Fugu

Keith and I were going over our First Look in our 8:30 meeting today – as always.  The setup here is vital, in that any which way we slice it, we need to bank on an economic recovery in 2010 in order to get the group to work meaningfully from here as we’ve seen a 39% step-up in earnings growth expectations, and we’re trading at peaky 16x multiples on those numbers. Tough to make a long call here without a major earnings outlier or take-out.

 

But this one is all about duration, or ‘Duration Mismatch’– which is the crux of Keith’s Early Look today. I did not include the chart below in my initial comments, but probably should have. It takes the NTM consensus EPS growth rate and implied multiple back to the turn of the decade (I previously honed in on the past 2 years). What it shows is that coming out of the recession, we saw 100% earnings growth, and had 23x earnings multiples on top of that. I could write a dissertation as to why this time is different because of the dissimilar factors impacting the Consumer, the Economy, and the structural margin changes this industry has gone through.

 

But the reality is that as long as a chart like this exists, certain people will think it can happen again. Picking the top will be like preparing Fugu – that blowfish sushi that has enough neurotoxin to kill 30 people if prepared wrong.

 

 Fugu - 1


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