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LONG Lorillard (LO): Best Idea Call Today

Hedgeye's Consumer Staples team is adding long Lorillard (LO) to our Best Ideas list.

 

We are hosting a conference call today, March 4th at 11:00am EST to discuss the key points of our high-conviction bullish thesis. Consumer Staples Analyst Matt Hedrick will answer questions at the conclusion of the call.

   

 

HEDGEYE IS BULLISH ON LORILLARD? YES.

  • We'll discuss our exclusive view on why we now believe Lorillard's advantaged menthol portfolio is essentially shielded from regulatory risk.*
  • We'll offer granular insight into long-term upside growth in Lorillard's leading electronic cigarette business "blu," as industry cigarette volumes decline.  
  • Got growth? We'll take a look inside Lorillard's continued stable (and profitable) sales and earnings growth outlook.

*A supplemental expert report on menthol by a top Washington, DC law firm involved in tobacco public policy is available by request.


Participant Dialing Instructions:

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 825118#
  • Materials: CLICK HERE (Slides will be available approximately one hour prior to the start of the call)

LEISURE LETTER (03/04/2014)

Macau market shares, new casino in LV, and some cruise discounting

 


EVENTS TO WATCH:  UPCOMING EARNINGS/CONFERENCES

 

TODAY “Fat Tuesday”

  • CONEXPO-CON/AGG – Las Vegas thru Friday
  • PEB –  8:50 a.m. Citi Global Property CEO Conference           
  • HST – 9:30 a.m. Citi Global Property CEO Conference
  • SHO – 10:10 a.m. Citi Global Property CEO Conference
  • MAR – 11 a.m. Raymond James Institutional Investor Conference
  • HOT – 2:15 p.m. Raymond James Institutional Investor Conference
  • DRH – 4:15 p.m. Citi Global Property CEO Conference

Wednesday, March 5

  • STAY – 7:30 a.m. Citi Global Property CEO Conference
  • LHO – 9:30 a.m. Citi Global Property CEO Conference
  • RHP – 10:10 a.m. Citi Global Property CEO Conference
  • FCH – 11:30 a.m. Citi Global Property CEO Conference
  • HT – 12:10 p.m. Citi Global Property CEO Conference
  • MAR – Mitsubishi Seattle Consumer Conference
  • BYD – 4Q13 earnings, AMC, 5 pm call

Thursday, March 6

  • Todd in Boston

COMPANY NEWS

2014 expected to be a 'busy year' for Kansas Star Casino Wichita Eagle

Ground will be broken in mid-March or mid-April on a 10k sq ft meeting and convention space and on an equestrian center. Both are scheduled to be completed almost simultaneously in January 2015, although a handful of equestrian events will be held this year.  Efforts also are under way to book more acts at the Kansas Star Arena, which opened last year.  

Takeaway:  While regional capex hasn't produced consistently great ROIs in recent years, the Kansas Star is one of the better performing casinos in the country. While not disclosed, we think the spend is not overly material.

 

PENN –  On Wednesday, PENN will formally contest the Racing and Gaming Commission’s refusal to renew its Argosy Sioux City license.  On Thursday, a Polk County Court will hear PENN’s lawsuit against the commission’s awarding of the casino license to the Hard Rock casino.  Also on Thursday, the IRGC is expected to approve standard 1-yr renewals of the state-licensed casinos, with the exception of the Sioux City market.

Takeaway:  PENN's situation here is looking bleak. We're not sure all the analysts have removed Sioux City EBITDA from their 2015 projections

 

IGT – secured 50% floor share of games at the new SLS Las Vegas resort and casino and will feature 400 IGT games on the casino floor.  The SLS Las Vegas, the renovated Sahara, will open in August or September and will feature 1,630 rooms.

Takeaway:  On a 4Q rolling basis, IGT ship share has been trending in the mid-high 30s.  However, IGT typically garners a higher share of new casinos/expansion with volume discounts and product giveaways.

