PNRA: STAGE 1 DENIAL - pnra sss



On the 2Q13 earnings call, management lowered the 2013 outlook to properly reflect the operational improvements they are making.  Management’s guidance for 3Q13 EPS was between $1.32-1.36, and the street is coming in at $1.35.  Given the likelihood of a top-line miss, we believe the street is giving the company the benefit of the doubt, which could lead to further disappointment when the company reports on Tuesday. 


PNRA: STAGE 1 DENIAL - pnra operating margin


PNRA: STAGE 1 DENIAL - pnra rlmn



With the company trying to drive incremental throughput, we believe that an EPS miss could come from incremental labor costs.  Current consensus expectations are for labor costs to be up 11 bps y/y, which is, in our opinion, generous.  Given sluggish sales trends, limited pricing power, and the need for incremental investments, we believe labor costs will be higher than the street is expecting.




PNRA: STAGE 1 DENIAL - pnra cogs


PNRA: STAGE 1 DENIAL - pnra other exp



Looking out to 4Q, it is difficult to tell whether PNRA will be able to hit the numbers, particularly given the company will have an additional week this year.  The street is coming in at $2.09, or 19% EPS growth, on 19% revenue growth, while management has guided to $2.05-2.11.  Given the early reads on October sales trends, we suspect it will be challenging for PNRA to accelerate SSS in 4Q.


Admittedly, the biggest risk to being short PNRA is that it appears to be a consensus short.  The sell-side has turned on the company.  Only 57% of analysts have PNRA rated a Buy and short interest in the stock is at 6.3% of the float, which is one of the highest in the QSR space.




Howard Penney

Managing Director


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