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VIDEO | Quarterly Macro Themes Q&A

Here’s the question and answer portion from Thursday’s Macro Themes call. Keith answers questions on a host of topics including #Quad4, #Bubbles and more.

 


HCA: Removing HCA Holdings from Investing Ideas

Takeaway: We are removing HCA from our high-conviction stock idea list.

After a successful run, we are removing HCA Holdings (HCA) from Investing Ideas.

 

HCA is up 72% since Hedgeye healthcare sector head Tom Tobin added it to our high-conviction list back on 6/13/13. The S&P 500 is up 18% during the same period.

 

HCA: Removing HCA Holdings from Investing Ideas - hca


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Employment Numbers a Positive for Restaurants

The headline U.S. jobs number surpassed expectations in September, as nonfarm payrolls advanced 248,000 (vs 215,000 estimate) and the unemployment rate dropped 20 bps to 5.9%.  This is the first time in over six years since we've seen the unemployment rate below 6%.  Although the labor force participation rate ticked down 10 bps to 62.7% and wage growth remains anemic, it is indisputable that more jobs in America is a positive for restaurants.  We've seen this reflected in both July and August restaurant sales numbers, which have shown sequential upticks, and are eagerly awaiting September's release.

 

This is the second straight month employment growth has increased year-over-year across our five primary age cohorts.  While we saw strength across the board, we do have several notable callouts:

  • 20-24 YOA: weakest month of growth we've seen in the last 15
  • 25-34 YOA: second strongest month of growth we've seen in the last 19
  • 45-54 YOA: three straight months of growth after 20 straight months of declines
  • 55-64 YOA: strongest month of growth we've seen in the last 21 months

 

While widespread employment growth is positive for all restaurants, September's employment release is particularly positive for casual diners as both the 45-54 and 55-64 YOA cohorts are showing their strongest levels of growth in the last two years.  With that being said, we continue to favor BLMN and BOBE on the long side as a play on potential value enhancing initiatives and are turning cautious on our shorts (DFRG, EAT) heading into earnings season.

 

The release was also a positive for quick-service and fast casual restaurants, as weak growth in the 20-24 YOA cohort is more than offset by another very strong month of growth in the 25-34 YOA cohort. We continue to favor operators with strong margin drivers in place (CMG, JACK, WEN) and those with strong unit level economics and well-calculated expansion plans (KKD, PLKI). 

 

September Employment Growth Data:

  • 20-24 YOA +0.96% YoY; -143.1 bps sequentially
  • 25-34 YOA +2.46% YoY; -14.4 bps sequentially
  • 35-44 YOA +0.88% YoY; +34.2 bps sequentially
  • 45-54 YOA +0.23% YoY; -40.6 bps sequentially
  • 55-64 YOA +3.59% YoY; +97.9 bps sequentially

 

Employment Numbers a Positive for Restaurants - 1

 

Employment growth at full-service restaurants, limited-service restaurants and leisure & hospitality continues to grow, despite seeing a steady deceleration since the highs of mid-2013 likely due to cost pressures these companies are facing on both the food and wage front.

 

Employment Numbers a Positive for Restaurants - 2

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst



THE HEDGEYE MACRO PLAYBOOK

Takeaway: The Hedgeye Macro Playbook is a daily 1-page summary of our core ETF recommendations, investment themes and noteworthy quantitative signals.

CLICK HERE to view the document. In today’s edition, we highlight:

 

  1.  The broad-based weakness across asset classes and why we think that is occurring
  2. What asset classes and style factor exposures we think investors will be increasingly forced to chase going forward
  3. Why the bond market is signalling #GrowthSlowing in the US and not just in Europe

 

Best of luck out there,

 

Darius Dale

Associate: Macro Team


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