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JCP: The Bear Case Just Shrunk

Takeaway: This is going to be the Q where people look back and say “yeah, that was the point where I should have realized JCP is a viable entity.”

The list of ‘what’s changed’ to our thesis on JCP in the wake of its print is a very short one. In fact, it’s nonexistent. Were there questions that emerged that we need to get answered? Of course there were. That’s what happens when a company loses $1.94 per share. But far more questions were answered than were raised. Here’s some of our thoughts.

 

  1. EPS of ($1.94) missed the Street’s ($1.70) but the reported number includes a $0.73 loss associated with a tax valuation allowance. We don’t think EPS was the most relevant statistic this quarter as share count estimates were all over the place given the mid-quarter equity offering. Nonetheless, on an adjusted basis, we’d say that they probably beat.
  2. By now everyone knows that JCP voluntarily repaid $200mm on its revolver. It’s worth reiterating as that’s not behavior one would expect from a company about to file Chapter 11.
  3. Guidance for 4Q includes; a) additional sequential improvement in top line and gross margin – and both positive vs last year, b) DOWN sg&a versus last year, and liquidity to be in excess of $2bn. We don’t think that down SG&A is sustainable for any extended period of time – nor do we want it to be. But for now, we’ll take it.
  4. That point on liquidity guidance is the most important. The big bears out there had estimates for year-end liquidity of $1.5bn to $1.8bn. Again, companies with stocks going to zero don’t take up liquidity expectations.
  5. One of the biggest factors we had to rectify is the fact that gross margins were weak at the same time the company brought back higher-margin private label. But what we did not consider is the fact that JCP is still dealing with merchandise that was ordered under Johnson’s regime – brands that the consumer simply does not want. This is product that is going out at a gross margin in the 15-20% range. That’s seriously offsetting the high-40% GM JCP realizes on private brands like Arizona, Worthington, and St. John’s Bay. We did extensive consumer survey work around these brands – and although most people reading this note might not want them, the average American definitely does.

 

In the end, this is going to be the quarter where people look back and say “yeah, that was the point where I realized JCP wasn’t going under”.  We know that this isn’t a major bullish statement, but it certainly removes the most bearish case being throw around – and that’s the case that nearly every short is banking on (and yes, JCP remains one of the most heavily shorted stocks in the S&P). People are still going to have to buy in to the premise that this company can see an acceleration in sales/square foot to a level that can sustain a respectable earnings level. We think JCP pierces through $120/ft in 2015 – which will mark its break-even year. That might not sound too enticing – after all, we all like for companies to make money instead of simply not lose money. But the consensus is at a loss of $1.18 that year, and we think that estimates will need to come up materially.

 

See our note below for more details about our call, or contact us for our recent Black Book. Also look out for our updated survey the week following Black Friday.

 

Here are some of our recent clips from HedgeyeTV. Comments are welcome, as always.

 

http://app.hedgeye.com/media/704-video-jcp-mcgough-remains-optimistic

 

http://www.youtube.com/watch?v=nfMU0ggmJ1U&feature=share&list=UUkDxvN-bcxsKkvJ3yyiGSVQ

 

 

HERE’S WHAT WE SAID WE WERE LOOKING FOR OUT OF THE QUARTER.

 

11/19/13 11:49 AM EST

JCP: Buy The Event

 

Takeaway: There are many possible outcomes from JCP’s print. But there is virtually nothing JCP can say to suggest that it is not 100% fixable.

 

 

Conclusion: One of two things will happen, either we’ll get tangible evidence of the turnaround – which will make JCP worth buying even if it’s up. Or the company will ‘pull a JCP’ and scare the Street with the print, as it has grown so accustomed to. We think that’s unlikely. But we think one thing is clear, there is virtually nothing the company can or will say to suggest that this company is not 100% fixable. We’re buyers on the event.  

