• run with the bulls

    get your first month

    of hedgeye free


The Week Ahead

The Economic Data calendar for the week of the 3rd of November through the 7th of November is full of critical releases and events.  Attached below is a snapshot of some of the headline numbers that we will be focused on.


The Week Ahead - 10.31.14 Week Ahead

EHTH: Covering the Short (Removing from Best Ideas List)

Takeaway: We added EHTH Short to our Best Ideas List on 2/7/14. Our bearish thesis remains largely intact, but we're out of catalysts until 1Q15.


  1. NOTHING HAS REALLY CHANGED: The only material positive news from the 3Q14 earnings call was that IFP commission rates are expected to remain the same in 2015; pushing back an inevitable downside catalyst to 2016 at the earliest.  But the same risks that crippled the business in 2014 remain into 2015.  EHTH still has limited connectivity with the public exchanges (a requisite to selling subsidized plans), which means EHTH may not have the ability to drive enough new account growth to offset its churning IFP members.  All things considered, the setup hasn't changed much from 2014; EHTH could see another down year in IFP membership next year.  
  2. BUT WE'RE OUT OF CATALYSTS UNTIL 1Q15: Open Enrollment runs from 11/15/14-2/15/14.  EHTH will not really know what 2015 will look like until 1) it starts collecting premiums on its new members, and 2) it knows how many of its current members have churned.  The company will issue its 2015 guidance before that occurs, which means that can go either way since it won't really understand its 2015 prospects until its 1Q15 earnings release.  Until then, remaining short could expose us to near-term bullish catalysts on immaterial events (e.g. random news flow similar to last year).  Given that the stock is up following cautiously optimistic management commentary for 2015, we would rather book the gain and get out of the way...for now.

EHTH: Covering the Short (Removing from Best Ideas List) - EHTH   Net Member Growth 3Q14


Let us know if you have any questions or would like to discuss in more detail. 


Hesham Shaaban, CFA





Video | Is There A Bubble in Restaurant Stocks?

In an excerpt from an Institutional Call earlier this week, Restaurant Sector Head Howard Penney fields a question concerning a bubble in low quality small cap U.S. stocks. As competiion heats up in the space CHUY’s odds of beating the larger more well known names in the space appear slim. The restaurants team recently turned bearish on CHUY, adding it to the Best Ideas list as a short.

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

FLASHBACK: Hedgeye's Howard Penney Says Short Starbucks $SBUX

Takeaway: Hedgeye managing director Howard Penney added SBUX to the Hedgeye Best Ideas list as a short on September 11.

Editor's note: This note by Hedgeye managing director Howard Penney adding Starbucks (SBUX) to the Hedgeye Best Ideas list as a short was originally published September 11, 2014 at 16:49. The world’s biggest coffee-shop chain posted quarterly revenue after the close yesterday that missed estimates sending shares lower approximately -3% today.

We are adding SBUX to the Hedgeye Best Ideas list as a short.


We are hosting a Black Book call next Thursday, September 18, 2014 at 11am EST to run through our thesis and field questions.  We will send out dial-in information and materials for the call next week.


FLASHBACK: Hedgeye's Howard Penney Says Short Starbucks $SBUX - 98

SBUX: The Seven-Year Itch

It’s been seven years since Howard Schultz penned his now famous memo to management and employees, outlining where the company had gone wrong and what it needed to do to get back on track.  It has also been six years since I turned positive on Starbucks – but nothing lasts forever.


McDonald’s went on an eight-year corporate revival before it lost its luster and we fear Starbucks is nearing the end as well.  In this presentation, we will outline a number of concerns we have with the company leading us to believe that the street is overly optimistic about its future prospects.


I recently read that Harvard Business School Professor and Historian Nancy Koehn has studied Starbucks and its leader, Howard Schultz, for nearly 20 years.  She recently released a new HBS Case Study, “Starbucks Coffee Company: Transformation and Renewal,” which traces “the dramatic arc of the company’s past seven-plus years – a period that saw Starbucks teeter on the brink of insolvency, dig deep to renew its sense of purpose and direction, and launch itself in new, untested arenas that define the company as it exists today.”


While all of this may be true, I too have been following Howard Schultz and Starbucks for over 20 years.  Unlike Ms. Koehn, however, I did not go to Harvard and I am not a HBS Professor.  But I did release a Hedgeye Black Book in early 2009 detailing why I believed Starbucks was a great company and the stock was a great buy.


Today, while Starbucks is still a great company with a strong management team, the stock is far less attractive.  More specifically, and perhaps to the heart of the topic, I believe the company’s domestic business is maturing and management is rapidly attempting to stem this decline by deviating from its core.  Let us not forget that sentiment is near an all-time high.  To me, this HBS Case is simply another example of a Starbucks “top.”


Our call on SBUX will focus on:

  • Menu trends suggest increased complexity and slower throughput
  • Decelerating same-store sales and traffic
  • Rapid diversification away from the core business
  • Proprietary Hedgeye survey confirming new menu initiatives are not resonating with consumers
  • Significant and sustainable increase in coffee costs
  • Peak margins
  • Street optimism and overconfidence


Howard Penney

Managing Director 


Fred Masotta


Keith's Macro Notebook 10/31: Japan | USD | Oil


Takeaway: The beat and raise thesis is very much intact. Look for a REIT story to emerge next year.

