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Join E-Cig Call with NJOY CEO Craig Weiss Tomorrow at 1pm EST

We will host an expert call on electronic cigarettes with Craig Weiss, CEO of NJOY, tomorrow, October 30th at 1:00pm EST titled "NJOY and Developing Trends in the E-Cigs Industry." 

 

Please send any questions for Craig to and he will answer them following his prepared remarks.

 

We also want to note that Craig and NJOY were featured in an NYTimes article over the weekend.

 

 

CALL DETAILS

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 959896#
  • Materials: CLICK HERE (available shortly before start-time)

 

KEY CALL TOPICS WILL INCLUDE

  • Industry trends and the developing landscape
  • NJOY's company profile and share of the category
  • The regulator outlook for e-cigs in the U.S. and internationally
  • What the future holds for e-cigs

 

ABOUT CRAIG WEISS, PRESIDENT AND CEO OF NJOY

Before joining NJOY in June 2010, Craig Weiss, a U.S. Registered Patent Attorney, practiced law, where he focused on the drafting and prosecution of patent applications for medical device, eCommerce and business method inventions. Weiss has three patents to his name, including two for medical devices. He was also the managing member of a hedge fund focused on intellectual property. Weiss earned his law degree from Arizona State University and his bachelor's degree from the University of Pennsylvania.

 

 

ABOUT NJOY 

NJOY is a private e-cig manufacturer, founded in 2006 and headquartered in Scottsdale, Arizona, with online sales and retail distribution in over 60,000 locations nationwide. NJOY has carved out a leading position in the category, offering a variety of rechargeable and disposable products in traditional tobacco and menthol varieties.  

 

In April 2010 the company announced that it received a $20MM investment from the private equity company Catterton Partners. In June 2013, a collection of investors, including Sean Parker (formally at Facebook), announced a $75MM investment in the company.

 

 


Sneak Peek: Investing Ideas

Takeaway: A sneak peek at two stocks covered in Hedgeye's Investing Ideas this past Saturday.

Editor's note: What follow below is a brief, complimentary excerpt from this weekend's "Investing Ideas." This Hedgeye product is designed for the savvy, longer-term self directed investor looking for long-only opportunities. Click here for more information and how to subscribe to this valuable investing tool.  

 

Sneak Peek: Investing Ideas - nik1

 

NKE– We’d like to address the elephant that’s been quietly sitting in the back of the room since Nike’s analyst day on October 9th. Specifically, Nike finally outed a key initiative we’ve been talking about for two years – the ability to manufacture customized product (by color and size) at point of sale. 

 

Think about it – the model for footwear makers over the past four decades has been to design product in the US, and then to outsource to Asia – the entire process taking nine months at the earliest. 

 

Now, NKE is introducing the capability for a consumer to walk into a store and build their own shoe at a kiosk. They’ve had that capability through NikeID at their own stores for a while. But those orders still go to one of its 700 third-party plants in Asia to be processed. Now the product is being manufactured right there…on the spot.

 

So basically, a consumer could go into the store, build a shoe electronically, then go to Chick-fil-A for a bite to eat, and return an hour later and their shiny new kicks will be waiting.  This is an absolute game changer, and it’s one that no other brands have the scale to compete with. 

 

Sound expensive for Nike?

 

Ask yourself this…what retailer on the planet would not give their left arm to have one of these Nike kiosks/mini-manufacturing hubs in their stores? It’s be a big competitive advantage, and one that we think would lead the Foot Locker’s of the world to lay out the capital needed on their own balance sheet.  Nike only allocated 90 seconds to this at their meeting. It was worthy of three hours. We think that people will grossly underestimate the importance of this initiative (no one even asked any questions on it).

 

* * * * * * * 

Sneak Peek: Investing Ideas - trow 

 

TROW – T Rowe Price continues to fire on almost all cylinders after its earnings report this week that beat Street expectations on both revenues and on earnings per share. The firm did however see institutional outflows at the end of the quarter which was the only hang up in an otherwise strong release. 

 

The outflow in the third quarter was improved from last quarter’s withdrawal and is again coming for only a small select group of sovereign wealth funds in Asia that are rebalancing their asset allocation after above benchmark performance from TROW funds. TROW continues to maintain the largest percentage of fund assets in 4 and 5 star funds, the only mutual funds that historically have received any new inflow.

