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BYD 4Q 2013 YOUTUBE

In preparation for BYD FQ4 2013 earnings release tonight, we’ve put together the recent pertinent forward looking company commentary.

 

 

UPDATED 4Q GUIDANCE 

  • BORGATA EBITDA $15-17m
  • Wholly-owned Adjusted EBITDA post corp:  $105-110m
    • Despite the impact of soft market conditions and winter weather on operations in the Midwest and South and Peninsula segments, the Company's wholly-owned operations performed in-line with expectations in 4Q, benefitting from continued performance in the Las Vegas Locals and Downtown Las Vegas segments. 
    • 4Q Wholly-owned Adjusted EBITDA excludes a favorable property tax adjustment of $9.3m

CONSUMER TRENDS

  • Lower end of our database (“rubies”) - similar amount of trips, but spending less.
  • From September to October, saw recovery at properties in the Ruby tier of the database (not to prior year levels in all cases, but certainly sequentially from September to October improvements)
  • In October, most of our operations are showing improvement over last month

ON-LINE GAMING 

  • Expanding into social gaming…Stardust Casino, another social gaming product is currently in a test period prior to an anticipated roll out in the United States in the coming months

WILTON RANCHERIA

  • Work is underway for our project with the Wilton Rancheria Tribe

PENNY LANE INITIATIVE

  • Launch an enhanced Penny Lane at all seven of our major Las Vegas properties.
  • Begin a phased rollout of Penny Lane in the Midwest and South
  • Ultimately get to the new Peninsula properties sometime next year

LV LOCALS

  • Expect very modest revenue growth
  • Seeing the benefits of the refinements we have made to our marketing and operations

DOWNTOWN

  • Continue to improve yield on our Hawaiian charter service
  • During the three-month period ending in September, we captured a 31.6% market share
  • A hotel casino just reopened this past weekend returning more than 600 rooms to the Downtown inventory

BLUE CHIP

  • Blue Chip is contending with new capacity in both Michigan and Ohio

SOUTH

  • Benefiting from strong economic conditions in Southeast Texas and gaining market share there
  • Diamond Jo Dubuque successfully grew visitation
  • At Kansas Star, new non-gaming offerings continued to drive top-line growth. However, expenses are naturally higher year-over-year as well to support the significant amenities that have been added. Removed quite a bit of cost out of the business since BYD first opened the permanent facility early this year. And BYD will continue to focus on growing revenue to realize the full potential of our investment.

BORGOTA

  • 4Q results were impacted by several short-term factors in December, including an unusually low hold percentage and severe winter weather during two weekends. 
  • 4Q guidance do not include any meaningful impacts from online gaming.

BYD 4Q 2013 YOUTUBE - byd


The Olympiad

This note was originally published at 8am on February 19, 2014 for Hedgeye subscribers.

“The important thing in life is not victory but combat; it is not to have vanquished but to have fought well.”

- Pierre de Coubertin

 

We’ve been a little quiet commenting on the ongoing Winter Olympics in Sochi, Russia.  For Keith and me, it is probably nervousness over whether our native Canada can defend her Olympic gold, despite a lackluster preliminary round performance (lackluster in the sense that Canada is the first nation of hockey).  More broadly, though, the paradoxical nature of global markets has kept us busy.

 

In part, the Sochi Olympics represent this paradox.  Admittedly, from a security perspective, the games have been much more successful than anyone expected.  (As far as I can tell, the one downside is that most hotels rooms have a picture of Russia President Vladimir Putin.)  The flip side to the better than expected security (except perhaps in the Ukraine), is that many venues have been disappointing.

 

This of course goes to the heart of the paradox of the winter Olympics in Sochi, which is that Sochi is actually a beach resort.  Our partner in the Phoenix Coyotes, George Gosbee, has been in Russia since the start of the games. He took a fantastic picture that was picked up by Reuters (see below) showing the beautiful Sochi beach line that spectators walk on to get to the hockey arenas.

 

The Olympiad - g9

 

We will be doing an Olympic hockey pool later this week at Hedgeye and the odds are that our own Bob Brooke has the inside edge given his experience playing for the U.S.A. at the Sarajevo Olympics in 1984, but here are my picks:

  1. Gold – U.S.A.
  2. Silver – Canada
  3. Bronze – Russia
  4. Sweden

While it is paradoxical for a Canadian to pick the U.S. to win gold, they have looked much better, so I’m not going to let my emotions rule the day.  What are your picks?

