Our macro team is adding Utilities to Investing Ideas.
We have added Utilities Select Sector SPDR ETF (XLU) to our high-conviction list. We will send out a full report outlining our bullish thesis next week.
Demand for Alibaba shares was long expected to be strong. But the orders have come in so quickly that the company’s banks expect to close their order books early. Underwriters reportedly told their sales staffs this morning that they would close all orders for the IPO by Wednesday afternoon. They also hinted that they might eventually raise the price range for the stock sale, pushing it past a fund-raising goal of $21.1 billion.
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Takeaway: 10 SIGMAs for the week’s EPS. JCREW lost FAST as suitor, so it’s going public - again - +75% from where it went out? But there’s no bubble.
J. CREW - Infographic: Privately-Held Retailer Could Be Next "In" Fashion IPO; PrivCo-Estimated $5.25B IPO Value; 75% More Than Take-Private Price in 2011
Takeaway: J Crew went private in 2010 for $3bn. A $5.25bn price tag this time around would represent a 75% boost in value. What we find interesting is that J Crew was on the tape in March as being bought by Fast Retailing for $5bn, but the deal crumbled when FAST went through the numbers in detail (and shortly after, J Crew released weak results). Now it looks like Drexler is getting his $5bn price tag after all. But we're not at a market top or anything.
These 10 companies represent what should be the last of our weekly SIGMA reviews for Retail earnings for 2Q14 earnings. As a reminder, the analysis triangulates sales, inventories and margins. The vertical axis is the spread between sales and inventories -- the higher on the scale, the better. The horizontal axis is the y/y change in EBIT margin. In effect, you want to be either in the upper right hand quadrant, or headed there. The opposite holds true for the lower left. The two winners are ULTA and LULU, but the market has obviously reacted on those two names. RH is interesting, as margins look very good, but inventories climbed meaningfully. We'd note, however, that the nature of the furniture business -- where product is almost all ordered for future delivery (you don't walk out of the store with a couch) -- gives us confidence that higher RH inventories will drive accelerated top line in 3Q.
ULTA - 2Q14 Earnings
LULU - 2Q14 Earnings
RH - 2Q14 Earnings
OXM - 2Q14 Earnings
VRA - 2Q15 Earnings
FIVE - 2Q14 Earnings
MW - 2Q14 Earnings
WTSL - 2Q14 Earnings
RSH - 2Q14 Earnings
HBC - Q214 Earnings
WMT - Walmart rolls out new extreme value private-label brand
HD, TGT - Home Depot’s Malware Hints That Its Hackers Weren’t Target’s
GME - GameStop's Mobile Data Determines Brick-and-Mortar Inventory
LOW - Ad of the Day: NFL Fans Are Beside Themselves in Funny New Lowe's Campaign
GPS, AAPL - Report: Apple hires Gap marketing director
VSI - Vitamin Shoppe CEO to retire in 2015
CHS - Chico’s expands e-commerce with Borderfree
Here’s a peek behind the scenes at Hedgeye as we evaluated whether or not to remove Hologic (HOLX) from our Investing Ideas product this week. It was a debate between the coach (Keith McCullough) and player (Tom Tobin). Tobin is our Healthcare sector head and he authored this note.
[At a fund] I would be telling my portfolio manager to take down the position, but not eliminate it. Embracing the uncertainty of how the data leans (high valuation, +performance, possible negative surprise on revenue) is the key here.
Player: I am sitting on some good performance. I like the long term, but I see some short term risk. Data point 1, data point 2, etc….
Coach: Let’s book it. What I see from my seat doesn’t look good for the name. I hate this market and want to take down long exposure.
Player: But it could double from here! Be patient, you're overreacting. I’m just covering myself by sounding an alarm. I may be misreading how the street will react. And there’s always a chance I’m being way too worried about what other people think.
Coach: Relax. We’ll buy it back.
Player: That never happens. If I am wrong, the stock will be up and you’ll wait for a pullback that never comes. All of my research will get wasted. I put so much into this it will be heartbreaking to see us not participate.
Coach: Okay. Let’s sell half, more if it rallies into the number, less if it sells off. You good with that?
Player: That sounds good. If they puke the quarter we can double down. I’ll keep you posted as I update key data.
Tickers: MGM, MAR, HOT, TVPT, MTN
2282.HK/MGM; 880.HK/SJM – (GGRAsia, Macau Business Daily) A group of casino workers from MGM China is reportedly meeting on Monday (September 15) with the city’s Labor Affairs Bureau to complain about the company’s pay policies.
Another protest by SJM employees will occur on Saturday. The gathering is set for 3:00pm, after which the demonstrators plan to march to the Lisboa and Grand Lisboa casinos.
Takeaway: Labor protests all over the place - labor costs will continue to rise
MAR – announced plans to expand its Autograph Collection portfolio in Europe with new additions in Zurich, Switzerland and Barcelona, Spain in the spring of 2015 with the new 245-room Kameha Grand Zurich and the 83-room boutique hotel, The Cotton House, Barcelona.
Takeaway: Growth via the lower management revenue affiliated properties channel. Barcelona remains one of the top global tourist destinations.
HOT – announced plans to debut The Luxury Collection brand in California’s famed Napa Valley with Las Alcobas, a Luxury Collection Hotel, Napa Valley that will open in the fall of 2015 following a comprehensive multi-million renovation that will transform the former Grandview Hotel & Spa.
Takeaway: A good property and destination addition to The Luxury Collection for Starwood.
TVPT – Travelport files amended S-1; to offer 30M shares in range of $14-16/share through Morgan Stanley, UBS, Credit Suisse and Deutsche Bank. TVPT's principal shareholders include: Blackstone Funds and TCV Funds.
Takeaway: "Redefining travel commerce"...more like an equity market bubble in our book. After all, what's new about yield management and SAAS?
MTN – announced that the company has acquired Park City Mountain Resort from Powdr Corp. for $182.5 million in cash, settled all aspects of the prior litigation with Park City Mountain Resort, and expects $35 million in incremental EBITDA in FY2015.
Takeaway: A great acquisition at a very inexpensive EBITDA multiple while also adding a new mountain to the EPIC Pass program.
PNK – EVP, Secretary and General Counsel John A. Godfrey acquired 25,000 shares of the company’s stock (which were part of a stock option award) for $16.92 and then sold the same 25,000 shares for $27 on Tuesday, September 9. The transaction was part of a 10b5-1 plan adopted on March 13, 2014 and following the sale, Mr. Godfrey now directly owns 141,722 shares in the company and 50,000 additional options with an exercise price of $16.92/share that expire on May 16, 2015.
Las Vegas Old is New – Paragon Gaming told the Nevada Gaming Control Board, The Rivera Casino is considering a $100 million renovation. The Riviera opened on April 20, 1955 as the first high-rise and the ninth resort on the Las Vegas Strip. Today, The Rivera has over 2,100 rooms and a 110,000 sq ft of gaming space. Paragon has operated the property for more than a year, following the departure of several Riviera executives. Riviera's ownership group includes Starwood Capital Group.
Takeaway: The renovation of the north end of the Strip continues.
China Loan & Money Supply Growth –
Takeaway: Lending continues to be weak
China Auto Sales – According to the China Association of Automobile Manufacturers, Chinese drivers bought 1.5 million passenger cars in August, an increase from 1.35 million units in August 2013.
Hedgeye remains negative on consumer spending and believes in more inflation. Following a great call on rising housing prices, the Hedgeye
Macro/Financials team is turning decidedly less positive.
Takeaway: We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.
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