 

As such with these sovereign outflows to be finished soon in our view, TROW will again return to positive net inflow which will be a positive catalyst for this leading fund manager.  T Rowe has $1.6 billion in cash, forward free cash flow of $1.2 billion, and no debt which give this company leading financial stability in the group with the ability to raise its dividend again into 2014 as investors wait for net inflows to return. 

 

* * * * * * * 

 

Click here to learn more about Investing Ideas.


LINN Energy 3Q13: Spend, Baby, Spend

Takeaway.....Better-than-expected 3Q13 on the DCF side, but with a massive outspend relative to maintenance CapEx (again); 4Q13 organic production guided down; outcome of the SEC Inquiry / BRY merger remains a big question; we make the case for LINE fair value at $5.00 / unit; no change in our view, LINE / LNCO remains a top short idea. 

 

3Q13 DCF Beats, Production In Line……LINN’s 3Q13 Distributable Cash Flow (even though LINN doesn’t use the term anymore, it’s still what some people care about) came in at $173MM vs. $148MM guided.  Stronger-than-expected oil production volumes and lower cash costs drove the beat.    LINN reported volumes of 823 MMcfe/d vs. guidance of 810 – 830 MMcfe/d and 780 MMcfe/d in 2Q13 (up 5.5% QoQ).  Oil production beat the high end of the guidance range, likely due to a ramp in activity and spending in the Granite Wash and Anadarko JV over the last two quarters.  Production taxes came in $11.5MM below guidance, as ad valorem taxes, “which are based on the value of reserves and production equipment” fell “primarily due to lower assessed values on the Company’s base properties” (3Q13 10-Q).  Is that bullish?  Adjusted, Open Net Income came in at $0.12/unit and open EBITDA was $334MM 

 

4Q13 Organic Production Guided Down……LINN left its 4Q13 production guidance flat at 850 MMcfe/d (assuming no ethane rejection) from its prior guidance, despite the fact that it will have a material contribution from the newly-acquired Permian Basin assets, which was not factored into the previous guide.  The deal is expected to close “on or before October 31, 2013” (3Q13 10-Q).  LINN expects the asset to average 4,800 boe/d (63% oil) over the first 12 months, which would amount to a ~19 MMcfe/d contribution in 4Q13.  This makes the acquisition all the more interesting because it looks like it was done just to plug a hole.  LINN increased 4Q13 DCF guidance by ~$9MM, but by our math that incremental DCF is all from these acquired, high-margin oil properties.   

 

Huge CapEx Burn (Again)……LINN spent $339MM in total organic CapEx in the quarter, with only $116MM held back from distributions as “discretionary reductions for a portion of oil and natural gas development costs.”  (This was formerly known as “maintenance capital expenditures;” despite the change in terminology, nothing has changed with how this number is calculated.)  Total CapEx exceeded maintenance CapEx by $223MM in the Q, more than the $171MM distribution payment.  Over the TTM, total CapEx exceeds maintenance CapEx by ~$900MM, while production was ~+1.6% YoY on an organic basis, by our calculations.  Just shocking…

 

LINN Energy 3Q13: Spend, Baby, Spend - linn1

 

2013 CapEx Guidance is Too Low……Excluding acquisitions, YTD 2013 CapEx is $959MM (per the CF statement); the 2013 guidance remains at $1,150MM (3Q13 10-Q), implying that LINN will spend less than $200MM in CapEx in 4Q13.  We find that highly unlikely considering that CapEx was ~$340MM/quarter over the past two quarters.  FY13 CapEx is likely to be closer to $1,300MM.

 

Free Cash Flow Negative……Over the TTM, LINN has paid out $682MM in distributions on a similar amount of what was previously called DCF, all the while being sharply Free Cash Flow (FCF) negative, before acquisitions.  In 3Q13, FCF was -$84MM; over the TTM FCF was -$388MM.  For a Company that doesn’t grow organically, and pays out massive distributions, this is concerning. 

 

LINN Energy 3Q13: Spend, Baby, Spend - linn2

 

Premiums Paid Disclosure Disappears......It is disappointing that LINN has removed disclosure telling investors what the premiums paid for derivatives that settled in the period were.  It was disclosed in the 2Q13 10-Q as $43MM (~28% of DCF).  In our view, this is the amount by which LINN's DCF is overstated due to its aggressive derivatives accounting methodology, and is important information that needs to be disclosed.

