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$IRF Rockets 47% on Takeover; Hedgeye Analyst Craig Berger Called It

Takeaway: Hedgeye semiconductor analyst Craig Berger has been all over IRF which soared 47% today.

Kaboom.

 

Shares of International Rectifier Corporation (IRF) rocketed 47% today on news the semiconductor company is being acquired by Infineon (IFX).

 

Why do we mention it?

 

Hedgeye semiconductor analyst Craig Berger has been highlighting the upside opportunity in IRF since he assumed his new position at Hedgeye earlier this summer. He first published a bullish research note on IRF back on July 1st. He followed that up with a video on HedgeyeTV shortly afterwards highlighting various M&A opportunities in the space. He also published a note on Monday arguing shares had an attractive risk/reward apart from semi cycle risks with $36 fair value: 

 

We think IRF is one of the better small/mid-cap stories in the chip sector right now, with the potential for meaningful increases in earnings power from cycle to cycle.

 

Topping it all off, Berger recorded a video on IRF that we released on HedgeyeTV yesterday suggesting shares had considerable upside into the 40s.

 

 

It pays to listen to Berger and tune into HedgeyeTV.


TGT – Gives Cornell Six Month Gift

Takeaway: TGT bought six mos for Cornell to learn the biz w/o risk of missing numbers. 2015 expectations are critical without knowing new CEO plan.

Conclusion: TGT just bought itself six months. New CEO Cornell said the right things on the call and expressed a sense of urgency to fix the company – but without getting out over his skis. Overall, good first impression. The way we see it, only $0.30 of the $0.50 guide down is accounted for operationally. That leaves Cornell a pad while he decides what to do to fix a company in dire need of a turnaround. No wonder the stock is up, especially with the highest short interest since the last recession. Keep in mind that a turnaround of this magnitude does not come solely through better management, better processes, or best practices. It costs money, and potentially quite a bit. The key here – until we hear Cornell’s plan – will be where the Street shakes out for 2015. Based on the size of the capital plan, it’s quite possible that TGT does not earn $4.00 for another 3-years. If there’s no capital plan, then it will be easy for us to remain flat-out bearish. In the meantime, if expectations come down to the $3.50 range for 2015, it will be tough to stay short Target – despite valuation. Otherwise, valuation is lofty enough for us to stick with our bearish positioning pending a roadmap as to what Cornell will do (as compared to what he should do).

 

Full Details

The fact that TGT did not trade down on a $0.50 (14%) guide-down in earnings for a year that is already half over is pretty amazing. That begs the question, if the stock is down only 5% year-to-date on a 29% cumulative earnings guide-down, what will take it lower? The answer is another guide down. That seems ridiculous at face value for two reasons; 1) we just saw the biggest guide down ever for TGT, and 2) the way we see it, only $0.30 of the $0.50 earnings reduction can be accounted for operationally. The remainder gives Cornell a lot of breathing room as he develops a plan for Target to escape from inadequacy. Yes, TGT just bought time, and by the stock’s reaction it got a great deal. But this says nothing about the earnings power for the company in 2015 and 2016. We think that we could be looking at sub $4.00 EPS for each of the next 3-years.

 

The key near-term factor is where consensus numbers shake out for 2015. If they’re as low as $3.50, it will be tough to stay short Target. Looking 1-2 quarters out, we need to know Cornell’s plan. We can rant all we want about what we think the right capital plan is for this company, but the one he chooses is what matters.

 

Keep in mind that the guy has been on the job for just 8 days. No one (including us) has a clue as to what he is going to do to fix this company. We’ve been of the camp that he can either stick with Target1.0 and make tweaks to the model that will grow earnings at an accelerated clip near-term (good for stock today, not 2-3 years out), or he can go for Target2.0 and make the major investment needed to restore Target to its former glory (bad for near-term earnings, good for long term stock). Cornell did a perfectly fine job in his debut. He said all the things a new CEO at a mega cap company should say, but did not get too far out over his skis. No promises on when we’ll see an action plan, but he did appear to have a sense of urgency in getting something done.

 

From where we sit, today’s stock action is solely a manifestation of the fact that the big earnings whiff has happened, and why would anyone be short it from here otherwise. But the fact of the matter is that the earnings draw down really has nothing to do with the capital allocation it will take to fix this company and meaningfully accelerate growth across categories. Keep in mind that we heard the Chief Merchant talk on the conference call for 27 minutes about all of the ‘amazing’ product initiatives like Andrew Zimmern Home line (solid), Honest Company by Jessica Alba (A+), Skechers partnership (very good) to Beaver Canoe (huh). But despite all this, Target can’t comp.  e-commerce was ok, because of mobile – traffic on the core site was down. Even mediocre brands are growing web traffic. Why should TGT’s be down?  Our point here is that there’s more to do than just blocking and tackling, which will end up being expensive. It might be the best capital Target ever spends, but it could be a lot.

 

TGT – Gives Cornell Six Month Gift - tgt financials


Expert Call: COFFEE PRICES MAY MOVE MUCH HIGHER FROM HERE

Expert Call: COFFEE PRICES MAY MOVE MUCH HIGHER FROM HERE - Call Marketing Image

 

Hedgeye Macro is hosting an expert call tomorrow (Thursday, August 21st) at 11:00 a.m. EDT to better understand the developing risks to Brazilian coffee production capacity next year and beyond. Brazil accounts for more than 1/3rd of global coffee production, and the damage from an unprecedented drought in the first three months of 2014 may have caused irreparable damage to a much larger portion of the 2015-16 crop than believed by consensus.