 

DETAILS

First off, let’s be clear about where we stand on JCP. Our positive call is based on our view that not a single thing currently ailing JCP is beyond repair. This company is not broken. Johnson bullied and bruised a few dozen critical functions at the company, and though he may have tried to break them, he failed at that too. We don’t think that Ullman is the right person to rehabilitate JCP, but he is the right guy to take it off life support and administer CPR if necessary. We expect to see a new CEO announced by Spring 2014.

 

Another important point..we’re not arguing that JCP is a great retailer, a great brand name, or in any way deserving of the right to exist as a go-to source for consumers.

 

But let’s keep an important factor in mind…it’s operating at $100 per square foot. That’s embarrassing. Kohl’s, which we think has structural issues and has been at the top of our short list – is running close to $210/sq ft. Before Johnson worked his magic, JCP peaked out at $190 per foot.

 

Our point here is that we don’t have to assume that JCP becomes a great retailer. We don’t have to even believe that it will be an average retailer.  It can remain in the lower quartile – a notch above Sears even – and operate at $140/square foot. And it can get there by simply fixing some of the factors that Johnson damaged during his triumphant reign.

 

Alongside the $140/ft, our other key assumption is that Gross Margins get back to 37%, which we think is very doable – despite the severe pushback we get on this assumption. Note that Ron Johnson’s decimation of JCP’s private label brands cost the company about $1bn in gross profit – that’s what happens when you remove $2.5bn in sales at a 48% gross margin and substitute with $900mm at a 33% gross margin.  

 

All in, those assumptions get us to $1.30 per share, which is meaningfully above the high end of where even the most vocal bulls (if there are any) are posting their estimates. Will it get there tomorrow? No. But it’s math that people will begin to run within 12-month’s time. Keep in mind that over the past few years there has always been a debate alive about what the ultimate earnings power of JCP actually is. That debate today is absolutely dead. And we’re not talking about an unachievable Ackmanist-driven Hail Mary $12-EPS power. In all our travels and phone calls, we can’t find anyone that is willing to acknowledge that JCP can actually earn money. That will change, and we think it happens within 12-months.

 

So, what are we looking for in the quarter?

  1. First off, this is literally a three-year turnaround – it won’t be fixed in a quarter. What we’re looking for this quarter is a mere two or three wins on the road to fixing several dozen problems. That might sound like a shameless hedge – perhaps it is. But there’s going to be a mix of noise and good news in this quarter. That’s upside from the past two years where it’s been all bad news.
  2. We’re looking for about a -5% comp. The company already reported a 0.9% store comp and 38% dot.com comp for Oct. Based on commentary by virtually all retailers, October was the best month of the quarter. -5% seems about right, but could be 2-3% +/-.
  3. Gross Margin change is going to move inversely to comp. We have it modeled +100bps vs. last year – which would mark the first GM improvement in about 10 quarters. Our bias is to the downside on that one, as Ullman told the whole world that he’d end the quarter with positive comps, and he did a +0.9% in Oct. Sounds like he stretched. More likely than not, he told his selling and merchandising team to drive a positive comp come hell or high water. That usually does not come alongside a healthy gross margin. Nonetheless, they’re coming off such low numbers that Gross Margins could be down 100bp and still post a 150bp sequential improvement on a 2-year run rate – which is what we’ll really be looking to see.
  4. We’ve got an operating loss of -$292mm, which compares to the Street at -$384mm. Our number might be on the aggressive side due to gross margin, but we’re reasonably confident that JCP won’t miss the consensus.

Usually, we don’t leave EPS for last, but the company’s print relative to expectations will be relatively meaningless due to the timing of the company’s offering and inconsistency in how people are modeling the fully-diluted share count. The Street is at -$1.70 this quarter, but the range is from -$2.36 to -$1.11. We have JCP losing a little over a buck. But again, share count is uncertain. We’ll look at the operating loss delta as the best way to gage our estimates versus consensus. 

