• run with the bulls

    get your first month

    of hedgeye free



There is little doubt that GLPI’s split from PENN created tremendous shareholder value. So, why can’t other gaming companies like BYD, ISLE, LVS, MGM, PNK, or WYNN pursue similar value-creating transactions?


There is growing speculation that BYD could be next to follow the PENN route, now that an activist and real estate focused investor has taken a big stake in the stock.


We’re delighted to tackle this issue head on next Tuesday, March 18 at 11am, with Ed Glazer, Partner at Goodwin Procter, who has extensive experience with REITs and currently represents the only casino REIT – Gaming and Leisure Properties (GLPI).


We will tackle pertinent issues on our call including:

  • The case for casino REITs
  • Taxable vs non-taxable spin
  • REIT spin mechanics
  • The potential impact of proposed legislation
  • BYD:  A case study
    • Discussion of Issues
    • Discussion of Potential Complexities
    • Post Transaction Valuations

For dial-in details, please contact .


Edward Glazer

Ed Glazer is a partner in the firm's Tax Practice and its nationally recognized Real Estate, REITs & Real Estate Capital Markets Group. He focuses principally on structuring and implementing tax-oriented commercial transactions of all types, including real estate and venture capital transactions, mergers and acquisitions, pension investments in real estate involving issues of unrelated business taxable income, leveraged financings, and workout and debt restructurings. Mr. Glazer regularly advises clients in structuring collective investment vehicles, in structuring real estate securitizations, in forming and operating public and private REITs and in forming real estate funds.

Stock Report: Owens Corning (OC)

Stock Report: Owens Corning (OC) - HE OC table 3 14 14


Construction activity remains cyclically depressed, but has likely begun the long process of recovery.  A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating.  Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms.  As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization. 


OC’s markets have improved structurally over the past decade.  Both OC and many of its competitors filed for bankruptcy in the late 1990s/early 2000s to free themselves from asbestos liabilities.  With those matters resolved, many areas of the building products industries have emerged into more consolidated industries with fairly rational competitors.   Regulations, such as building codes, should also support demand for many of OC’s products.


A significant, multi-year rebound in OC’s end-markets combined with structural improvement should allow the shares to be rerated by the market.


Stock Report: Owens Corning (OC) - chart



INTERMEDIATE TERM (TREND) (the next 3 months or more)

We estimate that more than half of OC sales are to supply new construction projects, so a gradual trend of rebounding construction activity should provide a tailwind.   While there may be volatility in 1Q construction activity, bad weather can also increase demand for certain OC roofing products.  We also expect to see continued improvement in OC’s insulation margins in 1H 2014, a segment where returns have the most rebound potential.  



LONG-TERM (TAIL) (the next 3 years or less)

Our base-case valuation range for OC is $60-$70/share, which is attractive relative to the alternatives in the Industrials sector.  We expect the residential and nonresidential new construction recoveries to be reasonably simultaneous in coming years, driving higher capacity utilization and pricing for OC and other building products companies.


OC is not a member of an S&P Index, which it was prior to 2000, and recently restarted a dividend.  Both are potential positives.  After roughly six years in asbestos-related bankruptcy and having its end-markets evaporate in the financial crisis, we think OC has a lot more earnings and cash generation potential in coming years than the current valuation reflects.  




Stock Report: Owens Corning (OC) - HE OC chart 3 14 14

VIDEO | Keith's Macro Notebook 3/14: SPX EUROPE OIL

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

Bubbly: SP500 Levels, Refreshed

Takeaway: I might consider chasing the mo-mo on the upside, if the fundamental research view supported it – but it doesn’t.

Editor's note: This unlocked research note from CEO Keith McCullough was originally published March 10, 2014 at 10:44 in Macro. For more information on our services click here.



If the buck wasn’t burning and #InflationAccelerating wasn’t slowing US growth, I wouldn’t be selling on immediate-term TRADE overbought signals. Consensus hasn’t acknowledged the inflation impact on 2014 growth (yet), and I like that.


Bubbly: SP500 Levels, Refreshed - bubb


To call it a bubble isn’t a big deal. I called it a bubble when I was buying it all of last year (remember: #BTDB – buy-the-damn-bubble). What else would you call the all-time highs in prices?


Across our core risk management durations, here are the lines that matter to me most:

  1. Immediate-term TRADE overbought = 1888
  2. Immediate-term TRADE support = 1864
  3. Intermediate-term TREND support = 1805

In other words, why would you buy an overbought price if you have 4% mean reversion downside to the TREND line of 1805? I might consider chasing the mo-mo on the upside, if the fundamental research view supported it – but it doesn’t.


Let’s see if 1864 holds. Then we reset.