 

Back to the Global Macro Grind . . .

 

This morning in the Chart of the Day, I wanted to continue hitting on this ongoing paradox of reported versus actual inflation.  As it relates to reported inflation, we do expect CPI to ramp and likely beat expectations in the U.S., but more importantly is the actual commodity inflation that is occurring.   The chart shows Gold Spot, Gold Miners (GDX) and the CRB Index versus the SP500, Consumer Staples (XLY) and Consumer Discretionary (XLP).

 

As the chart emphasizes, commodity inflation has been on a tear since our January 9th Q1 Themes Call.   Now, obviously, accelerating commodity inflation and input costs aren’t the reason that a number of our Best Ideas shorts, namely Weight Watchers (WTW) and Boardwalk Pipeline Partners (BWP), have underperformed so dramatically, but they are a reason that we continue to like the series of Best Idea shorts that our Restaurant team led by Howard Penney has added to the list. 

 

This list of restaurant shorts includes Cheesecake Factory (CAKE), Bloomin’ Brands (BLMN), Potbelly Corporation (PBPB), and Panera Bread (PNRA).  PNRA reported earnings least night and guided 2014 earnings estimates to $6.80 -> $7.05, which is below consensus estimates of $7.30.  Certainly not a meaningful miss, and likely weather did play a part, but when a company trades at close to 25x forward earnings, expectations are, indeed, the root of all heartache.  For more information on how to subscribe to restaurant sector research, please email sales@hedgeye.com.

 

Reverting back to inflation, the Congressional Budget Office released a recent report yesterday that had some rather interesting takeaways from President Obama’s proposal to raise the minimum wage (an inflationary pressure), specifically:

  • President Obama's quest to raise the minimum wage to $10.10/hour would eliminate about 500,000 jobs by 2016 but also increase pay for 16.5M workers and lift 900K out of poverty;
  • The report said benefits of an increase would be spread across a broad range of workers, with 19% of the increased wages going to Americans living below the poverty line. Close to 30% of the higher wages would go to people in families that earned more than three times the poverty level; and
  • The report added that the increased cost of labor would encourage employers to upgrade technology or hire fewer, higher-skilled workers. That effect would be partially offset by higher earnings among low-wage workers who retained their jobs.

So, a proposed government policy that slows employment growth and creates inflation . . . that sounds eerily familiar.

 

This morning and through the duration of the week we will be getting a series of macro data points that will be critical to focus on, which include:

  • Today - MBA Mortgage applications, PPI, Housing Starts and HSBC China Flash PMI.
  • Thursday - CPI, Flash PMI, Eurozone Flash PMI and BOJ Minutes; and
  • Friday - Existing home sales.

Paradoxically, the SP500 has been strong over the last two weeks or so, though it will be interesting to see how and if that strength sustains into an increased, and potentially negative, macro news flow.  Conversely, as it relates to China, our view is fairly explicit.  As my colleague Darius Dale emailed me this morning:

 

“Thus far in the YTD, the only data that has been supportive of a year-over-year acceleration in Chinese growth has been the credit data; even price-based leading indicators would suggest otherwise. All other data (i.e. PMI surveys) suggests sequential momentum is decidedly slowing. The market is clearly pricing in the expectation that the PBoC will have to ease [materially].”

 

Indeed.

 

Our immediate-term Macro Risk Ranges are now:

 

UST 10yr Yield 2.64-2.79%

SPX 1807-1848 

VIX 11.79-15.93

Gold 1282-1333

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Director of Research

 

The Olympiad - Chart of the Day

 

The Olympiad - Virtual Portfolio



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Replay: Long Lorillard (LO): Best Idea Call

Earlier today we hosted a conference call to discuss the key points of our high-conviction bullish thesis on Lorillard (LO). 