 


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – November 21, 2013


As we look at today's setup for the S&P 500, the range is 40 points or 1.09% downside to 1762 and 1.16% upside to 1802.                                                

                                                                               

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: 2.51 from 2.53
  • VIX closed at 13.4 1 day percent change of 0.07%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Init. Jobless Claims, Nov. 16, est. 335k (prior 339k)
  • 8:30am: PPI m/m, Oct., est. -0.2% (prior -0.1%)
  • 8:58am: Markit US PMI Preliminary, Nov., est. 52.3
  • 9:45am: Bloomberg Economic Expectations, Nov. (prior -31)
  • 9:45am: Fed’s Powell speaks in N.Y.
  • 10am: Philly Fed Business Outlook, Nov., est. 15 (prior 19.8)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 11am: U.S. announces plans to sell 2Y, 5Y and 7Y notes
  • 12:30pm: Fed’s Lacker speaks in Asheboro, N.C.
  • 1pm: Fed’s Bullard speaks in Rogers, Ark.
  • 1pm: U.S. to sell $13b 10Y TIPS in reopening

GOVERNMENT:

    • Secretary of State John Kerry hosts 4th annual U.S.-China Consultation on People-to-People exchange with Chinese Vice Premier Liu Yandong
    • 9am: Amtrak CEO Joseph Boardman, Rep. Tom Petri, R-Wis., speak at Bipartisan Policy Center on “Improving Passenger Rail Service in the Northeast Corridor”
    • 9:30am: House Financial Svcs hearing on H.R.3482, “Restoring Main Street Investor Protection and Confidence Act,” to amend Securities Investor Protection Act
    • 10am: RNC Chairman Reince Priebus holds event on Obamacare and Senate elections in 2014
    • 10am: Senate Banking Cmte meets on “Housing Finance Reform: Powers and Structure of a Strong Regulator”
    • 10:30am: FCC’s David Turetsky, Harris’s Dennis Martinez join panel testifying before House Energy and Commerce panel on FirstNet oversight and public safety wireless communications
    • 11:45am: House Speaker John Boehner, R-Ohio, swears in Rep.-elect Vance McAllister, winner of special election Nov. 16 to succeed former Rep. Rodney Alexander

WHAT TO WATCH:

  • Morgan Stanley said in discussions to sell oil unit to Rosneft
  • Bain Capital said to halt talks with TI Automotive on price gap
  • Goldman’s currency-trading rev. fell on options bet, WSJ says
  • McKesson deadline to submit Celesio offer document to BaFin
  • China manufacturing gauge declines in growth headwind
  • Johnson Controls rises after boosting buyback plan by $3b
  • Euro-area manufacturing expands for 5th month led by Germany
  • Credit Suisse plans legal change to meet future Swiss banking regulations
  • Robin Hood conference includes Loeb, Einhorn, Summers

EARNINGS:

    • Abercrombie & Fitch (ANF) 7am, $0.44
    • Aruba Networks (ARUN) 4:03pm, $0.14
    • Autodesk (ADSK) 4:01pm, $0.39
    • Berry Plastics (BERY) 5:45pm, $0.24
    • Buckle (BKE) 7am, $0.89
    • Dollar Tree (DLTR) 7:29am, $0.60
    • Donaldson (DCI) 7am, $0.39
    • Fresh Market (TFM) 4:17pm, $0.26
    • GameStop (GME) 8:30am, $0.57
    • Gap (GPS) 4pm, $0.71
    • Gildan Activewear (GIL CN) 6:31am, $0.84
    • Intuit (INTU) 4pm, $(0.09)
    • Marvell Technology (MRVL) 4:03pm, $0.25
    • Mentor Graphics (MENT) 4:05pm, $0.19
    • Pandora Media (P) 4:01pm, $0.06
    • Patterson (PDCO) 7am, $0.48
    • Ross Stores (ROST) 4pm, $0.80 - Preview
    • Sears Holdings (SHLD) 6am, $(3.14)
    • Spectrum Brands (SPB) 6:30am, $0.88
    • Splunk (SPLK) 4:02pm, $(0.01)
    • Stage Stores (SSI) 6am, $(0.26)
    • Target (TGT) 7:30am, $0.62 - Preview
    • Wesco Aircraft (WAIR) 4:01pm, $0.32

