Bad baseball references aside, we were relieved to see Wynn’s Mass aggression drive high revenue growth and deliver an outstanding quarter.



“Whoa! You guys are way too high” – Hedgeye client in December regarding our Q4 EBITDA estimate


Au Contraire Mon fraire.  Wynn beat our Street high EBITDA and EPS estimates quite handily, although high hold in Las Vegas certainly helped.  While there weren’t quite as many positive longer-term takeaway as with LVS the day before, WYNN’s quarter was certainly stronger. 


WYNN became our favorite long in the gaming space in early December.  As we articulated in our 10/25/13 note “WYNN TO FEAST ON THE MASS COMPETITION”, Wynn Macau began (finally) to push Mass marketing and promotional activity in October.  For this reason, the stock moved into our #1 position in the space – WYNN was going to become a growth story again!  The bear thesis that Wynn Macau was running at full capacity? Not true.  


Well, once again Steve Wynn knocked it out of the ballpark – or as Wynn Macau’s GM Ian Coughlan said, “we smacked others out of the park”.  We can forgive the Irish lad for the not so perfect baseball reference, after all he is great at hurling references I’m sure, and of course running Macau properties. 


As we saw from the monthly Macau GGR reports, Wynn was a Mass market share gainer in Q4 and clearly the flow through was quite strong, as we saw from the earnings release.  Shareholders are rejoicing that there is a near-term angle to this great long-term story.




Speaking of the long-term, we again heard an interesting South Korea reference.  Steve Wynn mentioned he was in Seoul last week on top of Sheldon Adelson, unsolicited, bringing up the prospects for South Korea integrated resorts during the LVS conference call Thursday night.  South Korea has fallen into the background with all the Japan focus but as we wrote about last year, it’s a real and potentially huge market.  Back to Japan, here is where we heard arguable the only negative takeaway.  Steve Wynn laid out a longer time horizon – possibly 2 years – for the legalization of gaming in Japan.


So where do we go from here?  After a likely strong opening today, WYNN should trade within 5% of the January 17th high.  More near-term catalysts remain.  Notwithstanding bad luck at Wynn Macau here in January, Wynn should continue to pick away a little Mass market share over the coming months.  Moreover, market growth should accelerate into the 20%+ area in February from 11-15% here in January.  Longer-term Wynn may not be quite as well positioned at LVS but it’s hard to argue against this other long-term growth/cash flow story.

The Law of Least Effort

This note was originally published at 8am on January 17, 2014 for Hedgeye subscribers.

“Progress isn't made by early risers. It's made by lazy men trying to find easier ways to do something.” 

-Robert A. Heinlein


When it comes to stocks, progress is having the right answer to a simple question most of the time; is the price heading higher or lower.  A simple question, with only 2 options, yet with an infinite number of ways to get there.


Investors are Heinlein's kind of lazy, they look for short cuts to the answer about the next price.  In defense of the investor, getting the answer right is anything but a lazy man's game.   Sifting through data, other people's opinions, quant, inside information, chart formations, the confidence in a CEO’s voice, you name it, and it takes long hours.


Heinlein would agree with The Principal of Least Effort, as do some corners of Evolutionary Biology.  We may just be hard wired like our Paleolithic ancestors to find food in the most efficient way while not being eaten each day.  In searching for information, the Principal of Least Effort means you stop looking as soon as you find "minimally acceptable result", or for a stock, the answer to the up or down question.


The paradox is that people will go to extraordinary lengths to make the least effort.  It starts innocently enough by saying "wouldn't it be great if....".  Guttenberg might have said something like "wouldn't it be great if I didn't have to copy this Bible by hand!" The founders of Twitter perhaps said "wouldn't it be great to send short 140 character messages to my friends!", although I can't imagine why.  But after they did, they got to work.


Back to the Global Macro Grind


The BIG MAC is one of  Hedgeye Healthcare's  "wouldn't it be great if" ideas.  "Wouldn't it be great if I knew how all of this macro data connected to the stocks I care about."   So we built a database of thousands of macro and company data, tools to update them, tools to sort them, in order to discover how they relate to each other.  In theory, one can react with reasoned calm to new economic data that may be pushing stocks around on a given day, or forecast important company drivers, or recognize a new and unexpected relationship that leads to a great stock idea.


We're constantly evolving the process, adding new data, refining the analysis, looking for easier ways to do things.  Below are some examples of what we've found interesting lately.