 

Four Season Hotels – announced a partnership with Simmons for a new bed which features an interchangeable mattress topper that allows guests to select firm, medium or soft and will be put in place upon advance request by the guest.  The program is the result of a Four Seasons/Ipso study that revealed 92% of guests have a preference for bed firmness. 

Takeaway:  Could this be the next big capex replacement trend for lodging – similar to previous, bed (Starwood), showers, large HD televisions? 

 

NCLH/RCL – Both Norwegian Cruise Line and Royal Caribbean International rolled out 'kids sail free' offers on new bookings made during March.  

Takeaway:  Promotions remain prevalent, particularly in the Caribbean 

INDUSTRY NEWS

GAMING               

Sands China replaces SJM as casino market leader Macau Business 

According to Business Daily, the breakdown of market share % is as follows:  Sands China 25%, SJM 22%, GALAXY 21%, MPEL 12%, WYNN 11% and MGM 9%. 

Takeaway:  LVS is our favorite Macau name.  While hold likely played a part in the Feb increase, we believe LVS remains a share gainer.

 

New Jersey Gaming – State lawmakers are calling for a casino in Bergen County – specifically at the Meadowlands.  Resorts World New York produced $435 million for the State of New York. By comparison, a Meadowlands casino is estimated to produce $350 million in tax revenues for New Jersey almost $100 million more than the current Atlantic City casinos combined.

Takeaway:   New Jersey officials must do something as Atlantic City gambling revenues are now less than 50% of peak and on-line gaming is underperforming early revenue and tax estimates.

 

Cyprus Gaming Expansion – The government has signed a contract with “Deloitte Ltd”, which was selected on January 29, following an international public tender procedure, to provide consulting services for the licensing of an integrated casino resort.  In July 2013, the Cypriot Government unveiled plans to grant one licence for an integrated casino resort on the island, as Cyprus scrambles to woo investment to offset a deep recession.

Takeaway:  Well known as a tax-haven, more recently the island experienced a tourism boom and is serviced by many low cost European airlines. 

MACRO 

Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is turning decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.



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Riddle In An Enigma

“Russia is a riddle wrapped in a mystery inside an enigma.”

-Winston Churchill

 

In college, I wrote my senior essay on constitutionalism in post-Soviet Russia.  It was a great topic for an Ivy League kid and I had the privilege of being advised on the paper by General William Odom, a former head of the National Security Council under Ronald Reagan, and expert on Soviet affairs.  Despite my heroic efforts at primary research, the conclusion could have been shorter than a tweet.

 

Simply put, the rule of law was going to take time, perhaps generations, to take hold in Russia.  Unlike the United States and many Western nations, the history of Russia, even before Communism, was one of rule “by law” and not rule “of law”.  So, in effect, any new Constitution would simply be viewed by the people as an apparatus by which they were ruled, rather than a document that freed them.

 

Then, as now, it is impossible to analyze Russian action solely from the lens of the West.  Actions which may same outrageous to the West may actually be very subdued to the Kremlin.  

 

Riddle In An Enigma - poot

 

A quick review of any major Western media source is that there are two schools of thoughts in analyzing the current situation.  The first is that Putin is clearly violating the sovereignty of the Ukraine and will pay for it, likely economically.  The second is that Obama has largely been incompetent in dealing with Russia and is in a box because Putin has become his partner, of sorts, on Iran and Syria.

 

Stepping back though, it is worth viewing this from the Russian perspective.  For starters, Crimea, which is and has been recognized as a sovereign part of the Ukraine by Russia, is also the home to Russia’s Black Sea Fleet and will be until 2042 under an agreement between the two countries.  It is also a region that is almost 60% Russian speaking and ethnic Russian.  So, clearly, the Kremlin has vested interests in the Crimean peninsula.

 

Meanwhile, in overthrowing President Yanukovych, the Ukrainians overthrew a Russian ally who had been moving further away from the Europe and closer to Russian, including taking a recent $15 billion loan from Russia.  The current leadership in the Ukraine also does have some far right-wing elements.  Specifically, one of the three main leaders of the protest and the new deputy Prime Minister of the Ukraine, Oleh Tyahnybok, is the leader of the far-right ultranationalist Svoboda party that was allied with the Nazis in World War II.  (Tyahnybok has at times blamed the Ukraine’s problems on the “Jewish-Russian” mafia running the country.)

