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Reminder & Materials: DISSECTING POWER SYSTEMS WITH FORMER HEAD OF FINNING'S PS

Reminder & Materials: DISSECTING POWER SYSTEMS WITH FORMER HEAD OF FINNING'S PS - cat ps

 

 

SLIDES: CLICK HERE

 


Participating Dialing Instructions

  • Toll Free Number:
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  • Conference Code: 715778#
  • Materials: CLICK HERE

 

 

CAT's Energy & Transportation segment (formerly Power Systems) is not easy for outsiders to understand. Hedgeye's Industrials Team will host a call to get a better understating of this specialized segment Today at 11:00am EDT with industry thought leader Jeff Leigh.  

 

Jeff spent over two decades at Finning, Caterpillar's largest dealer, focused on Power Systems products and aftermarket. The focus of the call will be on reciprocating engines, Power Systems aftermarket, and key end-markets.

 

 

KEYS TOPICS WILL INCLUDE

  • Power Systems key markets and trends
  • Maintenance and life cycle of CAT reciprocating engines
  • Competitive environment and impact of Tier 4
  • Non-OEM parts
  • Dealer interaction with CAT
  • Background on market development

 

ABOUT JEFF LEIGH, P. ENG.

 

Based in Vancouver, Canada, Jeff Leigh provides advisory services relating to mobile heavy equipment and power systems, including the use of natural gas as a fuel source.

 

Jeff has over twenty five years of industry experience. This includes senior roles with Finning, a major Caterpillar dealer, in Western Canada, the UK, and Chile, where Jeff was responsible for sales, parts and service operations, strategic planning, and major projects. As well as with Westport Innovations, where Jeff led an engineering product development team working on mobile cryogenic storage solutions for LNG fueling of heavy equipment in mining, rail, energy systems, and marine applications.

 

Jeff has led the Power Systems business for Finning Canada was there responsible for major Power Systems projects including mining power stations in Australia and Papua New Guinea, remote utility and mining power stations in the Canadian north, large ship construction in Chile, and the launch of Caterpillar 3500 series gas compression engines in Alberta and BC.

 

 

Please send questions for Jeff to during or in advance of today's call.


Bubble Bursting (Don’t Say We Didn’t Warn You)

Client Talking Points

Bubbles

Who’s been warning you about market froth and social media bubbles? Exactly. Current corrections from all-time-bubble-highs right now:  Nasdaq -7.0%, Russell -6.7%, $SPX -3.0%. We are still banging the non-consensus bubble warning drum hard and advising our customers to short highflyers like YELP and TWTR and to buy Gold, buy Utilities. Risk happens fast—be prepared. Our Asset Allocation Model remains: Cash 34%, FX 22%, Bonds 20%, Commodities 16%, Intl Stocks 8%, US Stocks 0%.

$JPM

Our Financials co-sector head Josh Steiner is one of the best in the game. His takeaway on JPM this morning > The good: A clean quarter - the first in a long, long time. The bad: They missed on top and bottom line. Total Revs down 15% year-over-year in line with their guidance but there are big pockets of weakness with FICC trading down 21%.

Asset Allocation

CASH 34% US EQUITIES 0%
INTL EQUITIES 8% COMMODITIES 16%
FIXED INCOME 20% INTL CURRENCIES 22%

Top Long Ideas

Company Ticker Sector Duration
HOLX

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds.  Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.

OC

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.

DRI

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

TWEET OF THE DAY

We're 6 yrs into building our credibility, 1 call at a time, and I'm not going anywhere anytime soon @KeithMcCullough

 

QUOTE OF THE DAY

"Life is really simple, but we insist on making it complicated." – Confucius

STAT OF THE DAY

Have you been pining for your very own wearable $1,500 Google Glass but weren't sure how you, a regular non-developer could get one? Tuesday will be your lucky day. Google is opening sales of Glass for one day only to any adult in the United States who wants one of the devices. Sales start at 9 a.m. ET on April 15. (CNN)

 


LEISURE LETTER (04/11/2014)

TICKERS: LVS, IGT, PENN

 

EVENTS TO WATCH:  UPCOMING EARNINGS / CONFERENCES / RELEASES

Monday, April 14

Atlantic City March revenues 

 

Monday, April 22

IGT FQ2 earnings:  , Passcode: IGT

 

Monday, April 24

PENN Q1 earnings:

 

Monday, April 24

HOT Q1 earnings:  , Passcode: 12049644

 

COMPANY NEWS

LVS - (The Morning Call) Tropicana Entertainment interested in LVS's Sands Bethlehem.  In the past, LVS had indicated it wants a high bid - around $1 billion.