Consumer Confidence is rising, that's good for Healthcare stocks, right? No, changes in medical consumption are highly inversely correlated to Consumer Confidence.  Falling confidence sends people to the doctor.  When consumers feel good, they go to the mall.  Consumer Confidence is currently slowing year over year.


Is there a healthcare stock that I can use to get levered to Hedgeye's#Eurobulls theme?  Yes.  Long XRAY, their European growth is tightly correlated with changes in German Unemployment.  Germany happens to be XRAY's biggest EU market.  In the US, the dental market tracks Dentist Office Employment which continues to rise.


Hospitals are up on a rope, should I stick with it?  Yes, highly profitable surgical cases which represent 30% of hospital revenue started growing again and it looks sustainable.  We track a single medical Producer Price Index series (of the hundreds reported each month) to forecast the ICD businesses at BSX, MDT and STJ, while growth for US Orthopedic sales closely follow a  monthly employment number representing 16% of the workforce and just started to turn.  Hospital admissions are weak in Q413 because flu and maternity are weak, and don't pay well, while the surgical indicators are both rising after a multi-year declines.


UNH was down a little on their earnings yesterday, is it a good time to buy it? No. Deflating their medical cost trend with a key macro series suggests utilization is beginning to accelerate after years of soft or declining trends.  At the same time, realized pricing is steadily making new lows, in line with the Employment Cost Index Health Insurance and the Producer Price Index for Managed Care.  Additionally, managed care premium rates are growing slower than the rates they pay to hospitals, their largest expense. A de-levering of the pricing spread is a massive headwind that Obamacare, private exchanges, dual eligibles, or Optum can offset.


Deciding how to weight BIG MAC signals can be challenging sometimes.  While a BIG MAC query is a key part of our process, we still do all of the other things too.  We sift through data, read other people's opinions, listen for the confidence in a CEO’s voice, look at charts, talk to experts; everything except the inside information thing.   Remember, it's a simple question with no easy answer.  You better have a process.


Our immediate-term Global Macro Risk Ranges are now (TREND in brackets):


SPX 1837-1855 (bullish)

DAX 9546-9761 (bullish)

VIX 11.84-13.55 (bearish)

USD 81.54-81.32 (neutral)

Gold 1221-1267 (bearish)


Always be #evolving!


Thomas W. Tobin

Healthcare Sector Head


The Law of Least Effort - UNH Table


The Law of Least Effort - Virtual Portfolio


TODAY’S S&P 500 SET-UP – January 31, 2014

As we look at today's setup for the S&P 500, the range is 54 points or 2.18% downside to 1755 and 0.83% upside to 1809.                                       










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.32 from 2.35
  • VIX closed at 17.29 1 day percent change of -0.35%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Employment Cost Index, 4Q, est. 0.4% (prior 0.4%)
  • 8:30am: Personal Income, Dec., est. 0.2% (prior 0.2%)
  • 9:45am: Chicago Purchasing Mgr Index, Jan., est. 59
  • 9:55am: U of Mich. Conf, Jan. Final, est. 81.0 (pr 80.4)
  • 1pm: Baker Hughes rig count
  • 1:15pm: Fed’s Fisher to speak in Fort Worth, Texas


    • Sec. of State John Kerry travels to Berlin for mtgs with German officials ahead of Munich Security Conf
    • 9am: President’s Council of Advisors on Science and Technology meets on reproducibility, big data
    • 10am: SEC Dodd-Frank investor advisory cmte meets


  • MSFT said set to name Nadella CEO, replace Gates at chairman
  • Google sales top estimates as retail offsets ad-price drop
  • Lenovo said to ask for delayed payment amid Motorola deal rush
  • Google looking to buy wearable device cos.: The Information
  • Amazon’s boundless spending tested as sales growth slows
  • Yahoo identifies effort to break into users’ e-mail accts
  • Zynga buys NaturalMotion to boost mobile, is cutting staff
  • Keystone report said likely to disappoint opponents on climate
  • Euro-area Jan. inflation slows to 0.7% as energy prices drop
  • Rowan fighting natural gas well in Gulf of Mexico
  • Honda profit misses estimates as demand in Thailand slumps
  • LVMH rises most since 2010 on rebound in fashion sales growth
  • SEC panel opposes planned test of wider share-price increments