 

Back to the Global Macro Grind...

 

Clearly, from a Western perspective neither of the above factors, strategic interests in Crimea or extreme nationalists in the new Ukrainian government, justifies an invasion into sovereign Ukraine. Hence, the West is in uproar and among other things is threatening to pull out of the Sochi G-8 conference this summer and implement economic sanctions.  For his part, Putin has towed the line closely in Crimea; there have been no shots fired and little violence.  As well, so far, the Russians have not made a move into the mainland of Ukraine.

 

On some level, Putin also likely respects history.  Similar to Afghanistan, Crimea has been a thorn in Russia’s side historically. Russia also fought a war in the Crimea, against a British, French and Ottoman coalition, in the middle of the 19th century.  This war was an unmitigated disaster for the Russian Empire, then led by Nicholas I.  Not only did Nicholas I not live to see the end of the war, but his successor Alexander II signed the Treaty of Paris and initiated the biggest liberalization campaign in the history of Russia. 

 

Despite the fervor that was brewing on political TV this weekend, the perception based on a poll we took yesterday is that the situation in the Ukraine is actually favoring Putin vis-à-vis President Obama.  In fact, 78% of the respondents to our poll said Putin will come out stronger. Napoleon famously said:

 

“Never interrupt your enemy when he is making a mistake.”

 

Of course, it begs the question: who is making the mistake?

 

In all likelihood, the most significant reason that Russia is unlikely to escalate is an economic one.  Even as the Russian stock market is rallying this morning (perhaps an indication that the worst is behind us?), Russian asset prices have been decimated.  In the Chart of the Day, we show this with a chart of the Russian ruble, which is literally hitting all-time lows. Despite the Russian central bank aggressively raising interest rates by 150 basis points, the ruble continues to be better for sale.  Internally, a weak ruble is the worst economic outcome for Putin as it has the potential to drive inflation up dramatically. 

 

Externally, the most significant “river card” Russia has to play is its natural resources that much of Western Europe is dependent on.  Last year, Russia shipped 133 billion cubic meters of gas to Europe, including 40 billion to Germany, which was more than 1/3 of Germany’s supply.  Ultimately, Russia has become very economically integrated with the West and it is likely this integration that leads to resolution before escalation in the Ukraine. 

 

This all of course reminds me of the following joke:

 

A Ukrainian immigrant goes to the Department of Motor Vehicles to apply for a driver's license. 

He has to take an eye test. The clerk shows him a card with the letters: 

C Z W I X N O S T A C Z 

"Can you read this?" the clerk asks. 

“Read it?" the Ukrainian replies, "Heck, I know the guy!" 

 

Our immediate-term Risk Ranges are now as follows (our Top 12 macro ranges are in our Daily Trading Range product):

 

UST 10yr Yield 2.59-2.73%

SPX 1 

VIX 13.06-16.26 

USD 79.81-80.31 

Brent 108.78-111.21

Gold 1 

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Director of Research

 

Riddle In An Enigma - RUB

 

Riddle In An Enigma - rta2


March 4, 2014

March 4, 2014 - Slide1 

BULLISH TRENDS

March 4, 2014 - Slide2

March 4, 2014 - Slide3

March 4, 2014 - Slide4

March 4, 2014 - Slide5

March 4, 2014 - Slide6 

March 4, 2014 - Slide7

BEARISH TRENDS

March 4, 2014 - Slide8

March 4, 2014 - Slide9

March 4, 2014 - Slide10


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – March 4, 2014


As we look at today's setup for the S&P 500, the range is 35 points or 1.07% downside to 1826 and 0.83% upside to 1861.                           

