Takeaway: We’re Adding TGT to our Best Ideas list as a short. We’ll be hosting a call Today at 11am ET to review our thesis. Call details below.
The crux of our argument? Wall Street's perception of Target's financial trajectory is more upbeat than Main Street. When the stock glossed over the company's weak 4Q earnings report, it was because Steinhafel (CEO) issued guidance that he hoped the company would grow into if the Company repaired its reputation after the data breach - not guidance that he knew TGT could meet or beat. We don't think that the Street is giving TGT credit for a) a miss this year, and b) another one in 2015. The reality is that when a customer has a great experience in retail, they tell a friend. When a customer has a bad experience, they tell 20. Just ask JC Penney or Lululemon. Some of these 'fire your customer' events are worse than others, but there's one commonality - they take a very long time to recover.
We think that TGT will be lucky to earn $3.75 this year, and $4.00 in 2015. The current 15x multiple is about as high as TGT has seen in 5-years - clearly the market is not factoring in a miss. We think that multiple compression alone on a weaker EPS number gets to a $48-50 stock, or $12-13 downside. If we're wrong, then we're looking at about $5 upside. That's about 2.5x to one, which we like on sleepy mega-cap shorts in Retail.
KEY TOPICS WILL INCLUDE:
Takeaway: CEO Keith McCullough and the team of analysts at Hedgeye have been out front proactively warning people of the social media bubble.
On March 27th, when Wall Street consensus was still goo-goo-ga-ga about all things Social Media (Twitter, Yelp, Facebook, etc) and the bubble was hitting hew highs, Hedgeye CEO Keith McCullough wrote the following in his Morning Newsletter.
I know no one wants to call it a bubble. There’s career risk in calling something what it is...Boom! Crush. This stuff gets real in a hurry doesn’t it?"
(Click here to read the full "Morning Newsletter" from March 27.)
Despite being shrugged off by many a bubble-blinded pundit, he continued to question consensus' conviction that "It's different this time." He's been doing it on television, Twitter, and most importantly, with our customers.
Here he is on Fox Business with Maria Bartiromo advising investors to tread carefully in the market, particularly the Nasdaq.
Here he is again with Bartiromo, questioning an analyst's bullishness on Amazon and saying that AMZN was more likely to have a 2-handle on it than a 4-handle.
Shares of Amazon are down 11% since McCullough made his call.
In another Morning Newsletter entitled, "Accepting Little Bubbles," McCullough had this to say:
Accepting that little bubbles are going to start to pop bigger ones (like, say, the US stock market’s all-time high price) is a process, not a point.
...Having survived (made $ at a hedge fund in down tapes - 2000, 2001, 2002) the Tech Bubble, The LBO and Oil Bubbles (2008), and The Gold and Bond Bubbles (2011-2012), what I have learned about risk managing these suckers is quite simple:
First, they start to make lower-highs. Then the volume on down days eclipses the volume on the bounces (up days to lower-highs)… then bearish catalysts start to pile up… then what was happening slowly starts to happen more than a little – it happens all at once.
Finally, take a look at this brief HedgeyeTV video below from April 4th, where McCullough spells out his concerns about the bubble. Pay close attention to his bearish comments on YELP and note the date the video was shot. (Hat tip to Hedgeye Internet & Media analyst Hesham Shaaban.)
Do you want to learn more about Morning Newsletter and other Hedgeye offerings? Click here.
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.
Takeaway: It (literally) pays to listen to Howard Penney.
Fast-casual food chain Panera Bread reported earnings and lowered 2014 guidance which sent its shares tumbling 4.4% in after-hours trading Tuesday evening.
Talk about nailing it.
Yesterday, Hedgeye Managing Director and Restaurants Analyst Howard Penney shot a 3-minute video on HedgeyeTV outlining his bearish case on PNRA and why he added the stock as a "Best Idea" on the short side.
As you can see below, it pays to listen to Penney.
Takeaway: 80% AMAZON; 20% TWITTER
Ahead of Twitter’s Q1 2014 earnings report and after Amazon’s earning disaster last week, we put this question to you in today’s poll: You have $1,000,000 to invest in Amazon or Twitter and hold for 5 years. Where do you put it?
At the time of this post, an overwhelming 80% of voters said AMAZON; 20% TWITTER.
As this AMAZON voter explained, “Twitter can be displaced. Amazon is the new Wal-mart.” Another echoed that sentiment, “Follow the money. A lot of mine goes to Amazon. None goes to Twitter.”
One AMAZON voter said they really wouldn't buy either, “but if forced to choose, AMZN remains a name that – at some point – could account for over 5% of US Retail Sales. Much easier for some new technology that we haven't heard of yet to disintermediate TWTR than AMZN.”
Conversely, one TWITTER voter said, “Twitter will be bought out; Amazon will have its multiple severely divided someday soon.”
And to put it a different way, as this TWITTER voter noted, “I'd pick Twitter over Amazon, but I'd pick Pinterest over both.”
Takeaway: Here are the final two parts of a four part interview between private investor Buddy Carter and Hedgeye CEO Keith McCullough.
In the third of four parts of a wide-ranging interview with Buddy Carter, a private investor and former proprietary trader at Goldman Sachs, Carter and CEO Keith McCullough discuss order flow and high frequency trading.
In this fourth and final part of a wide-ranging interview, Buddy Carter and Keith McCullough walk through why it’s crucial for investors to have a repeatable process.
This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.