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Goldman Predicts at Least 15% Losses for Gold, Iron Ore in 2014
  • Bordeaux Grape Damage Squeezing Top French Vintners: Commodities
  • WTI-Brent Link at Weakest in 9 Months on Supply: Energy Markets
  • Copper Drops as Fed Signals Tapering to Stimulus: LME Preview
  • Gold Rises From Four-Month Low Amid Physical Demand Speculation
  • Wheat Gains as Demand Seen Rising on Shrinking Black Sea Supply
  • WTI Rebounds Amid Draghi Comments, Saudi Arabia Mortar Attacks
  • Indonesian Palm Oil Output Growth Slowed on Weather Effects: Fry
  • Rebar Falls as China Manufacturing Data Signal Weak Demand
  • South Africa’s Biggest Power Users Challenge Eskom-Cut Directive
  • Morgan Stanley Said in Discussions to Sell Oil Unit to Rosneft
  • Philippines Seeks Delivery of Rice Imports by December: Official
  • Korea Agro-Fisheries Issues Tenders to Buy 200,000 Tons Soybeans
  • Copper Little Changed as LME Stocks Decline and China Watched

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

 

 

 

 

 

 

 

 

 

 

 

 

 


November 21, 2013

November 21, 2013 - Slide1

 

BULLISH TRENDS

November 21, 2013 - Slide2

November 21, 2013 - Slide3

November 21, 2013 - Slide4

November 21, 2013 - Slide5

November 21, 2013 - Slide6

 

BEARISH TRENDS

November 21, 2013 - Slide8

November 21, 2013 - Slide9

November 21, 2013 - Slide10

November 21, 2013 - Slide11

November 21, 2013 - Slide12

 


Early Look

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ICI Fund Flow Survey - Worst Bond Outflow in 11 Weeks

Takeaway: Equity funds posted their 4th consecutive robust week with bond funds outflows worsening - YTD '13 bond outflows aren't abnormal yet

Investment Company Institute Mutual Fund Data and ETF Money Flow:

 

Total equity mutual fund flow for the week ending November 13th was a strong $7.2 billion, the eighth best week in all of 2013 and the fourth consecutive week over the $7 billion weekly inflow mark. Domestic equity mutual fund flow was $3.9 billion, an slight deceleration from the week prior with world equity funds collecting $3.2 billion in new investor capital. Total equity mutual fund trends in 2013 however now tally a $3.1 billion weekly average inflow, a complete reversal from 2012's $3.0 billion weekly outflow 

 

Fixed income mutual funds continued persistent outflows during the most recent 5 day period with another $7.5 billion withdrawn from bond funds, the worst week in over 2 months. This week's draw down worsened sequentially from the $4.2 billion outflow the week prior which has now forced the 2013 weekly average for all fixed income funds to an $1.0 billion outflow which compares to the strong weekly inflow of $5.8 billion throughout 2012

 

ETFs experienced mixed trends in the most recent 5 day period, with equity products seeing slight outflows and fixed income ETFs seeing slight inflows week-to-week. Passive equity products lost $338 million for the 5 day period ending November 13th, a sequential improvement from the $4.9 billion outflow the week prior, with bond ETFs experiencing a $274 million inflow, also an improvement from the $74 million subscription in the 5 day prior. ETF products also reflect the 2013 asset allocation shift, with the weekly averages for equity products up year-over-year versus bond ETFs which are seeing weaker year-over-year results

 

In the Hedgeye Asset Management Thought of the Week below, we outline that the current 2013 running redemption within fixed income mutual funds is actually still below the prior bond outflow cycles of 1994, 1999, and 2003 which means that even more substantial fixed income outflows would not be abnormal

 