                                                                                                    

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: 2.33 from 2.30
  • VIX closed at 16 1 day percent change of 14.29%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am: ICSC weekly sales
  • 8:55am: Johnson/Redbook weekly sales
  • 9:45am: ISM New York, Feb. (prior 64.4)
  • 10am: IBD/TIPP Economic Optimism, March, est 45.3 (pr 44.9)
  • 4:15pm: Fed’s Lacker speaks in New York
  • 4:30pm: API weekly oil inventories

 GOVERNMENT

    • NOTE: Weather may lead to delays, postponements
    • President Obama formally submits budget request for FY2015
    • Texas kicks off primary season, including Senate vote
    • 8:45am: Federation of American Hospitals holds public policy conf., with Senate Finance Cmte Chairman Ron Wyden, House Budget Cmte Chai Paul Ryan, CMS Administrator Marilyn Tavenner
    • 11am: House Ways and Means Chairman Dave Camp attends briefing on tax code changes hosted by Institute for Policy Innovation
    • 3:30pm: Energy Dept holds FY 2015 budget briefing

WHAT TO WATCH:

  • Russia stays in Ukraine, says intervention is legitimate
  • Putin scheduled to speak on Ukraine
  • Secretary Kerry due to arrive in Kiev today
  • Ukraine crisis seen building support for U.S. natgas export
  • BOE seeks derivs pact to prevent repeat of Lehman cascade
  • Dish gains Web rights to Disney TV shows in multiyear pact
  • President Obama formally submits budget request for FY2015
  • Pentagon seeks weapons spending $25b less than planned
  • Senate banking committee hearing on Fed nominees postponed
  • JPMorgan pays $400m to settle Syncora mortgage-bond suits
  • Jeep debuting at Geneva auto show is test for Fiat Chrysler
  • Rock-Tenn to buy Simpson Tacoma paper mill for $343m
  • Patton Boggs hires advisers, says not cutting jobs: WSJ
  • Bridgepoint said to seek up to $5.5b for European buyouts
  • Alexion’s $569k drug draws data demand from U.K. cost agency
  • Glencore CEO sees no roadblock in talks for $5b mine sale
  • Facebook said in talks to buy Titan Aerospace: TechCrunch
  • Los Angeles poised to restrict $1.5b e-cigarette industry
  • Human traders squeezed in Europe as fees dwindle, Tabb says

EARNINGS:

    • ABM Industries (ABM) 5pm, $0.25
    • AutoZone (AZO) 7am, $5.56
    • Bank of Nova Scotia (BNS CN) 6am, $1.34  - Preview
    • Bob Evans Farms/DE (BOBE) 4:02pm, $0.53
    • EW Scripps Co (SSP) 7:30am, $0.13
    • Insys Therapeutics (INSY) 7am, $0.55
    • Smith & Wesson Holding (SWHC) 4:05pm, $0.29
    • Veeva Systems (VEEV) 4:02pm, $0.06

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Commodities Slide From Six-Month High as Ukraine Concern Recedes
  • Gold Drops From Four-Month High After Russia Military Drill Ends
  • Grain Boom Busting Canada Farmers on Clogged Rails: Commodities
  • WTI Falls From Four-Month High With Brent as Ukraine Risk Ebbs
  • Gold Bulls Run for $1,400 as Ukraine Turmoil Spurs Haven Demand
  • Wheat Drops After Surging Most Since 2012 as Russian Drill Ends
  • Copper Rises From Three-Month Low on Signs Ukraine Tension Eased
  • Ukraine Grain Growers See Threat to Planting as Troops Mobilize
  • Iron Ore Cost Curve Shows 98% of World Output Profitable at $118
  • Ukraine Crisis Seen Building Support for U.S. Natural Gas Export
  • Europe Gas Storage Seen Enough for 45-Day Ukraine Supply Cut
  • WTI May Fall to $95 in 2015 as Supply Pace Remains Buoyant
  • Platinum Strike Union Softens Pay Demands at Biggest Mines
  • Demon Oil Back in Colombian Rebels’ Crosshairs: Chart of the Day

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

 

 

 

 

 

 

 

 

 

 

 

 

 


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