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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – March 12, 2014


As we look at today's setup for the S&P 500, the range is 46 points or 1.27% downside to 1844 and 1.20% upside to 1890.                      

                                                                                                         

SECTOR PERFORMANCE

 

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EQUITY SENTIMENT:

 

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CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.39 from 2.40
  • VIX closed at 14.8 1 day percent change of 4.23%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, March 7 (est. 9.4%)
  • 10:30am: DOE Energy Inventories
  • NOTE: Monthly Budget Statement moved to March 13

GOVERNMENT:

    • Florida Republican David Jolly wins special House election
    • 9am: Senate Armed Svcs Cmte holds hearing on Afghanistan
    • 10am: House Armed Svcs Cmte hears from Marine Corps Commandant James Amos, Navy Sec. Ray Mabus, Chief of Naval Operations Jonathan Greenert on 2015 defense authorization budget request
    • 10am: Senate Health Education and Labor Cmte hears from Labor Sec. Thomas Perez on proposed minimum wage increase
    • 10am: House Ways and Means Cmte hears from HHS Sec. Kathleen Sebelius on her agency’s 2015 budget request
    • 10:30am: SEC to vote on proposal for new risk-management standards for clearing firms such as Depository Trust Co.
    • 10:30am: House Judiciary Cmte holds hearing on the Internet sales tax

WHAT TO WATCH:

  • Apple appeals rejection of Samsung smartphone sale-ban bid
  • AutoTrader owners Cox, Apax said interested in Cars.com
  • GM criminal probe of recalls seen complicating Barra turnaround
  • Obama meeting with Ukraine’s Yatsenyuk raises stakes with Putin
  • Malaysian air force denies saying plane tracked to Malacca
  • Wilbur Ross says Diamond S Shipping IPO pulled on low price
  • Gross sells Treasuries as Gundlach says U.S. yields will fall
  • Cash abroad from largest U.S. cos. rose 11.8% last yr
  • SoftBank challenge to cable won’t avoid T-Mobile deal scrutiny
  • Christie appointees ban N.J. direct sales for Musk’s Tesla cars
  • Bayer sees 8% growth in drug sales through 2016
  • Buffett’s BNSF leads surge to ease railroad cargo jam
  • VimpelCom says U.S., Dutch authorities probe Uzbekistan unit
  • Intel seeks acquisitions in Europe, Morales tells Handelsblatt
  • China’s Xunlei files prospectus for U.S. IPO: Securities Daily

EARNINGS:

    • Abraxas Petroleum (AXAS) 6am, $0.05
    • Crescent Point Energy (CPG CN) 8am, C$0.17
    • Dresser-Rand (DRC) 4:45pm, $1.28
    • Express (EXPR) 7am, $0.59
    • Krispy Kreme Doughnuts (KKD) 4:02pm, $0.13
    • Matador Resources (MTDR) 4:05pm, $0.26
    • North West (NWC CN) 4:30pm, C$0.35
    • Orexigen Therapeutics (OREX) 4:01pm, $(0.19)
    • Raven Industries (RAVN) 9am, $0.32
    • Scientific Games (SGMS) 4:12pm, $0.07
    • Semafo (SMF CN) 8:23am, $(0.01)
    • Vail Resorts (MTN) 4pm, $1.88
    • Williams-Sonoma (WSM) 4:05pm, $1.35 - Preview

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Copper Slumps to 44-Month Low on Concern China Demand Is Slowing
  • WTI Falls as U.S. Crude Stocks Rise, Widening Discount to Brent
  • Soy Crop at Record in Brazil Clogging Ports as China Spurs Trade
  • Iran Thaw Seen Opening $6 Billion Market for Steel: Commodities
  • Palm Imports by India Slumping 30% on Prices Highest Since 2012
  • Gold Advances to Six-Month High as Ukraine Spurs Haven Demand
  • Soybeans Drop After 14% Rally as China May Cancel More Cargoes
  • Sugar Falls Amid Commodities Retreat as Rains Return to Brazil
  • Rebar Climbs From Lowest Since Shanghai Contract Started in 2009
  • Copper’s China-Driven Tumble Seen Near Bottom, Tiger Says
  • China on Course to Exceed 2015 Shale Target With Fuling Find
  • Putin Opens Up Europe’s Energy Fault Line Along Oder-Neisse
  • WTI Crude Shielded From Ukraine on U.S. Output: Chart of the Day
  • Palm Oil Slumps Most This Year as Rally Seen Weakening Demand

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CURRENCIES


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GLOBAL PERFORMANCE

 

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EUROPEAN MARKETS

 

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ASIAN MARKETS

 

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MIDDLE EAST

 

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The Hedgeye Macro Team

 

 

 

 

 

 

 

 

 

 

 

 

 


STOCKS REMAIN ELEVATED AS SALES ESTIMATES DROP

Takeaway: Despite meaningful downward revisions to same-restaurant sales estimates, casual dining stocks have held up particularly well.

We were recently given a look at February sales trends, which are, on the margin, negative for the casual dining industry.  Same-restaurant sales and same-restaurant traffic trends declined during the month and were down sequentially from January.  Before we delve further into the details, we thought it would be useful to highlight which casual dining chains had CQ (current quarter) same-restaurant sales estimates adjusted since February 3rd.

 

None of the casual dining companies we track had CQ same-restaurant sales estimates revised up over the course of February.