ICI Fund Flow Survey - Worst Bond Outflow in 11 Weeks - ICI chart 1 revised

ICI Fund Flow Survey - Worst Bond Outflow in 11 Weeks - ICI chart 2

 

 

For the week ending November 13th, the Investment Company Institute reported the 8th best week in 2013 for equity inflows with over $7.2 billion flowing into total equity mutual funds. The breakout between domestic and world stock funds separated to a $3.9 billion inflow into domestic stock funds and a $3.2 billion inflow into international or world stock funds. Both results for the most recent 5 day period within stock funds were above the 2013 weekly averages, with the domestic stock fund 2013 weekly mean at just a $628 million inflow and world stock funds having averaged a $2.5 billion weekly inflow during 2013. The aggregate inflow for all stock funds this year now sits at a $3.1 billion inflow, an average which has been getting progressively bigger each week and a complete reversal from the $3.0 billion outflow averaged per week in 2012.

 

On the fixed income side, bond funds continued their weak trends for the 5 day period ended November 13th with outflows staying persistent within the asset class. The aggregate of taxable and tax-free bond funds booked a $7.5 billion outflow, a sequential deterioration from the $4.3 billion lost in the 5 day period prior and the worst redemption in 11 weeks. Both categories of fixed income contributed to outflows with taxable bonds having redemptions of $6.4 billion, which joined the $1.1 billion outflow in tax-free or municipal bonds. Taxable bonds have now had outflows in 19 of the past 24 weeks and municipal bonds having had 24 consecutive weeks of outflow. While the sharp outflows that marked most of the summer and the start of the third quarter have moderated, the appetite for bonds has hardly rebounded. The 2013 weekly average for fixed income fund flows is now a $1.0 billion weekly outflow, a sharp reversal from the $5.8 billion weekly inflow averaged last year.

 

Hybrid mutual funds, products which combine both equity and fixed income allocations, continue to be the most stable category within the ICI survey with another $1.4 billion inflow in the most recent 5 day period. Hybrid funds have had inflow in 20 of the past 22 weeks with the 2013 weekly average inflow now at $1.6 billion, a strong advance versus the 2012 weekly average inflow of $911 million.

 

 

ICI Fund Flow Survey - Worst Bond Outflow in 11 Weeks - ICI chart 3

ICI Fund Flow Survey - Worst Bond Outflow in 11 Weeks - ICI chart 4

ICI Fund Flow Survey - Worst Bond Outflow in 11 Weeks - ICI chart 5

ICI Fund Flow Survey - Worst Bond Outflow in 11 Weeks - ICI chart 6

ICI Fund Flow Survey - Worst Bond Outflow in 11 Weeks - ICI chart 7

 

 

Passive Products:

 

 

Exchange traded funds had mixed trends within the same 5 day period ending November 13th with equity ETFs posting a slight $338 million outflow, a sequential improvement from the larger $4.9 billion redemption the week prior. The 2013 weekly average for stock ETFs is now a $3.1 billion weekly inflow, nearly a 50% improvement from last year's $2.2 billion weekly average inflow.

 

Bond ETFs managed a slight inflow for the 5 day period ending November 13th with a $274 million subscription, a sequential improvement from the week prior which netted a $74 million inflow for passive bond products. Taking in consideration this most recent data, 2013 averages for bond ETFs are flagging with just a $274 million average weekly inflow for bond ETFs, much lower than the $1.0 billion average weekly inflow for 2012.