    • AbbVie (ABBV) 7:51am, $0.82 - Preview
    • Aon (AON) 6:30am, $1.51
    • Autoliv (ALV) 6am, $1.52
    • Avery Dennison (AVY) 8:30am, $0.68
    • Booz Allen Hamilton (BAH) 6:30am, $0.33
    • Brookfield Office Properties (BPO CN) 7am, $0.14
    • Chevron (CVX) 8:30am, $2.57 - Preview
    • Consol Energy (CNX) 7am, $0.06 - Preview
    • Dominion Resources (D) 7:30am, $0.89
    • ImmunoGen (IMGN) 6:30am, ($0.16)
    • Lear (LEA) 7am, $1.59
    • Legg Mason (LM) 7am, $0.99
    • LyondellBasell (LYB) 7am, $1.40
    • MasterCard (MA) 8am, $0.60
    • Mattel (MAT) 6am, $1.20 - Preview
    • Mead Johnson Nutrition (MJN) 7:30am, $0.77
    • National Oilwell Varco (NOV) 7am, $1.39 - Preview
    • Newell Rubbermaid (NWL) 6:30am, $0.46 - Preview
    • Paccar (PCAR) 8am, $0.93
    • Simon Property Group (SPG) 7am, $1.22 - Preview
    • Tyco International (TYC) 6am, $0.45 - Preview
    • Tyson Foods (TSN) 7:30am, $0.64
    • WisdomTree Investments (WETF) 7am, $0.12



  • Copper Has Longest Losing Streak Since 1998 on China Concern
  • RWE Expands in LNG to U.S. Natural Gas as Banks Exit Commodities
  • WTI Crude Drops on Speculation Gain to Month-High Was Excessive
  • Gold Trades Near 1-Week Low on Outlook for Fed, Physical Demand
  • Corn Set for First Monthly Gain Since August as U.S. Sales Climb
  • Copper Analysts Are Most Bearish in Year on Fed Tapering, China
  • Europe Faces Polar Vortex Flip Side as Power Prices Slide
  • U.S. Cattle Herd Shrinking to 63-Year Low Means Record Beef Cost
  • Robusta Coffee Climbs to 5-Mo. High on Possible Roaster Buying
  • Panama’s $5.3 Billion Canal Expansion Has U.S. Ports Jumping
  • Soybean Traders Most Bearish in Four Weeks on Brazil: Survey
  • Teapots Boiling in Texas as Shale Spurs Refining Revival: Energy
  • Mexico Energy Bill May Draw Private Capital for Infrastructure
  • Natural Gas Extends Biggest Decline in More Than Four Years


























The Hedgeye Macro Team














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Back in October we wrote that CMG was well positioned for the balance of the year and expected the company to report another strong quarter in 4Q.  We reiterated our bullish view on the stock in a note in early January.  Needless to say, it did not disappoint.  Despite a choppy sales environment for the majority of restaurant companies in November and December, CMG was able to deliver exceptional results (+9.3% comp primarily driven by traffic), solidifying its position as one of the strongest restaurant companies in our space.  Sales, net income, and EPS all surprised to the upside in the quarter by 216 bps, 121 bps and 34 bps, respectively. 


Chipotle continues to separate itself from the competition through its unique food and people culture, unwaveringly loyal guests and top tier operating model.  As management noted on the call, the brand has significant durability as low volume days (due to poor weather, etc.) were typically followed by very high volume days, suggesting the resiliency of the typical Chipotle customer.  


We believe CMG has the sales drivers in place (faster throughput, sofritas, catering, GMO removal, non-traditional marketing) to continue delivering strong comp growth throughout 2014.  To this extent, management upped their 2014 sales guidance from low single digit growth to low – mid single digit growth.  It is important to note that this comp growth excludes any potential price increases, which management indicated they may implement (3-5% increase) beginning in 3Q14.


Furthermore, we believe the careful, calculated development of the Shop House and Pizzeria Locale concepts continue to be longer-term opportunities with tremendous upside potential.   For now, however, growth will primarily continue to be driven by new Chipotle restaurants in the U.S.


One point of contention, and perhaps the only, was the impact a potential cost of sales increase would have on margins in 2014.  Management guided this line to 34.5% of sales in 2014, due primarily to high avocado prices in addition to the system-wide rollout of non-GMO ingredients.  Higher than expected comp growth in 2014 could mitigate some of this pressure but, as we mentioned above, the company may need to take some pricing to further offset this pressure.  Though management would not commit to taking price in 2014, it would be interesting to see the effect it would have on traffic.  Given the loyal customer base and the premium placed on higher quality food, we’d assume it won’t have much of a negative impact, if at all, on traffic.