 

An argument for LINE at $5.00/unit……LINN is now trading around 8.9x Adjusted EV / Open EBITDA (we annualized the 3Q13 open EBITDA number and adjusted the EV lower by the net derivative asset per the 3Q13 balance sheet).  On this measure, of the large cap E&Ps, only EQT, COG, PXD, and RRC are more expensive, and these companies have arguably the best undeveloped acreage positions and future growth potential of all NAm E&Ps.  Consider that SU, DVN, OXY, APC, and DNR all trade around 5 – 6x 3Q13e Annualized EBITDA.  What is LINN Energy?  A free cash flow negative E&P with no organic growth, no shale scale, no material non-proven value (midstream or acreage), and highly-dubious accounting practices which are currently the focus of an SEC inquiry.  For perspective, LINN at 5.0x EBITDA is a ~$5.00/unit stock.  This isn't to say it's going there (at least any time soon), but we are tired of hearing the "LINN is cheap" argument.  In our view, LINN is over-valued by at least 100%. 

    

LINN Energy 3Q13: Spend, Baby, Spend - linn4

 

Kevin Kaiser

Managing Director


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XLF: PLAYING DEAD FOR BERNANKE?

Takeaway: Witness how the Financials (XLF) act with Bernanke leaning on the long-end of the curve.

Can you say D-O-G? That’s how the Financials act with Bernanke leaning on the long-end of the curve.

 

The XLF was down in a market up week last week, and were down again yesterday as consensus is forced to chase slow-growth (Consumer Staples +1.2% yesterday). The Yield Spread (10year – 2year) compresses again this morning to 219 basis points wide. It's a bearish U.S. Growth signal versus bullish Europe. 

 

XLF: PLAYING DEAD FOR BERNANKE? - drake1

 

For more information on how to subscribe to Hedgeye research click here.


NCLH 3Q CONFERENCE CALL NOTES

Like CCL and RCL, NCLH expressed caution over the Caribbean environment.  2014 guidance was a tad short of what the Street was expecting.

 

 

CONF CALL 

  • 3Q capacity increased by 14.9%
  • 3 ships in Alaska for 1st time since 2009
  • Hawaii capacity increased slightly; Pride dry dock (24 luxury suites)
  • Breakaway:  guest satisfaction levels same levels as Epic introduction
  • Escape: Fall 2015; Bliss: Spring 2017
  • Environment has been more challenging than expected in the beginning of the year
  • 16 days of govt shutdown coincided with difficult booking environment; heightened close-in booking environment in 3Q
  • 3Q net ticket increased 5% and onboard yields increased 1.5% - helped by Breakaway
  • 3Q Weighted average cost of debt: under 4%
  • 4Q deployment:  55% Caribbean, 17% Europe, remaining spread between Hawaii, Panama Canal, Bermuda, and Other
  • 4Q:  dry dock for Norwegian Sky and promotional spending for Getaway
  • 2014 adjusted NCC guidance: 1-2%
  • Getaway:  7-day year-round to Caribbean (1st time in many years)
    • Feeling good about Getaway based on Breakaway results
  • Pearl- chartered ship so will reduce # of Caribbean itineraries for summer 2014
  • 2014 GUIDANCE : +60% EPS growth $2.20 (below consensus of $2.29) but comfortable with low-mid $2.20 range

Q & A

  • 1Q bookings a little behind; all other quarters ahead
    • Easter calendar effect (booking momentum into 2Q)
    • Mid-single digit price improvement
  • Pricing above mid-single digits for 2014 overall
  • Want to see Caribbean stronger, particularly in 1Q
  • 2014 net yields:  low/mid 4s 
    • 1Q/2Q:  healthy pricing environment in Caribbean
    • High promotional environment 
  • Caribbean promotional environment:  more competitive
    • Last month or so, it has been consistent
  • 2014 European deployment about 20%
    • Pricing has been positive; mid-single digit growth
    • Feeling pretty good
  • 2014:  64% hedged in fuel
  • New ship premium are 'in the double digits'- Getaway lost some premium lately since they priced very high in the beginning (our pricing survey confirms this)
    • Has premium widened?  Not really.
  • Lots of opportunities to drive firm efficiencies (e.g. Six Sigma); 500bps by 2017; invested capital growth of 14%
  • Getaway bookings:  consistent with mgmt expectations
  • Europe future capacity:  biggest in NCLH's history; am comfortable with current capacity
  • 3Q Onboard:  casino was strong; 4Q onboard is back to normal levels

investing ideas

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