Keith McCullough

Chief Executive Officer


Bubbly: SP500 Levels, Refreshed - km1

Connect to Hedgeye


Client Talking Points


At first risk happens slowly, and then it comes all at once...The S&P 500 has dropped back into the red for the year-to-date (The Dow is down -2.8% YTD) on an accelerating volume signal yesterday with VIX (volatility) confirming our TREND breakout above 14.71 earlier in the week . Study the factors in the bounce this morning. They’ll matter.


Both the DAX and Eurostoxx600 have also snapped my Hedgeye TREND signal lines this week. That’s new. For the record, no, I do not like this Janet-Yellen-sounding ECB President Mario Draghi talking about price fixing “forward guidance to curb Euro strength.” Not one bit.


Oil also broke our TREND duration signal line of $108.07 TREND support this week. Incidentally, with #InflationAccelerating, that’s probably the only good thing on my screen this morning for the U.S. consumer. Meanwhile, Consumer Discretionary (XLY) is down -1.4% year-to-date. Sorry.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

We remain bullish on the British Pound versus the US Dollar, a position supported over the intermediate term TREND by prudent management of interest rate policy from Mark Carney at the BOE (oriented towards hiking rather than cutting as conditions improve) and the Bank maintaining its existing asset purchase program (QE). UK high frequency data continues to offer evidence of emergent strength in the economy, and in many cases the data is outperforming that of its western European peers, which should provide further strength to the currency. In short, we believe a strengthening UK economy coupled with the comparative hawkishness of the BOE (vs. Yellen et al.) will further perpetuate #StrongPound over the intermediate term.


Darden is the world’s largest full service restaurant company. The company operates +2000 restaurants in the U.S. and Canada, including Olive Garden, Red Lobster, LongHorn and Capital Grille. Management has been under a firestorm of criticism for poor performance. Hedgeye's Howard Penney has been at the forefront of this activist movement since early 2013, when he first identified the potential for unleashing significant value creation for Darden shareholders. Less than a year later, it looks like Penney’s plan is coming to fruition. Penney (who thinks DRI is grossly mismanaged and in need of a major overhaul) believes activists will drive material change at Darden. This would obviously be extremely bullish for shareholders and could happen fairly soon driving shares materially higher.

Three for the Road


4 of 9 sectors in our S&P Sector Risk Model are bearish on our TRADE duration; 5 are bullish @KeithMcCullough


"Efforts and courage are not enough without purpose and direction." - John F. Kennedy


The rich may have finally shaken off the recession. The number of U.S. households with a net worth of $1 million or more, excluding a primary residence, rose to 9.63 million in 2013, according to a new report from Spectrem Group, a consulting and research firm. That's more than a 600,000 leap up from 2012, and the highest number on record. (CNN)

Retail Callouts (3/14): ULTA, BWS, AMZN, EBAY, TGT, WMT, NKE/Adi

Takeaway: Nice ULTA comp. BWS calls foul on weather. AMZN/EBAY traffic trending higher. TGT ignored breach warning. WMT made in USA. Adi Schools NKE



ULTA - 4Q Earnings


Overall, not a bad quarter for ULTA -- all things considered. Came in at $1.09 vs $1.07 and comped 9.2% vs expectations of 6.7%. Q1 guidance is a little light at $0.70-$0.75 vs the Street at $0.80, but that's likely the company being conservative given guidance for a 5% comp. Square footage growth remains unchanged from the guide-down at the end of last quarter. The only real negative we can identify is that inventory/sales is solidly negative -- for the 8th quarter in a row. That's simply not a characteristic of a great retailer. 


Retail Callouts (3/14): ULTA, BWS, AMZN, EBAY, TGT, WMT, NKE/Adi - chart1 3 14


BWS - 4Q Earnings


Brown Shoe beat the quarter, but we'd hardly call it a good print. The company earned $0.14 vs the Street at $0.10, but revenue missed by $22mm, or 3.5%. Famous Footwear comped -1.8%, which it attributed to store closures due to the bad weather. We'll definitely give 'em that one -- but will expect to see a marked increase in 1Q. Running was especially challenging for BWS in the quarter -- again, due to the weather. Boot sales were strong, but could not pick up all the slack. Inventories for the quarter were +8.3% on a 3% sales decline. Not very bullish for 1Q gross margins.


Retail Callouts (3/14): ULTA, BWS, AMZN, EBAY, TGT, WMT, NKE/Adi - chart4 3 14


AMZN, EBAY - February 2014 ChannelAdvisor Same Store Sales (SSS) for eBay, Amazon, Search and CSE



  • "Today we are releasing February 2014 SSS data for eBay, Amazon,Google Search and Google Shopping/PLA.  Overall the marketplaces we track here (eBay and Amazon) had nice bumps in February as the unusually bad winter weather snow storms cleared around most of the US and deliveries were back to standard delivery times."
  • "Amazon - Amazon's February came in at 23.0% compared to January’s 14.0%, a substantial m/m increase we believe due to the improvement in weather conditions."
  • "eBay -  eBay's February came in at 15.0% up from January’s 12.7%. We have eBay details further down in the report that show what is going on with this marketplace."