 

Podcast: CLICK HERE

Presentation: CLICK HERE

 

Key Takeaways Of The Call

  • We do not see Menthol Regulation Risk from the FDA over the medium term (1-2 years) and assign less than a 20% probability over the long term.
  • We expect blu e-cigs to benefit from first mover advantage and maintain leading market share despite competitive pressures from Big Tobacco’s entry into the category. Looking out 5 years to 2018, we model blu’s earnings contributing 31% to total LO, and accelerating earnings growth in the combined company that should command a re-rating of the stock to a higher multiple.
  • We expect strong and stable menthol fundamentals driven by lasting consumer and demographic trends that differ from traditional tobacco.

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

 

Call or email me with any follow-up questions.

 

Best,

 

Matt Hedrick

 


EHTH: Déjà vu

Takeaway: We've been here before. EHTH is ripping on another headline without considering implications. Street setting EHTH up more disappointment

SUMMARY

  1. EHTH stock is ripping on rumors of another delay for ACA plan compliance; implication is that there will be less attrition risk next year.

  2. MCOs may cancel plans on their own and/or push back on commission rates next year in order to recoup profitability on 2014 plans.

  3. Either way, EHTH will not see the upside that the street is baking into its stock today.  

NEWS

The White House is rumored to be extending the waiver on plans that are not compliant with the Affordable Care Act (ACA) in order to avoid cancellation letters being sent ahead of mid-term elections.  EHTH is up 11% intraday on the news 

IMPLICATIONS

The most obvious takeaway is that the waiver will mitigate EHTH's attrition risk next year.  We're not arguing that point; we're debating by how much.

 

Two important considerations on the extended waiver:

  1. It's subject to state approval
  2. MCOs make the final decision.

We can't say what states will do next year.  The bigger risk is the MCOs themselves; some of which have already cancelled existing plans regardless of the state's decision for 2014.  Below we explain the rationale for doing so, and why this will only get worse next year.   

CANCELLATION RISK REMAINS ELEVATED

Carrying both existing and ACA-compliant plans creates an actuarial mismatch for an MCO. Plan prices for ACA-compliant plans are considerably higher in order to offset the series of new costs facing MCOs in 2014 (e.g. Essential Health Benefits/Out-of-pocket limits).  


It's important to note that ACA limits MCOs from charging older (costlier) individual any more than 3x the rate of younger cohorts, which means they could only increase rates so much on the older cohorts, and explains the barbell-shaped rate increases that we have seen for 2014 plans

 

EHTH: Déjà vu - EHTH   Rate Increases 2

 

The main issue is that MCO profitability comes from the younger cohorts, and they're not signing up.  From what we've seen to date in terms of gov't exchange (HIX) enrollment, the population signing up for coverage is considerably older than what the industry is currently accustomed (aka Adverse Selection).  In turn, MCOs are seeing a higher proportion of costlier members, and 2014 plans will be less profitable than what the industry is accustomed to (if at all).

 

EHTH: Déjà vu - EHTH   IFP vs. HHS demo

 

 In order for MCOs to recoup profitability in 2015, they will have to do one of three things

  1. Raise prices on ACA-compliant plans, or exit markets if unable to do so.
  2. Cancel non-compliant plans to raise collective premiums
  3. See below

IF NOT, COMMISSIONS GET HIT

EHTH has suggested that its 2014 commission rates will be flat to slightly up in 2014.  We would have expected greater pressure on 2014 commission rates given the headwinds facing MCOs, but we believe the reason why commissions have remained stable is because the gov't exchanges (HIX) were having technical difficulties during the 2014 selling season.

 

That changes next year; the gov't HIX are far more functional now, and should only improve from here.  That makes MCOs less reliant on the private HIX (e.g. EHTH) to distribute their plans, and more likely to push back harder on commission rates.  

 

It's also worth noting that in order for EHTH to sell subsidized plans, its must offer all subsidy-eligible plans available on the public HIXs, regardless of whether is has a commission agreement with those MCOs.  In a worst case scenario, an MCO could pull its commission agreement with EHTH and still gain new members since EHTH has to offer its plans regardless.  

 

In short, if the MCOs are experiencing headwinds to profitability, it will be that much easier to push back on commission rates in 2015.

FINAL THOUGHT

EHTH is essentially a distributor without a captive consumer.  It operates in a crowded industry with a growing competitive threat from the public HIXs.  If MCOs are feeling the pressure in 2014, they're going to push back in 2015; and there's not much EHTH can do about it.  

 

 

Hesham Shaaban, CFA

@HedgeyeInternet

 

 

 


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