TODAY’S S&P 500 SET-UP – May 8, 2014

As we look at today's setup for the S&P 500, the range is 29 points or 0.92% downside to 1861 and 0.63% upside to 1890.                                  













  • YIELD CURVE: 2.19 from 2.22
  • VIX closed at 13.4 1 day percent change of -2.90%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: BOE benchmark rate decision; est. 0.5% (prior 0.5%)
  • 7:45am: ECB benchmark interest rates decision; est. 0.25% (prior 0.25%)
  • 8:30am: ECB’S Draghi holds press conf. after rate decision, see LIVE <GO>
  • 8:30am: Initial Jobless Claims, May 3, est. 325k (prior 344k)
  • Continuing Claims, April 26, est. 2.758m (prior 2.771m)
  • 9:45am: Bloomberg Consumer Comfort, May 4
  • 8:am: Fed’s Plosser speaks in New York
  • 8:30am: ECB’s Draghi holds news conference in Brussels
  • 9:25am: Fed’s Evans speaks at Chicago banking conference
  • 9:30am: Fed’s Tarullo speaks at Chicago banking conference
  • 9:30am: Fed’s Yellen testifies to Senate Budget Committee
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 2pm: Fed’s Bullard speaks at conference in St. Louis


    • 9:30am: Yellen testifies before Senate Budget Cmte
    • 9:30am: Time Warner Cable Chairman Marcus, Comcast EVP Cohen at House Judiciary Cmte on merger
    • 10am: Treasury’s Lew annual testimony on intl finance system before House Financial Services Cmte
    • 10am: Senate Health and Education Cmte hears from HHS Sec. nominee Sylvia Burwell
    • 1:15pm: Agriculture Sec. Vilsack announces “historic” USDA support for local food systems on media call
    • U.S. ELECTION WRAP: Chamber Beats Tea Party in N.C.; Ad Buys


  • Fed Chair Janet Yellen testifies before Senate Budget Cmte
  • FOMC’s Evans, Plosser, Tarullo to speak in Chicago, New York
  • Barclays plans to cut 7,000 jobs at investment bank by 2016
  • AT&T said to hold talks with DirecTV over acquistion
  • Montebourg prefers Siemens alliance over GE takeover: FAZ
  • JPMorgan wins dismissal of MBIA suit; case may be refiled
  • Web cos. see grave threat with FCC’s fast-lane plan for ISPs
  • Yahoo CEO sees more web traffic via mobile vs PC by end-2014
  • Ford to buy back $1.8b in stock to offset grants, converts
  • Samsung replaces mobile design execs. on flagging phone sales
  • UPS seen matching FedEx’s size-based pricing formula
  • Deutsche Telekom using cash for U.S. unit affects earnings
  • Sheldon Adelson ready to put fortune against Internet gambling
  • Macau casino cos. drop on capital-outflow restrictions report
  • Cogent’s Schaeffer says Comcast-TW merger will mean mkt abuse
  • April U.S. retail sales likely to be ‘good, not great’
  • ECB will keep monetary policy unchanged, economists say
  • U.S. disputes Putin claim of withdrawal from Ukraine’s border
  • House Foreign Affairs Cmte holds hearing on Russia, Ukraine