 

The following companies had CQ same-restaurant sales estimates unchanged over the course of February: EAT, KONA


The following companies had CQ same-restaurant sales estimates revised down over the course of February: BBRG, BJRI, BLMN, BWLD, CAKE, CBRL, CHUY, DRI, DFRG, DIN, IRG, RRGB, RT, RUTH, TXRH

 

Despite these negative revisions, casual dining stocks have outperformed the SPX meaningfully over the past month, which implies, to us, that the street has accepted the fact that 1Q will be a difficult quarter.  More importantly, it also implies that expectations are high for the remainder of 2014.


STOCKS REMAIN ELEVATED AS SALES ESTIMATES DROP - 3 12 2014 6 38 39 AM

 


February marks the third consecutive month of decreasing same-restaurant sales and traffic for the industry.  As we wrote last week, Knapp estimates same-restaurant sales and traffic declined -1.5% and -4%, respectively, during the month.  In addition, Black Box Intelligence, which excludes DRI, estimates same-restaurant sales and traffic declined -0.7% and -3.2%, respectively, during the month.  February numbers contracted on a year-over-year basis despite facing some of the easiest comparisons in over three years.  According to historical Black Box data, same-restaurant sales and traffic declined -5% and -6.2%, respectively, in February 2013.

 

After a tumultuous January, New England was surprisingly the best performing region during the February month with Black Box estimating same-restaurant sales and traffic increased +2.2% and 0%, respectively.  The West Region, on the other hand, was the weakest performing market with Black Box estimating same-restaurant sales and traffic declined -3.7% and -5.8%, respectively, in February.

 

Overall, trends in the casual dining industry are unsettling and continue to indicate what we believe is a secular decline in the industry as the rise of fast casual and evolution of traditional quick-service continue to steal share from the industry.  Despite this, the market has shrugged off any weakness as weather-related.

 

STOCKS REMAIN ELEVATED AS SALES ESTIMATES DROP - same sales

 

STOCKS REMAIN ELEVATED AS SALES ESTIMATES DROP - same traffic

 

 

To be clear, we believe 1Q14 has been negatively impacted by weather, but to what extent is largely unknown.  With that being said, we believe the street has appropriately taken down 1Q14 estimates to a reasonable level.  Although January and February were difficult months for the industry, we believe March will provide some back end support to aggregate first quarter numbers. 

 

2Q14 estimates currently appear aggressive to the naked eye, but we will reserve judgment until March numbers are released as we expect it to be a telling month for the industry overall.  Will the industry get a boost from all the “pent-up demand” we are hearing about or will the secular decline persist?  Unfortunately, we don’t yet have an answer to this, but we will continue to monitor the situation closely and comment upon any indicators that may suggest one or the other.

 

STOCKS REMAIN ELEVATED AS SALES ESTIMATES DROP - estimates

 

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst


March 12, 2014

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BULLISH TRENDS

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BEARISH TRENDS

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NEW TO THE HEDGEYE TEAM

I'm very happy to announce that David Benz has joined Hedgeye and will work with me on the Gaming, Lodging, and Leisure (GLL) team.  David will assist with the core Gaming, Lodging, & Leisure research coverage as well as work to establish new coverage in the near future.  For several years, David was a client of Hedge Risk Management and the GLL team, so he is well versed in our style and deep fundamental research process.  Hopefully, you will be meeting David soon if you don't already know him.

 

Here is his Bio:

 

David has more than 15 years buy-side experience as both a senior equity research analyst and portfolio manager covering a broad cross section of gaming, lodging, REITs, infrastructure and financials. Most recently, David was a research consultant performing gaming market and feasibility studies for government agencies and corporate clients covering such jurisdictions as South Korea, Japan, Russia, New York, Iowa, and Massachusetts. Previously, David was a senior analyst at Waterfront Capital Partners, a Millennium Partners platform company, where he covered global gaming, global lodging, infrastructure, REITs and financials. Prior to Waterfront Capital, he was a Portfolio Manager with Grubb & Ellis AGA - a real estate focused money manager. David began his career with American Express Financial Corporation. During his American Express tenure he was concurrently the Portfolio Manager leading the AXP Real Estate Fund and a Senior Equity Analyst covering REITs, lodging, towers, mortgage related, all insurance, finance companies, trust banks and asset managers. He was a guest speaker at the NYU REIT Symposium. David received a B.A. in Political Science from Marquette University and an M.B.A. from Pepperdine University. 



Game-Changing $100 Wedding Dress

Takeaway: H&M hit the mark. It knows exactly what its client base wants.

Editor's Note: Below is a brief, complimentary excerpt from Hedgeye Retail analysis. For more information on our services, click here.

 

H&M Debuts First Wedding Dress And It Costs Less Than $100

 

Game-Changing $100 Wedding Dress - bride

  • "The mass retailer will be selling its first wedding gown for just $99...both in stores and online later this month, according to a rep for the brand."
     
  • "This will be the first H&M wedding dress sold in a regular collection, although a wedding gown did appear in the Viktor & Rolf one-time collection back in 2006."

Takeaway from Hedgeye’s Brian McGough:

 

This company is good. So good. That much is obvious.

 

While H&M will hardly threaten Vera Wang's iron-clad wedding dress business, the reality is there are a lot of women who will buy a white gown from H&M for that big day. And they’d do it in a heartbeat.

 

There are two factors working in H&M's favor.

  • The company continues to grow its credibility as a fashion leader,
  • Not everyone has the resources (or the willingness) to spend thousands on a wedding dress. 

Get this: The average price spent on a wedding dress last year? $1,211. You simply can’t beat H&M’s $99.

 

Game-Changing $100 Wedding Dress - wed1

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