TAKEAWAY:  Get it done. Not critical to the portfolio and we're sick of hearing about the transaction.

 

IGT - Installing Powerbucks (new WAP product) in CZR and BYD's casinos

TAKEAWAY:  In a secular declining demand environment, differentiation is key for operators.  Exclusivity won't last, however, as IGT needs to make a few power bucks.

 

PENN - Argosy Alton (IL) began closing one of its three gambling decks four days a week in early March.

TAKEAWAY:  More evidence of the tough environment for regional casinos

 

INDUSTRY NEWS

Lights dim for Japan's pachinko parlours FT 

Pachinko has been all but abandoned by younger Japanese.  Data from a Japanese research group show that the number of players has fallen by two-thirds over the past 20 years to 11m in 2013. 

 

Converting winning pachinko balls to cash is illegal but that violation is universally ignored by police.  Now, some pachinko groups are arguing that the looming acceptance of casinos means their industry should be brought out of the shadows too, gambling element included. Lawmakers who support them have formed a cross-party group to promote the idea – a development that has worried some in the casino lobby, who think it could increase public opposition to the pro-casino bill.

TAKEAWAY:  Pachinko lobbying would complicate Japan casino legislation 

 

 

Stomach illness that hit 83 people on Crown Princess may be linked to norovirus CNN

TAKEAWAY:  Media taking notice of the numerous norovirus cases.  Bad publicity for the cruise industry. 

 

Spain receives ~40% more cruise passengers thru February Hosteltur

In February, Spanish ports received 382 vessels, representing 62 more ships YoY or a 19.4% increase.  The number of cruise passengers who arrived in the Spanish ports surged 39.62% in the first two months of 2014 to 838,117 cruise passengers.

TAKEAWAY:  Spain recovering but capacity is rising as well

 

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.


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.28%
  • SHORT SIGNALS 78.51%

BYD: OFFSETTING THE TRENDS

State revenues from March are still coming out and they’re ugly as expected. Beyond these numbers, BYD seems to have a few positive catalysts.

 

 

CALL TO ACTION

Up to 4 significant refinancing transactions and potentially better (than whisper) near term property level performance could lead to BYD stock outperformance in 2014.  We’re still worried about the rest of the weak March numbers coming out from the states as well as more negative earnings revisions from other analysts.  However, we would view weakness as an entry point.

 

OPERATIONS

We’ve been worried about the March performance of the regional markets for a while now and regional results are certainly coming in ugly.  While downside to Q1 consensus estimates appears likely for PENN and PNK, BYD could be fine for Q1.  Recall, Boyd didn’t provide Q1 guidance until March 5th and the sell side may not be taking into account the contribution of the apparently successful Penny Lane slot initiative and potential margin improvement.  We’re not sold that management has found religion in terms of overhauling its operations but there are still some low hanging fruit (already eaten by the competition) that could boost near term performance.

 

REFINANCINGS

Beyond Q1, our more positive view on the stock is bolstered by four significant debt refinancing transactions we expect to occur over the next four to eighteen months.  Over this time period, Boyd should be able to call and refinance $1.4 billion of debt carrying a blended interest rate of 9%.  The debt should be refinanced at significantly lower interest rates, which in turn will result in lower interest expense and ultimately positive fully taxed earnings per share accretion of $0.12 to $0.17 (assuming a blended rate of 7.5% to 7.0%).  Realistically, with NOLs of $1.1 billion, the EPS and FCF/shr accretion will be in the range of $0.19 to $0.25.  For reference, our 2015 calendar year EPS estimate is $0.42.


BYD management could begin to discuss the refinancing strategy as soon as the 1Q14 earnings call which we expect to occur in early May.  There are significant fact parallels between Boyd’s upcoming refinancings and MGM’s refinance activities during 2011 and 2012 which helped boost that stock. 

 

BYD: OFFSETTING THE TRENDS - BYD

 

INVESTORS FADING THE REIT

The REIT chatter has died down and that’s probably a good thing.  However, BYD management still faces numerous options to unlocking shareholder value through real estate transactions.  A full REIT spin is possible but not probable and may not be imminent.  As we outlined in our 03/14/14 presentation and conference call, the hurdles are significant but not insurmountable.  Management seems more open to asset sales.  For us, the highest value could be achieved through a sale to GLPIGLPI should be willing to pay a high multiple and diversify its tenant base and BYD could retain ownership of the operations.  Stay tuned here.


The activist pop also seems to have waned.  We’re only a month removed and 3% off the close (and 2 UCONN Husky basketball championships) before Elliot Capital’s position was made public.  Elliot’s ability to influence management both publicly and privately could be limited unless they obtain gaming licenses in BYD’s jurisdiction.  However, subtle pressure can work as well.

