prev

INITIAL CLAIMS: THE POSITIVE STREAK CONTINUES

Takeaway: Looking past the Easter-driven seasonality, this morning marks the fifth week in a row of strong initial claims data

Below is the detailed breakdown of this morning's claims data from the Hedgeye Financials team led by Joshua Steiner. If you would like to setup a call with Josh or Jonathan or trial their research, please contact 

 

Labor Continues to Improve

Easter week is notoriously choppy from a data standpoint so investors should take the single-week seasonally-adjusted initial claims data with a grain of salt. In fact, in the past decade, the average w/w change has been +20k, which is more or less in-line with the 25k increase seen this week.

 

Our preferred method remains looking at the rolling NSA claims on a y/y basis. On that measure, the level of newly unemployed Americans was lower by 11% year-over-year, which was slightly worse than the prior week's 12% decline, but still a very strong rate of y/y improvement.

 

Since the start of 2014, that's the second fastest rate of improvement we've seen, eclipsed only by the previous week's 12% figure.

 

The data in hand so far continues to bode well for the April NFP jobs report due out next Friday, May 2.

 

The Data

Prior to revision, initial jobless claims rose 25k to 329k from 304k WoW, as the prior week's number was revised up by 1k to 305k.

 

The headline (unrevised) number shows claims were higher by 24k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 4.75k WoW to 316.75k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -11.0% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -12.0%

 

 

INITIAL CLAIMS: THE POSITIVE STREAK CONTINUES - 1

 

INITIAL CLAIMS: THE POSITIVE STREAK CONTINUES - 2 normal  1

 

INITIAL CLAIMS: THE POSITIVE STREAK CONTINUES - 8

 

INITIAL CLAIMS: THE POSITIVE STREAK CONTINUES - 9

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


Are US Births Beginning a Multi-Year Rebound?

Takeaway: An analysis of the Current Population Survey is forecasting a rebound in births in the United States.

Are US Births Beginning a Multi-Year Rebound? - baby hospital watch this  007

 

Using the Current Population Survey (CPS), reported monthly by the US Census Bureau, we've derived a curve for US Births that closely approximates data reported by the US Census Bureau on a significant lag. 

 

The latest data for the CPS is for March 2014. The CPS analysis shows that births accelerated in Q4 2013, despite the tough year over year compare. This result was apparent in relevant company reports, and appears to have continued in Q1 2014 at a similar pace.

 

Are US Births Beginning a Multi-Year Rebound? - birth projection

 

As it relates to HCA (one of the stocks we’re currently recommending in Investing Ideas), inpatient admissions should see a tailwind, given 25% of Hospital Industry admissions are maternity related.

 

*   *   *   *   *   *   *

 

Editor's Note: This is an excerpt of a research note that was originally sent to subscribers on April 22, 2014 by Hedgeye Healthcare sector head Tom Tobin. Follow Tom on Twitter @HedgeyeHC.

SUBSCRIBE TO HEDGEYE.


INITIAL CLAIMS: THE POSITIVE STREAK CONTINUES

Takeaway: Looking past the Easter-driven seasonality, this morning marks the fifth week in a row of strong data initial claims data.

Labor Continues to Improve

Easter week is notoriously choppy from a data standpoint so investors should take the single-week seasonally-adjusted initial claims data with a grain of salt. In fact, in the past decade, the average w/w change has been +20k, which is more or less in-line with the 25k increase seen this week. Our preferred method remains looking at the rolling NSA claims on a y/y basis. On that measure, the level of newly unemployed Americans was lower by 11% year-over-year, which was slightly worse than the prior week's 12% decline, but still a very strong rate of y/y improvement. Since the start of 2014, that's the second fastest rate of improvement we've seen, eclipsed only by the previous week's 12% figure. The data in hand so far continues to bode well for the April NFP jobs report due out next Friday, May 2.

 

The Data

Prior to revision, initial jobless claims rose 25k to 329k from 304k WoW, as the prior week's number was revised up by 1k to 305k.

 

The headline (unrevised) number shows claims were higher by 24k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 4.75k WoW to 316.75k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -11.0% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -12.0%

 

INITIAL CLAIMS: THE POSITIVE STREAK CONTINUES - 1

 

INITIAL CLAIMS: THE POSITIVE STREAK CONTINUES - 2

 

INITIAL CLAIMS: THE POSITIVE STREAK CONTINUES - 3

 

INITIAL CLAIMS: THE POSITIVE STREAK CONTINUES - 4

 

INITIAL CLAIMS: THE POSITIVE STREAK CONTINUES - 5

 

INITIAL CLAIMS: THE POSITIVE STREAK CONTINUES - 6

 

INITIAL CLAIMS: THE POSITIVE STREAK CONTINUES - 7

 

INITIAL CLAIMS: THE POSITIVE STREAK CONTINUES - 8

 

INITIAL CLAIMS: THE POSITIVE STREAK CONTINUES - 9

 

INITIAL CLAIMS: THE POSITIVE STREAK CONTINUES - 10

 

INITIAL CLAIMS: THE POSITIVE STREAK CONTINUES - 11

 

INITIAL CLAIMS: THE POSITIVE STREAK CONTINUES - 12

 

INITIAL CLAIMS: THE POSITIVE STREAK CONTINUES - 13

 

INITIAL CLAIMS: THE POSITIVE STREAK CONTINUES - 19

 

INITIAL CLAIMS: THE POSITIVE STREAK CONTINUES - 14

 

Yield Spreads

The 2-10 spread was unchanged at 226 bps. 2Q14TD, the 2-10 spread is averaging 230 bps, which is lower by -9 bps relative to 1Q14.