    • AES (AES) 6am, $0.27
    • AMC Networks (AMCX) 7am, $1.14
    • Ameren (AEE) 8am, $0.32
    • American Realty Capital (ARCP) 6am, ($0.11)
    • Apache (APA) 8am, $1.60 - Preview
    • Athabasca Oil (ATH CN) 6am, (C$0.05)
    • Cablevision Systems (CVC) 8:30am, $0.05 - Preview
    • Canadian Tire (CTC/A CN) 7:46am, C$0.93
    • Crescent Point Energy (CPG CN) 8am, $0.32 - Preview
    • DISH Network (DISH) 6:01am, $0.44 - Preview
    • Fortis (FTS CN) 7am, C$0.64
    • Great-West Lifeco (GWO CN) 12:44pm, C$0.60 - Preview
    • IntercontinentalExchange Group (ICE) 7:30am, $2.61
    • Liberty Interactive (LINTA) 7:30am, $0.24
    • Liberty Media (LMCA) 7:30am, $0.70
    • Louisiana-Pacific (LPX) 8am, ($0.06)
    • Mallinckrodt PLC (MNK) 7am, $0.77
    • Nationstar Mortgage (NSM) 6am, $0.74
    • Priceline Group/The (PCLN) 7am, $6.84
    • Quebecor (QBR/B CN) 6am, C$0.30
    • Regeneron Pharmaceuticals (REGN) 6:30am, $2.27 - Preview
    • Sarepta Therapeutics (SRPT) 7am, ($0.81)
    • Scripps Networks Interactive I (SNI) 7am, $0.81
    • SNC-Lavalin Group (SNC CN) 8:27am, C$0.46
    • SunEdison (SUNE) 7am, ($0.18)
    • Synta Pharmaceuticals (SNTA) 6:45am, ($0.30)
    • TELUS (T CN) 8:30am, C$0.61 - Preview
    • Teradata (TDC) 6:55am, $0.47
    • Valeant Pharmaceuticals (VRX CN) 6am, $1.72 - Preview
    • Visteon (VC) 6am, $0.60
    • Wendy’s Co/The (WEN) 7:30am, $0.05 - Preview
    • WhiteWave Foods (WWAV) 6am, $0.19 - Preview
    • Windstream Holdings (WIN) 6:15am, $0.09
    • WP Carey (WPC) 8am, $0.62


    • AuRico Gold (AUQ CN) 4:37pm, ($0.02)
    • Canadian Natural Resources (CNQ CN) 5pm, C$0.80 - Preview
    • CBS (CBS) 4:01pm, $0.74
    • Computer Sciences (CSC) 4:15pm, $1.04
    • Credicorp (BAP) 6pm, $2.47
    • Darling International (DAR) 4:30pm, $0.26
    • Fifth Street Finance (FSC) 4:37pm, $0.26
    • Great Plains Energy (GXP) 5:10pm, $0.19
    • Hain Celestial Group/The (HAIN) 4pm, $0.86
    • Jazz Pharmaceuticals Plc (JAZZ) 4:05pm, $1.87
    • Medivation (MDVN) 4:10pm, ($0.08)
    • Monster Beverage (MNST) 4:05pm, $0.49
    • News Corp (NWSA) 4:05pm, $0.03
    • Nuance Communications (NUAN) 4:01pm, $0.23
    • Pembina Pipeline (PPL CN) 4:05pm, C$0.35
    • Salix Pharmaceuticals (SLXP) 4:01pm, $0.91
    • Scientific Games (SGMS) 4:12pm, $0.03
    • Silver Wheaton (SLW CN) 5:06pm, $0.22
    • Spectrum Pharmaceuticals (SPPI) 4pm, ($0.19)
    • Symantec (SYMC) 4:01pm, $0.42
    • Ubiquiti Networks (UBNT) 4:05pm, $0.49
    • Zogenix (ZGNX) 4:01pm, ($0.15)


  • Nickel at Two-Year High as Vale Suspension Fuels Supply Concern
  • WTI Falls Most in Three Days After Supplies Drop; Brent Declines
  • Wheat Surplus Eases Crop Risks From Ukraine to U.S.: Commodities
  • World Food Prices Fall as Dairy to Vegetable Oil Costs Drop
  • Gold Trades Near This Week’s Low as Yellen Weighed With Ukraine
  • Wheat Extends Drop Before USDA Report as Ukraine Shipments Climb
  • Coffee Drops as Rain Seen Helping Vietnamese Crop; Cocoa Falls
  • World Ore Glut Outweighs Slowest China Growth Since ’90: Freight
  • China Copper, Iron Ore Purchases Climb as Total Imports Increase
  • Oil Industry Risks $1.1 Trillion of Investors’ Cash, Study Says
  • Mine M&A May Double as China Returns in Coal to Copper Deals
  • World Corn Harvest Seen Falling in 2014-15 by AMIS on U.S. Crop
  • MORE: Russia’s Nickel Exports Declined 0.8% in 1Q as Values Fell
  • Sugar Exports From India Slowing as Subsidy Delay Deters Buyers

























The Hedgeye Macro Team














Poll of the Day Recap: 55% Say $TWTR's Next Stop is $22/Share

Takeaway: It's been tough sledding for TWTR bulls.