Retail Callouts (3/14): ULTA, BWS, AMZN, EBAY, TGT, WMT, NKE/Adi - chart2 3 14


Takeaway: Really nice sequential pickup at AMZN from a weak-ish January. But you can't ignore eBay, which is posting a steady, measured, multi-month comp recovery.


TGT - Target Didn't Follow Up After Hackers Tripped Its Security System



  • "Target Corp.'s computer-security team was alerted when hackers broke into the retailer's systems during the holiday shopping season, but decided the warning didn't need a follow-up."
  • "In its statement Thursday, Target said 'a small amount' of the hackers' activity was logged and flagged to its security team after the hackers entered its network. The company said after evaluating the warning, 'the team determined that it did not warrant immediate follow-up.'"


Takeaway: Class Action Lawyers must be drooling over this admission.


WMT - Wal-Mart Sold on Made in USA



  • "Wal-Mart Stores Inc... in January 2013 committed to sourcing $50 billion worth of goods in the U.S. in the 10th year of a decade-long initiative. On Thursday, Wal-Mart revealed that the cumulative spending over the decade will total $250 billion. Bill Simon, chief executive officer of Wal-Mart U.S…"


Takeaway: In year 10, WMT will likely source about $600bn worth of product  -- at cost. $50 bn is good -- any dedication to creating jobs in America is good. But if WMT wants to push the envelope, it could probably do more. Of course, it also wants to maintain the integrity of its price leadership, which becomes a challenge when you rely on US labor -- at least, without destroying margins.


ADDYY - Adidas Launches Climachill Apparel With Cooling Technology



  • "Adidas has launched Climachill, an active cooling apparel technology that provides an instant chilling sensation to help athletes perform in warm conditions. The line incorporates fabric woven with titanium and 3-D aluminium cooling spheres. The technology lowers athletes’  body temperature so they can train harder and run longer."
  • "Climachill pieces, which retail from $40 to $60, include running, training and tennis T-shirts, tanks and shorts. The line is being sold on adidas.com and at select retailers nationwide."


Retail Callouts (3/14): ULTA, BWS, AMZN, EBAY, TGT, WMT, NKE/Adi - chart3 3 14


Takeaway: Not exactly the best winter to be launching something called Climachill. But to Adidas' credit, it does a very good job of launching a new technology and then explaining to consumers what the technical merits are. This might seem obvious, but it's an area where Nike has struggled for the better part of 30-years. (Note that the tags on Nike product hanging on the rack are identical whether it is a thermal jacket, or bathing suit for a 6-year old). Nike might have the better product, but it could learn a thing or two from Adidas.




GOOG - Report: Google Eyes First U.S. Retail Location Near NYC Apple Store



  • "Google plans to open its first retail location in the United States in New York City's SoHo neighborhood, situated just around the corner from an Apple store, a new report suggests."
  • "According to Crain's New York, Google will open an 8,000-square-foot retail location at 131 Greene St. If the reports are true, the store would also be across the street from eyewear company Warby Parker, which at one point was rumored to be helping design frames for Google Glass."
  • "This isn't Google's first foray into brick-and-mortar retail. The company has physical Android stores called 'Androidland' in Australia, Indonesia and India to showcase its products. Meanwhile, Chromezone, a shop within a branch of Currys and PC World in London, became the first official retailer to sell Google's Chromebook laptop at a retail store. However, it has yet to invest heavily in storefronts."


ARO - Aeropostale Enters Into Commitment Letter With Affiliates of Sycamore Partners for Strategic Partnership and $150 Million Financing



  • "Aeropostale, Inc. today announced that it has signed a commitment letter with Sycamore Partners and its affiliates for a strategic partnership and $150 million in senior secured credit facilities. The senior secured credit facilities will consist of a five-year $100 million term loan facility and a ten-year $50 million term loan facility that includes a sourcing arrangement with MGF Sourcing, an affiliate of Sycamore Partners."
  • "Under the terms of the commitment letter, Aeropostale will also issue convertible preferred stock to Sycamore Partners.  The convertible preferred stock gives Sycamore Partners the right to acquire up to 5% of the Company's common stock at an exercise price of $7.25, the closing price of the Company's common stock on March 12, 2014.  Combined with Sycamore Partners' current ownership of Aeropostale's outstanding common stock, Sycamore Partners' ownership on an as-converted basis would increase to approximately 12.3% of the Company's outstanding common stock."
  • "The new strategic sourcing partnership with MGF Sourcing significantly diversifies Aeropostale's apparel production, and all of the Company's sourcing orders will continue to be awarded through a competitive bidding process.  The sourcing partnership will result in Aeropostale's commitment to complete minimum merchandise purchases each year for ten years.  As the Company fulfills its minimum purchase requirements under the sourcing partnership, all amortization payments of the associated facility will be fully rebated."



investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.