 

INITIAL CLAIMS: THE POSITIVE STREAK CONTINUES - 15

 

INITIAL CLAIMS: THE POSITIVE STREAK CONTINUES - 16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


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.


CAKE: Still Short

Takeaway: Estimates have come down, but the stock hasn't yet followed suit.

CAKE remains on the Hedgeye Best Ideas list as a SHORT.

 

CAKE reported mixed results AMC, beating top line estimates by 61 bps and missing bottom line estimates by 1192 bps.  Labor and, to a lesser extent, food costs pressured the P&L in the quarter as restaurant level margins decreased approximately 70 bps YoY.

 

System same-store sales increased 0.9% despite management citing a negative 2% impact from severe winter storms and a holiday shift.  This includes a 1.2% increase at The Cheesecake Factory and 2.9% decline at Grand Lux Café.  Chairman and CEO David Overton highlighted notable strength in three of CAKE’s largest markets: California, Florida and Texas.  CAKE’s same-store sales continue to outperform the broader casual dining industry.  However, we estimate that traffic was down 1.0% in the quarter, making it the sixth consecutive quarter of negative traffic.

 

Management guided down FY14 EPS to $2.24-2.33 from prior $2.29-2.41.  They also reiterated their full-year commodity inflation outlook of 3-4% led by salmon and shrimp.  Although meat and dairy prices are higher than anticipated, they are expected to be offset by the easing of other commodities.  Management did not disclose what these other commodities are.

 

To be clear, this is by no means a structural short.  CAKE has been and continues to be a very strong operating company.  However, we continue to believe that the company will be negatively impacted by looming margin pressure in 2014. 

 

With that being said, our 4Q and 1Q catalysts have passed and although earnings estimates have been revised down noticeably, the stock has not followed suit.  We expect price to more properly reflect fundamentals in the near-term.  On the positive side impressive same-store sales momentum, strong brand relevance and shareholder friendly practices continue to support the stock.

 

 

What we liked:

  • 1.2% same-store sales at The Cheesecake Factory, despite operating in a difficult environment.
  • Same-store sales booming in its three largest domestic markets (up approximately 3% in 1Q).
  • 70 bps benefit to SSS in 2Q due to timing shift.
  • Food cost inflation outlook for the full-year remains unchanged at 3-4%.
  • Shareholder friendly capital allocation.  Plan to use all FCF in FY14 to fund dividends and share buybacks.
  • International stores are strong performers and the growth potential is promising.

What we didn’t like:

  • FY14 EPS guided down to $2.24-2.33 from prior $2.29-2.41.
  • Labor line was disruptive in 1Q due to higher than anticipated group medical costs and productivity inefficiencies as a result of volatile weather/traffic.
  • Traffic was down 1.0%, making it the sixth consecutive quarter of negative traffic.
  • Commodity inflation remains a risk, although management appears to have this under control.

CAKE: Still Short - 1

 

CAKE: Still Short - 2

 

 

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst


Bonds Don’t Care About Facebook

Client Talking Points

JAPAN

Maybe they should split the Nikkei 7 for 1, because this sick puppy can’t even find a bid on Nasdaq futures ripping. Nikkei is down another -1% overnight as the US Dollar Devaluation versus the Yen remains the FX correlation position to keep on. 

OIL

Putin Power, yep. He gets paid in Petro Dollars — don’t forget that. After holding my TREND line of support yesterday, WTI crude is up to $101.70 this morning and has no resistance to $105.03. This is a big time #ConsumerSlowing catalyst for the United States.

UST 10YR

The bond market really couldn’t care less about Facebook or the Apple iSplit.  The 10-year yield is DOWN on the week to 2.70% and the Yield Spread continues to compress. More classic US #GrowthSlowing signals.

Asset Allocation

CASH 30% US EQUITIES 0%
INTL EQUITIES 10% COMMODITIES 18%
FIXED INCOME 22% INTL CURRENCIES 20%

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

Gold $1277 is just too high - can someone #iSplit that for the retail brokers too? @KeithMcCullough

QUOTE OF THE DAY

"For every minute you are angry you lose sixty seconds of happiness." - Ralph Waldo Emerson

STAT OF THE DAY

GE is in discussions to buy French industrial firm Alstom SA, according to Bloomberg. The deal may be worth more than $13 billion, or roughly 25% above Alstom's current market value. The company also makes power plant equipment. A deal could be announced as early as next week. (Bloomberg)


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%
next