 

Our expert speaker will be Judith Ganes-Chase, founder and president of Ganes Consulting, an independent agricultural softs commodities research and consultancy firm. Judy worked on the sell-side for 20 years before founding J. Ganes Consulting in 2001.

Call Objective:

  •  With irreparable damage from last winter’s ---(BRAZIL SUMMER) drought already manifest, consensus opinion is much too optimistic on Brazil’s production capacity into next year and 2016
  • Lifecycle of the Tree: The idea that above average rainfall can restore soil moisture and rehydrate the trees allowing the lack of vegetative growth to be offset is simply not true. Production estimates for a 2015-16 crop based on the coffee from trees that have not yet flowered are PREMATURE
  • End users may be able to hedge OTC through financial intermediaries, but the assumption that the crop paid for in the future is locked-in and available is an issue. Scarcity may be a problem --> ESPECIALLY OF BETTER GRADES OF COFFEE.
  • Relevant Tickers: CAFE, JO, SBUX, DNKN, MCD, MDLZ, GMCR, THI  

Call Participant Instructions:

Participant Dialing Instructions

Toll Free Number:

Direct Dial Number:

Conference Code: 998836#

Materials: CLICK HERE

 

About Judith-Ganes Chase:

Judy has over 25 years of experience covering the agricultural softs space. Prior to founding Ganes Consulting in 2001, she spent most of her career as a senior softs analyst at Merrill Lynch and Shearson Lehman. Her most recent post was as the Director of News and Research at InterCommercial Markets.

 

 Ms. Ganes-Chase is a contributing member to Elliott Associates, Gerson-Lehrman Groups Council, and Coleman Research Group. She is also a participant in the ICE (Intercontinental Exchange) research program and makes regular contributions to several industry-specific publications: Specialty Coffee Association of America, National Coffee Association, and the International Women’s Coffee Alliance (IWCA).    

 

Hedgeye Macro Team

 


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Daily Trading Ranges, Refreshed [Unlocked]

Takeaway: This is a complimentary look at our proprietary buy and sell levels on major markets, commodities and currencies.

This note was originally published August 20, 2014 at 07:27 in Daily Trading Ranges. Click here to learn more and subscribe.

Daily Trading Ranges, Refreshed [Unlocked]    - josie

 

BULLISH TRENDS

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BEARISH TRENDS

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VIX, Europe and US Treasuries

Client Talking Points

Vix

Before the last five days, remember when the SP500 had two up days in 12? Trending volatility does. Friendly reminder that front-month VIX is A) bullish TREND (11.84 support) and B) coming off the most asymmetric low (10) you’ve seen since 2007.

Europe

A no-volume-v-bottom-bounce to lower-highs but also below all of my intermediate-term TREND lines (DAX, CAC, MIB, etc), so that intermediate-term context is more important than Europe starting to go down again this morning.

 

UST 10YR

If you’re bullish, you should be bullish on the Long Bond; it’s crushing every major US equity index YTD (Russell 2000 is down for 2014), and the 10yr has immediate term downside to 2.34% into Janet pushing out the dots at Jackson Hole

Asset Allocation

CASH 54% US EQUITIES 0%
INTL EQUITIES 12% COMMODITIES 6%
FIXED INCOME 24% INTL CURRENCIES 4%

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.

BOBE

The level of activism in the restaurant industry has never been more rampant.  In the past year alone, we’ve seen CBRL, DAVE, DRI, BJRI and BOBE attract largely uninvited attention from these investors. BOBE has a long history of mismanagement, evidenced by flawed strategic rationale, an excessively bloated cost structure and severe underperformance relative to peers.  Fortunately, its poor operating performance presents a tremendous opportunity. We believe activist investor Sandell has identified significant, largely feasible, opportunities to enhance shareholder value.  Particularly, we see tremendous upside value in selling the foods business, transitioning to an asset light model and refocusing capital allocation.

TLT

Fixed income continues to be our favorite asset class, so it should come as no surprise to see us rotate into the Shares 20+ Year Treasury Bond Fund (TLT) on the long side. In conjunction with our #Q3Slowing macro theme, we think the slope of domestic economic growth is poised to roll over here in the third quarter. In the context of what may be flat-to-decelerating reported inflation, we think the performance divergence between Treasuries, stocks and commodities may actually be set to widen over the next two to three months. This view remains counter to consensus expectations, which is additive to our already-high conviction level in this position.  Fade consensus on bonds – especially as growth slows. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove.

Three for the Road

TWEET OF THE DAY

“If you can’t contextualize macro moves on multiple factors and durations, you shouldn’t do macro.” -- @KeithMcCullough

QUOTE OF THE DAY

“One can be a crucial ingredient on a team, but one man cannot make a team.” – Kareem Abdul-Jabbar

STAT OF THE DAY

$100.53, the closing price Tuesday of one share of Apple stock, which hit an all-time (split-adjusted) high.


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%
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