 

 

ICI Fund Flow Survey - Worst Bond Outflow in 11 Weeks - ICI chart 8

ICI Fund Flow Survey - Worst Bond Outflow in 11 Weeks - ICI chart 9

 

 

Hedgeye Asset Management Thought of the Week - The 2013 Drawdown is Still Below Average:

 

While the fixed income mutual fund asset class is firmly in outflow with taxable mutual funds having had outflows in 19 of the past 24 weeks and tax-free or municipal bonds having had redemptions in 24 consecutive weeks, we none-the-less highlight that this sequence of outflows is still running below average on a percentage of beginning bond fund assets historically. The drawdowns of 2003-2004, 1, and the notorious bond redemption of 1 all resulted in bigger losses on beginning bond fund outstandings. Respectively, the '03-'04 redemption resulted in 5.0% of beginning bond fund assets being lost, a similar percentage to the 1 bond outflow cycle which drew down over 5.0% of beginning fixed income assets. These losses however were a far cry from the 14.0% of beginning bond fund assets which were redeemed in 1994 when the Federal Reserve surprisingly raised rates at the time. The 2013 redemption sequence, which started in May, has now resulted in nearly $150 billion having been pulled out of bond funds however on a percentage basis, this redemption is just a 3.9% loss on beginning bond fund assets. Thus solely on historical precedent, another $40 billion in bond outflows on the current $3.8 trillion bond fund outstandings would match the losses in '03/'04 and in 1999/2000, however another $380 billion could flow out of the bond category to match the 1994 redemption sequence. In our roll-out of the asset management sector in August, we fore-casted over a $1 trillion shift out of fixed income over a multi-year time period to give investor's a broader perspective.

 

ICI Fund Flow Survey - Worst Bond Outflow in 11 Weeks - ICI chart 10

 

 

Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA


#IpoDay

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

“There is no terror in the bang, only in the anticipation of it.”

-Alfred Hitchcock

 

More than seven years ago, when the lads started @Twitter, I’m not sure they were anticipating today.  At the time, there were simply brainstorming new business ideas and an idea for group SMS-ing was sketched out and not too long thereafter Jack Dorsey sent out the first tweet, which was:

 

“just setting up my twttr”

 

As I wrote in our Twitter IPO report earlier this week, it was certainly an inauspicious start.  I mean, who would have thought a 140 character revolution would have started with that, but it did and with the anticipation of the $TWTR IPO now gone, and all we have left is today’s bang. (Not to be confused with the free fall in the #Euro from the 25 basis point cut in European interest rates.)

 

I can’t tell you for sure, but given the number of times the investment bankers have raised the offering price (and who doesn’t trust investment bankers!), there seems to be little doubt that there is demand for the offering.   So, at the very least, we won’t have a $FB debacle on our hands.  Of course, where the stock trades today is anybody’s guess.

 

In the face of the optimism around @Twitter today, we thought we’d offer some contrarian counter points to the positive outlook for the company.  Yesterday, my colleague Hesham Shaaban (to give credit where credit is due Hesham did most of the work, but that’s why I’m the boss after all) and I gave a presentation on Twitter and raised a few flags.  So, if you are going to own $TWTR for the long run, here are few things we would consider:

 

1. #OverseasUnderwhelming – Currently, @Twitter has 179 million monthly active users outside of the United States.  This is compared to 53 million MAUs domestically.  Shockingly, the company only generated 26% of its consolidated revenue from international markets in Q3 2013.  On the metric of advertising revenue / monthly active user, the contrast is even more startling as US ad revenue / user is $2.10 in the U.S. versus $0.23. Or an almost 10x difference.  The implication here is that there are structural constraints to monetizing international users, which leads us to the next key issue. 


2#UserGrowthSlowing – In Q3 2013, $TWTR has its lowest sequential growth quarter ever as global monthly active      users grew only 6% sequentially.  Now, admittedly, this is still meaningful grow off a base of more than 230 million        MAUs, but compared to the prior four quarters, which showed 11%, 11%, 10% and 7% sequential growth, this is a            marginal slow down. 

 

Interestingly, @Facebook which has a penetration of 55% in the United States, compared to @Twitter’s penetration of 22%, has actually added more absolute users in the U.S. over the past three years.  This of course leads to the next question as to how penetrated @Twitter is currently.