Twitter shares got totally shellacked yesterday, dropping almost 18% after its IPO lock-up period ended. Shares finished trading around $32. Today hasn't fared much better for Twitter bulls with shares off around 4%. TWTR is down a remarkable 27% over the last five trading days.


We wanted to know where you thought shares were headed next. So we asked your opinion in today’s poll: What’s the next stop for Twitter? $22/share or $42/share?

Poll of the Day Recap: 55% Say $TWTR's Next Stop is $22/Share - Twitter cartoon 5.7.2014

At the time of this post, 55% said Twitter will soon be trading at $22; 45% said $42.

Of the majority who said trading would drop to $22/share, voters had these diverse explanations:

  • “In this type of market environment, where mo mo gets killed, $22 is more likely than $42. Especially, after reading some comments from people that voted $42, they seem still are long this thing.”
  • “It'll follow the same pattern as Facebook; go down (as it has), but eventually climb back up.  Though the product is mature, the business still isn't, but Dick Costolo will figure it out.”
  • “It's going to $15.”
  • “Both prices look arbitrary, but the stock price looks likely to break down, making new lows.  Longer term, I would expect it to stabilize at higher prices. This is a real business model and probably still has growth ahead.”

Here’s what some voters who think Twitter shares are headed to $42/share next (if not more) had to say:

  • “I am long of Twitter in hashtag terms.I close my eyes and cross one finger over the other and wish upon this falling star. It’s a process.”
  • “The share price will settle around $45. That seems to be a fair price.”
  • “To call this a ‘bubble’ is non-sense.  Most investors lived through the bubble and this is not the same as 1999.  To be temporarily over-valued on hype does not necessarily equal a bubble.  Twitter will create a real and sustainable business out of this; one that'll exceed $42 at some point in the next 18-24 months.
  • The phoenix will rise again.  It needed a serious correction (which it got), and it'll probably dip a little further, but this will go back up to $42 in the next year or two.  Getting this stock in the mid-20's would be perfect, even if it dipped into the low 20's for a period thereafter.  They have a great management team, and lots more potential for the product (and revenue).


KSS Short - Why JCP is the Risk (And Opportunity)

Takeaway: We will be hosting a call titled KSS Short: Why JCP is the Risk (And Opportunity) on Tuesday May 13th at 1pm ET.

We will be hosting a call titled KSS Short: Why JCP is the Risk (And Opportunity) on Tuesday, May 13th at 1:00pm ET to discuss our current short thesis on KSS. We will detail some of the underappreciated dynamics that currently exist between Kohl's and JCP.   


KSS Short - Why JCP is the Risk (And Opportunity) - KSS JCP Call




A) Results of our latest consumer survey on department stores
B) Explore incremental trends in e-commerce
C) A deep dive into each company's real estate profile examining where the greatest risk/opportunity exists for store closure and subsequent share shifts



  • One of the biggest risks to being short KSS is JCP shuttering a third of its stores
    • What is the typical market for a JCP store closure (based on historical precedents)?
    • How many more of those markets exist?
    • What does KSS overlap look like in these markets?
    • What is the revenue opportunity for KSS?
  • Consumer Survey updates on the rate at which sales are coming back to JCP, and which retailers are winning/losing
  • Visitation trends at each department store and how they are changing sequentially
  • Analysis of recent e-commerce traffic on an absolute level for KSS and JCP, but also relative to competitors like M, JWN, DDS, TGT, SHLD and others
  • Why we think that is a risk for KSS on a longer term basis


  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 294741#
  • Materials: CLICK HERE

Please contact for more information.

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Retail Shocker: 89% Wouldn’t Care if Target Left Canada | $TGT

Takeaway: Whether or not you believe in the validity of these straw polls, it’s hard to ignore the opinion of 10,000+ people.

Retail Shocker: 89% Wouldn’t Care if Target Left Canada | $TGT - target15


Vote: Will you miss Target if it leaves Canada?

Retail Shocker: 89% Wouldn’t Care if Target Left Canada | $TGT - chart2 5 7

Takeaway From Brian McGough:

This is a snap of a poll we found on Canada's Globe and Mail site. Whether or not you believe in the validity of these straw polls, it’s hard to ignore the opinion of 10,000+ people. A quick note on the sample, we stress-tested the system to see if we could vote multiple times (which would therefore inflate the negative sentiment) - but, no dice. These results seem like they're for real.