What we liked in 4Q13 results:

  • Sales ($844.1mm), net income ($79.6mm), EPS ($2.53) all beat expectations.
  • Comp growth (+9.3%) beat expectations of +6.7% and accelerated +110 bps on a two-year basis.
  • Traffic accounted for the vast majority of comp growth despite a very difficult environment.
  • Labor costs were 23% of sales in 4Q, representing a -90 bps decrease over the prior year.
  • Other operating costs were 11.3% in 4Q, representing a -20 bps decrease over the prior year.
  • Restaurant level operating margin was 25.6% in 4Q, representing a +100 bps increase over the prior year.
  • Sofritas (~3% of sales) are resonating with consumers and catering (~1% of sales) is set to accelerate in 2014.
  • Throughput increase by 5 transactions during the peak day hour and by 6 transactions during dinner hours in 4Q.
  • Non-traditional marketing strategy is resonating with consumers.
  • $90mm remaining on the current authorized share buyback program.
  • Continue to target 180-195 new restaurant openings in 2014.
  • Opening sales volumes continue to be very strong ($1.6-1.7mm range).
  • Will perform a full remodel on many of their oldest restaurants.
  • Plan to invest about $10mm to perform a significant network redesign in all restaurants.
  • Remain focused on the growth of the Chipotle brand domestically.
  • Not accelerating international development until they have built sufficient brand awareness.
  • Not rushing the development of the Shop House and Pizzeria Locale brands.

What we didn’t like in 4Q13 results:

  • Food costs were 33.9% of sales in 4Q, representing a +40 bps increase over the prior year.
  • Further food cost pressure is expected in 2014, with management guiding to 34.5% of sales.
  • For the full year, comparable restaurants sales increased +5.6%, representing a -150 bps decrease from the prior year.
  • For the full year, restaurant level operating margin was 26.6%, representing a -50 bps decrease from the prior year.

CMG:  A CUT ABOVE - sales


CMG:  A CUT ABOVE - traffic



Feel free to call with questions.


Howard Penney

Managing Director


So not running Macau at full capacity? Mass push really paying off. Wynn beat our Street high EBITDA and EPS estimates with luck a factor in LV.







  • Want to launch Wynn Palace in 22-23 months; all-suite hotel will be the conversation piece of Asia
    • Phase 2 will almost double Wynn Palace capacity
  • Do not want Wynn Encore hotel to be a 'stepchild'

Q & A

  • 1Q/2Q 2013 lagged in mass marketing in Macau.  Until they saw an opportunity or when they lagged too much, they didn't change.  They made changes in 4Q, which helped them outperform.
  • Wynn Macau Slot win > Venetian slot win even though WYNN's smaller
  • Macau:  opened new slot room and new premium mass area (15 tables) in Oct 2013; more expansions coming 
  • LV:  saw uptick in retail, convention bookings, and hotel rate and occupancy; hold % a little better than last year
  • 2014 LV will equal or exceed 2013 LV
  • But still cautious on LV
  • Wynn Peninsula capex:  
    • Additional mass space and high-end gaming will be at a level that equals or exceeds Wynn Palace
    • 2013 capex was $60MM: Wynn Tower $35MM; $10MM new junket room; $1.5MM renovated spa
    • 2014 capex will be a little more than 2013
  • Cotai:  Phase 1 and 2 will cost $10bn all together; 95%-97% will be non-gaming
  • MA:  $1.5-1.6 billion investment (borrow $900MM and invest $500MM).  Can make $300MM in equity in Boston
  • No casino player in the USA does not know the Wynn brand
  • Japan:  will only be a study bill that may be passed this year; in 2016, a decision could be made
  • New junket room accounted for the rise in number of tables in Q4.  
  • Cash:  little less than $1 billion onshore, rest is offshore
  • Adelson said if Japanese partners with an American company, it will be under American scrutiny which could be onerous.  Wynn says that could be the case but it's not automatically a problem.
  • If WYNN partners with a local company in Tokyo, company would not have to qualify for suitability in Las Vegas.  
  • Thinks NJ will find MGM suitable again 
  • MA:  Foxwoods may apply on a commercial level for a third license and agree to pay 25%, not with the compact with the state but simply as a a competitive operators like MGM and WYNN.
  • High hold affected LV by ~$20MM
  • Macau is not supply constrained; the market will absorb the new properties on Cotai nicely
  • Added new junket area 3 days ago
  • Table/slot count does not matter much; it's the person gambling that matters
  • Wynn Palace Phase 2:  Two towers/ two buildings; 1,500 additional rooms - all suites (1,400 ft per room)
    • May open two years after Phase 1

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