 

THE END GAME  

A full operations overhaul would be value creation option #1 in opinion.  Unfortunately, option #1 is not imminent.  However, some improvements seem to have been made and forward numbers may not be as bad as feared as a result.  Upcoming refinancings should juice EPS and FCF/shr later in the year and in 2015 and could catalyze the stock.  And who knows, maybe BYD could even play a few real estate cards.


April 11, 2014

April 11, 2014 - Slide1

 

BULLISH TRENDS

April 11, 2014 - Slide2

April 11, 2014 - Slide3

April 11, 2014 - Slide4

April 11, 2014 - Slide5

April 11, 2014 - Slide6

April 11, 2014 - Slide7 

BEARISH TRENDS

April 11, 2014 - Slide8

April 11, 2014 - Slide9

April 11, 2014 - Slide10

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April 11, 2014 - Slide12

April 11, 2014 - Slide13


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – April 11, 2014


As we look at today's setup for the S&P 500, the range is 32 points or 0.33% downside to 1827 and 1.41% upside to 1859.                                                          

                                                                     

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: 2.73 from 2.30
  • VIX closed at 15.89 1 day percent change of 14.98%

MACRO DATA POINTS (Bloomberg Estimates):

 

  • 8:30am: PPI Final Demand m/m, March, est. 0.1% (prior -0.1%)
  • PPI Ex Food and Energy m/m, March, est. 0.2% (prior -0.2%)
  • PPI Final Demand y/y, March, est. 1.1% (prior 0.9%)
  • PPI Ex Food and Energy y/y, March, est. 1.1% (prior 1.1%)
  • 9:55am: UofMich. Confidence, April preliminary, est. 81 (prior 80)
  • 1pm: Baker Hughes rig count

GOVERNMENT:

    • President Obama addresses National Action Network in New York
    • 8:30am:  World Bank, IMF hold annual Spring Meetings
    • 11:30am: Senate Env. Chairwoman Barbara Boxer, D-Calif., Sen. Sheldon Whitehouse, D-R.I. hold Keystone XL pipeline media call
    • U.S. ELECTION WRAP: Poll Shows Obamacare Motivates GOP Voters

WHAT TO WATCH:

  • Coldwater Creek files bankruptcy after clothing sales decline
  • Sebelius resignation may give successor more room on Obamacare
  • H&R Block shrs jump as tax preparer agrees to sell bank
  • U.S. warns Russia of more sanctions as G-7 studies Ukraine aid
  • China’s inflation stays below target as producer prices drop
  • Wall Street bond trading, allocation draws scrutiny from Finra
  • Samsung adds $600 of S5 freebies to fend off Apple, Xiaomi
  • Citadel fund said to quadruple with high-frequency trading gains
  • Gallagher priced at $43.25 in sale to fund Wesfarmers deal
  • Heartbleed flaw found in Cisco, Juniper networking equipment
  • Li & Fung said to work with Citigroup on brands unit spinoff
  • Citi said investigated by DOJ on suspicious transactions: WSJ
  • Vista Equity may seek to raise $5b for newest fund: NYT

EARNINGS:

    • Fastenal Co (FAST) 6:50am, $0.38 - Preview
    • JPMorgan Chase & Co (JPM) 6:58am, $1.46 - Preview
    • Wells Fargo & Co (WFC) 8am, $0.96 - Preview

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

 

  • Australia Braces for Strongest Storm Since 2011 in Queensland
  • Nickel Favored by UBS on Supply Shocks, Macquarie Sees Deficit
  • China’s Li Swaps Steel Production for Cleaner Air: Commodities
  • WTI Heads for Weekly Gain as Discount to Brent Shrinks on Libya
  • Gas Loses Decades-Old Link to Crude Oil in Landmark Contract
  • Nickel Heads for Second Weekly Gain on Mounting Supply Concerns
  • Shanghai Gold Exchange to Start Leasing Platform by End of June
  • Westinghouse Says EU States’ Uranium Interest Gains on Ukraine
  • Cotton Shipments From India Jumping as Harvest Climbs to Record
  • Shanghai to Introduce Gold Leasing Platform in 1H, Exchange Says
  • Gas Carousel Making Spain Europe’s Biggest LNG Exporter: Energy
  • Soybean Traders Bullish First Time in 6 Weeks on Tight Supplies
  • Platinum Favored Over Gold on Supply Shortage: Chart of the Day
  • Drought Seen Hurting Thai Farm Output as El Nino Risk Climbs

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

 

 

 

 

 

 

 

 

 

 

 

 

 


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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