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Position Monitor: Selling Mednax $MD

Takeaway: We're selling MD and hoping (planning) for a chance to buy it back lower on Q413 earnings.

This note was originally published January 14, 2014 at 11:25 in Healthcare

Position Monitor: Selling Mednax $MD - tobin1

 

SELLING MD:  After a 21% return ,we're closing our long position in MD.  We've been running a survey of OB/GYNs for several months.  The survey asks specifically about deliveries and pregnancy in the prior month and the outlook for the current month, and both are weak in Q413.  Delivery trends registered a reading of 45.0 in the most recent completed month and 44.0 for the trailing 3 months.  A reading below 50 suggests contraction.  

 

Position Monitor: Selling Mednax $MD - mednax

 

TOUGHEST COMPARE IN 6 YEARS: Birth comparisons are the toughest they've been in 6 years in Q413, with Q412 registering +1.6% growth.  As a result, and because maternity (still) drives same store results, we believe same store volume will be down substantially more than guidance of "essentially flat" for Q413.

 

PARITY & DEALS: While the catalysts of pricing parity and acquisitions remain, our current view is that weaker sequential same store volume will offset any positive updates on deals or parity payments.  As a reminder, MD missed their 2013 deal guidance, but calmed concerns by filing a universal shelf implying bigger deals in the future.  Since then, only 1 deal has been announced and was too small to require financial disclosures.

 

SENTIMENT: From a factor perspective, the decline in the short interest has largely played out and is clearly no longer the positive catalyst it had been.  Additionally, sellside ratings continue to fall, and based on history, does not set up well for forward returns either. 

 

Position Monitor: Selling Mednax $MD - deliveries completed JAN13

Position Monitor: Selling Mednax $MD - MD NICU SAME UNIT

Position Monitor: Selling Mednax $MD - Births 1H13

 

Editor's note: This was written by Tom Tobin, Healthcare Sector Head at Hedgeye Risk Management. Click here to learn more about becoming a Hedgeye subscriber.

 

 



 

 



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YUM: DECEMBER COMPS FALL SHORT OF EXPECTATIONS

YUM reported December comps for its China Division yesterday after the close.  KFC comps (+5%), Pizza Hut comps (-3%), and total China comps (+2%) all missed expectations.  Needless to say, it was a disappointing month.  KFC, although missing expectations by 100 bps, was actually quite strong.  Surprisingly, the majority of weakness came from Pizza Hut which missed expectations by 870 bps.  There has been wide speculation that these two chains are seeing increased competition from local dining chains. 


For the quarter, 4Q China Division (includes Sept., Oct., Nov., Dec.) comps (-4%) missed consensus estimates by 100 bps.  All told, it was a disappointing end to the quarter.  However, as we mentioned in our note last week, December sales numbers will not make or break our bullish thesis on YUM.  The company has a substantial long-term growth opportunity in China as well as in other emerging markets.

 

Barring a material setback in China, we continue to expect outperformance throughout 2014.  In our opinion, easy same-store sales comparisons, notable margin expansion, and positive earnings momentum will lead to multiple expansion over the next several quarters.  The magnitude of this outperformance will depend heavily upon the trajectory of the recovery in China.    

 

YUM: DECEMBER COMPS FALL SHORT OF EXPECTATIONS - 1 14 2014 8 33 39 AM

 

YUM: DECEMBER COMPS FALL SHORT OF EXPECTATIONS - 1 14 2014 8 33 10 AM

 

YUM: DECEMBER COMPS FALL SHORT OF EXPECTATIONS - 1 14 2014 8 28 43 AM

 

 

Howard Penney

Managing Director

 


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What made the most sense to me yesterday was USD Down = Rates Down = Stocks Down. That’s called the #GrowthSlowing trade. You will have to risk manage it in the coming quarters with #InflationAccelerating (which slows consumption growth). Meanwhile, the US Dollar failed our long-term TAIL resistance of $81.19 again. The Euro and Pound are both looking stronger. We stand behind our #Eurobulls macro theme!

JAPAN

The Nikkei no likey that whole Down Dollar, Up Yen move, eh? Japan down -3.1% as the Yen signaled immediate-term TRADE overbought versus the US Dollar in our model yesterday. Yen down -0.6% now on the day should mean Nikkei up tonight. So that gives me confidence being long the S&P 500 for the first time here in 2014.  (I bought it on the bell in #RealTimeAlerts).

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