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Cartoon of the Day: Feeling The Squeeze

Takeaway: The U.S. consumer is feeling the squeeze of rising inflation, a weak dollar, and ripping oil prices.

Cartoon of the Day: Feeling The Squeeze - 6 13 14

 

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Grant: Why You Should Buy Gold

 

James Grant, founder and editor of Grant's Interest Rate Observer, explains to Hedgeye CEO Keith McCullough the reasons why investors ought to seriously consider adding gold to their portfolios in this edition of "Real Conversations."



Early Look

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YELP: Not a Takeout Candidate

Takeaway: For those of you looking for an entry point on the short side, you found it today

This is hardly worth a note, so we'll keep it short.  The market is driving YELP up 12% on the OPEN acquisition.  YELP isn't a viable acquisition target; there are two simple reasons why. 

KEY POINTS

  1. YELP IS NOT OPEN: YELP's business model is predicated on driving new account growth in excess of the absurd attrition it experiences on an annual basis; it does so through aggressive salesforce expansion (there is no leverage in the model).  YELP trades at almost 3x OPEN's market cap, so there aren't that many potential acquirers that can afford to pay a premium on top of YELP's bloated $4.7 billion market cap. OPEN on the otherhand, has a corner on the Electronic Reservation Book (ERB) Market with 99% customer retention, and found a buyer who operates the same model in a different industry.
  2. BANKER SUICIDE: Remember that in any M&A deal, the advisors to the potential acquirer will get an in depth look at YELP's financials.  That means a detailed look at YELP's customer profile, including who they are, and how long they have been doing business with the company.  Management can dodge our collective questions all they want on its customer retention issues, but it will not have that luxury if its in discussions to be acquired.  If a banker and/or advisor somehow successfully pitches YELP to an acquirer (by not disclosing its attrition issues), that will likely be the last deal they do together.  Given there are only so many companies that could afford to do a deal of this size, that would be one very large M&A client to lose.  

 

If you have any questions, or would like to discuss in more detail, let us know.

 

 

Hesham Shaaban, CFA

@HedgeyeInternet

 

 

 


BOBE: Reiterating Best Idea Long

We added BOBE to the Hedgeye Best Ideas list as a long on 05/02/2014 at 47.21/share.  We continue to believe there is a significant opportunity for value creation at the company that activist investor Sandell Asset Management is working hard to unlock.  This is our highest conviction long idea. 

 

All told, we aren’t expecting much good news when BOBE reports next Tuesday and highly recommend buying into any weakness.  If you missed our Best Idea call, we encourage you to review our thesis in the deck below.


Presentation – Best Idea: Long BOBE


The Bob Evans story has flown under the radar for quite a while, but is beginning to generate some well-deserved attention.  Earlier this week, Tyson Foods (TSN) won a bidding war to acquire Hillshire Brands (HSH), the maker of Jimmy Dean sausage and Ball Park hot dogs, at a substantial premium valuation.  But that’s not all.  Last night, BOBE was featured on Jim Cramer’s “Mad Money” during which he recommended the stock as a long for reasons similar to ours.  We believe this heightened attention will help Sandell build considerable momentum in its pursuit to unlock significant shareholder value.

 

Considering the robust demand for protein companies, we believe now is the appropriate time to spinoff BEF Foods in what would be a value enhancing breakup.  We also see opportunities for significant SG&A reductions and believe the restaurants business would be best served by transitioning to an asset light model. 

 

If Sandell is successful in their efforts to effect change, we see at least +45% upside to BOBE shares.  Please view our presentation for specific scenario analyses.  Interestingly enough, the market is currently betting against Sandell (which we believe is a mistake), making it an opportune time to get into the name.

 

BOBE: Reiterating Best Idea Long - 1

 

BOBE: Reiterating Best Idea Long - 2

 

BOBE: Reiterating Best Idea Long - 3

 

Call with questions.

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst


It’s Almost Mathematically Impossible to Get to Consensus Macro GDP Estimates.

Takeaway: The Great American Economic Muddle continues...

The big rip in oil prices all but ensures a big U.S. #ConsumerTax hike this summer. At $106.90/barrel this morning, WTI Crude is up +9% for the year-to-date now. This very much augments our U.S. #ConsumerSlowing Macro Theme.

 

Meanwhile, CRB Commodities Index (19 commodities) are up +1.6% for the week and +10.3% year-to-date.

 

In other words, it’s almost mathematically impossible to get to Consensus Macro GDP estimates for Q314 if the Deflator reflects #InflationAccelerating.

 

It’s Almost Mathematically Impossible to Get to Consensus Macro GDP Estimates. - drake22

 


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.

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