It's particularly interesting that those who say they will miss Target in Canada totals 11%. Given that 11% of Canadian citizens had shopped at a Target in the US in the 12 months prior to Canada's opening it leads us to believe that a good chunk of the 11% who say they will miss TGT Canada were already established US shoppers.


To us this means that 1) Target Canada has yet to establish meaningful brand equity outside of its carry over customers from the US, and 2) customers missing Target in Canada is mostly a function of convenience.


*   *   *    *    *    *

Editor's Note: This is a complimentary research excerpt from Hedgeye Retail sector head Brian McGough. Follow McGough on Twitter @HedgeyeRetail

Subscribe to Hedgeye.

Cartoon of the Day: Flying South

Takeaway: Twitter shares have been bludgeoned 27% over the past five days. Our Internet & Media analyst Hesham Shaaban has been the bear on TWTR.

Cartoon of the Day: Flying South - Twitter cartoon 5.7.2014

Quick Take on ARP Deal = Dilutive

This morning Atlas Resource Partners (ARP) announced that it will acquire a 25% non-operated interest in the Rangely Field in NW Colorado from Whiting Oil & Gas (WLL) for $420MM in cash.  Rangely is an old oil field undergoing CO2 injection, currently producing ~2,900 boe/d net to ARP (90% oil, 10% NGLs), with production in decline at 3 - 4% per annum.  Chevron is the operator.


Estimated Deal Metrics

P/2015e EBITDA = 7.8x

P/2015e EBIT =11.0x

P/Current Production = $145,000/boe/d

P/PDP Reserves = $16.80/boe

P/PV-10 = ???


By our estimates and calculations, the acquisition is dilutive to both ARP and ATLS.


Importantly, Whiting USA Trust II (WHZ) owns a 4.6% working interest in Rangely, and disclosed that 2013 expected total CapEx net to its interest was $3.3MM in 2013 and will be $2.9MM in 2014 (see WHZ 2012 and 2013 10-Ks).  The vast majority of this CapEx is capitalized CO2 and other maintenance activity.


"The underlying properties include a 4.6% working interest in the Rangely Weber Sand Unit. Capital is expended each year to purchase CO2 for injection in the field, and capital is also expended for the drilling of additional wells to optimize field recovery. According to information provided by the operator, the 2014 estimated capital expenditures are $2.9 million allocated to the underlying properties’ interest and are comprised of development drilling activities, plant and equipment expenditures and CO2 purchases" (WHZ 2013 10-K, pg. 46). 


That means that CapEx net to ARP's 25% working interest equates to $17.9MM and $15.8MM in 2013 and 2014, respectively.  The field produces 1.0MMboe per year net to ARP, putting total CapEx/boe at $16.00 - $18.00.


As ARP disclosed, the field is in decline.  That means that every $ of CapEx AND MORE that ARP incurs here is truly maintenance CapEx.  We don't know what the reported maintenance/growth CapEx split will be yet - we will listen for that info on the ARP CC tomorrow morning - though we suspect that ARP will allocate a significant % of the budget to growth CapEx.  If so, how can that be justified?  G-CapEx on a field that is in decline...?


Assuming the current WTI strip, a 3.5% annual production decline, the midpoints of guided LOE expense and price differentials, a 7.0% production tax, and no additional OpEx (transportation?  G&A?), we estimate that the acquired assets will generate $53.8MM of EBITDA net to ARP in 2015.


We assume M-CapEx of $16.7MM (~$16.50/boe).


Other key assumptions include 50% debt/equity financing, a 9.25% interest rate on the new debt (the same rate that ARP issued senior notes at in 2013), new ARP units issued at $20.00, and a $2.50 LP distribution in 2015 (vs. the 2014 guidance of $2.40 - $2.60), putting ARP in the 50/50 IDR split.


The result is mild dilution for both ARP and ATLS.


A key tenet of the ATLS bull case is that ARP can grow via accretive acquisitions.  We believe the bull case is flawed.  


Quick Take on ARP Deal = Dilutive - arp1


We'll have more color on ARP and ATLS after tomorrow's CC (which we expect to be uber-promotional!).


Kevin Kaiser

Managing Director

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