 

3. #Penetration - A recent poll from Reuters/Ipsos suggested 43% of people that have registered for a $twtr accounts have either shut their accounts down, or don’t use it.  This compares to 12% for $fb on the same metrics.  The implication for @Twitter is that the implied penetration may be much lower.  For example, if 43% of users are actually inactive, this suggests a true penetration rate of all internet users in the U.S. of 39%, which implies a short runway of growth domestically.


Certainly, being one of the power users of @Twitter in finance, we do get the blue sky opportunity that @Twitter could evolve into a global cable network and become a true second screen for consumers.  The pie for T.V. advertising is north of $70 billion by some estimates, so even a small share of this pie would be meaningful for @Twitter, but between now and then we have a richly valued company that faces business model headwinds.

 

In the Chart of the Day, we’ve provided a table that shows the multiple you’d have to be willing to pay of market cap / sales to get a certain level of return.  As an example, if you buy the stock at $27 per share (effectively the IPO price) and you want a 20% return over the next year or so, you’d have to be willing to pay 15.0x our 2015 revenue estimate. (We have included the 150 million shares that will be dilutive post the IPO in our calculation of market cap.)

 

I’m not saying that won’t happen, but as Albert Einstein famously said:

 

“The distinction between the past, present and future is only a stubbornly persistent illusion.”

 

That all said, even as we have some issues with the @Twitter business model in the short run, there is no denying that the platform is revolutionary in its ability to allow the world to communicate, interact and engage.  As my colleague @KeithMcCullough tweeted in 2010 to @matterhornbob:

 

“twitter is a very comfortable arena for an accountable athlete in this business to compete – we don’t want to hide”

 

Indeed.

 

Keep your head up and your tweets on the ice,

 

@HedgeyeDJ

 

P.S. In other news, we’d like to wish a bon voyage to our long-time teammate @RoryAGreen who is leaving us for the confines of @Insead and a MBA.  In celebration of this exciting move for Rory, and in appreciation of all his hard work, we will be tapping a keg of Guinness (he is Irish after all!) at our Stamford, CT office at 4pm. 

 

#IpoDay - Chart of the Day

 

#IpoDay - Virtual Portfolio


Institutional Asset Allocation with Carl Hess from Towers Watson Expert Call

Institutional Asset Allocation with Carl Hess from Towers Watson Expert Call  - Asset dialin

 

Related Stocks: BLK, LM, BEN, TROW, JNS, IVZ, WDR, AMG, EV, CNS, AB, FII, WETF, OZM, KKR, BX  

 

Please join the Hedgeye Financials Team, Jonathan Casteleyn and Josh Steiner on Thursday November 21st at 11:00am EST for the return of the Hedgeye Financials Expert Speaker Series.  

 

Our guest this week will be Carl Hess from Towers Watson, a leading asset allocation consultant to the institutional asset management community. Carl is the global head of Towers Watson Investment Services, a leading advisor to institutional investors with over $2 trillion under advisement and $60 billion under management. He has worked with many of the world's leading institutions on their asset allocation and governance.  

 

CALL DETAILS

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 956498#
  • Materials: CLICK HERE (Will download one hour prior to the start of the call)

 

KEY TOPICS WILL INCLUDE

1.)The Great Rotation  

Considering the current environment of record high stock prices and a bond market which is kicking off losses for the first time in 14 years...how is current institutional asset allocation being impacted by the performance of these major asset classes?

 

2.) Bond Bedlam   

How is institutional asset allocation dealing with the rise in 10-Year Treasury yields?  Are institutions allocating out of the asset class or are managers taking the opportunity to reinvest at higher rates?

 

3.) Quantitative Easing Questions

How is asset allocation being impacted by Quantitative Easing? 

 

4.) Demographic Dynamics

What are the secular trends in asset allocation? Which asset classes will have higher percentages allocated to them in the future?  Which asset classes are poised to decline?

 

5.) Picking Winners

Which managers are best positioned to benefit from these trends?  Rates, equities, alternatives, and real estate...who has the best product suites?

 

 

For more information email


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