This management team feels good and sounds confident - and our Q4 forecast is above consensus.


Chris Nassetta, CEO

  • Pleased with growth and results, above high end
  • Macro set up feels great
  • Transient: rev +8% in Q3
  • Group >9% systemwide, volume driven - positive on group business system wide up mid to high single digits for next four quarters
  • Group rebounding and positively impacting mix
  • Canopy by Hilton - game changer, appeals to wider audience, not limited to luxury segment. Lifestyle, light, organic feel while reflecting neighborhood location.  11 signed deals in key urban markets, another 15 in discussions.  Third party capital will drive unit development.
  • Curio - discussion on >90 properties.  Plans to open 5 hotels, 3,200 rooms by year end. Currently three assets open.
  • China - will leverage new partnership, licensing agreement for Hampton brand.  400 hotels target. Will allow for acceleration of brand development and penetration across China.
  • Waldorf Astoria - on track to close as announced.  WIll likekind exchange proceeds and well along this process.


HSD = high single digits

MSD = mid single digits

  • U.S.: positive outlook and muted supply growth = Q4 HSD RevPAR
  • America ex US:  Q4 HSD RevPAR
  • Europe Western & Southern strong, Eastern weighted down by Q4 MSD RevPAR
  • MEA: Recovering - Egypt strong easy comps, Saudi Q4 MSD RevPAR
  • Asia/Pac: consistent, Japan strong but tempered, China steady, India stronger, Thailand a drag  Q4 MSD RevPAR
  • 2015: Feel great about fundamentals


Kevin Jacobs, CFO

  • M&F Fees: new unit and top line driven
  • IMFs: increased participation rate and IMFs outside, 75% non-US
  • $5 million base to incentive fee reclassification
  • IMF outlook now 13% to 15%
  • Timeshare: new and first project in Maui, will begin sales in 2016, YoY increase of inventory 58%
  • Washington DC uptick in leisure and co meetings
  • Prepayment Guidance:  Full Year expect to pay $900M- $1B by year end



Q: Waldorf Astoria 1031 like-kind exchange - types of properties?

  • All domestic U.S. assets, institutional grade, best urban/resort, singles/portfolios, UUP and Luxury, mixture of HLT brands and also not branded.  More details 60-90 days

Q: Waldorf like-kind disciplined on valuation?

  • Unique given history, cash buyer, have period of time to identify 2x potential properties (fill funnel) then evaluate quality, pricing, terms.  Sold Waldorf at 32x, buy closer to current multiple

Q: Waldorf - disruption from renovations with new owner?

  • Entered process of sharing prior renovations with Angbang, reviewing all construction alternatives, then will layout plans for next renovations

Q: Development pipeline outside the U.S. - China challenges?

  • Healthy growth in all regions of the world, working with JV partners, over 70 of 150 hotels in pipeline under construction.  Complexion of China is changing

Q: Net rooms growth - split segments & geographic?

  • 55/45% Intl/U.S.
  • 55/45% Mgmt/Franchise

Q: IMF growth in 2015?

  • Doing well YTD in 2014, not giving 2015 guidance but trending higher

Q: Limited service vs. full-service growth?

  • More balanced 2014 growth - both transient and group remain strong, group business continues to pick up momentum which will drive upscale and upper upscale growth

Q: Development trends?

  • Mix U.S. with existing developers = 75% existing owners
  • Development community feeling better, economic growth in the U.S. and European developers getting more optimistic; Americas ex. US optimistic; Asia/Pac good optimism. World is more upbeat

Q: Incentive Fees - more paying in U.S.?

  • More int'l fees - 75% international and components of growth 65% of growth was int'l, participation moving up by 10%.  About 65% from same store (int'l) and 35% from new units (almost all int'l)
  • Bulk are int'l and linear equation - not sit behind owners pref's, as markets recover and grow, fees will increase
  • Adding more int'l units with such contracts

Q: Occupancy vs. ADR growth?

  • Pleased with occupancy gains, would have expected more ADR growth in 2014, but while driving rate, getting smarter about revenue management and means still have lots more runway in this cycle.  Much better at driving occupancy on Friday and Saturday evenings.  Looking toward 2015, will definitely see much more rate than occupancy.  2014 likely 55/45 occupancy rate 

Q: Discussions with rating agencies, how balance investment grade with capital return strategy?

  • Still believe 3x to 4x is proper leverage "over" the cycle.  Won't over cook beyond 3x

Q: Willing sellers of big box hotels - continue to own Big 8?

  • Likely hold on to the Big 8, need to maximize value, still value.  Waldorf was unique given value realization of terms
  • Best value equation today is to keep assets together/Big 8 together

Q: Timeshare six years of inventory - any concern?

  • More inventory than competitors but feel good about opportunity, capital light, sustainable, correct amount of inventory is four to six years.

Q: United Nations inquiry into Waldorf Sale?

  • HLT went to U.S. Government, held discussions, confident will close in time disclosed.

Q: Canopy - initial properties conversions or new builds?

  • Mix of both - as well as adaptive reuse
  • of the first 11 - majority are new build, nothing specific

Q: Exchange - seeding brands and included growth?

  • Yes, seed any of UUP or Luxury brands to increase distribution of brands
  • Not included in NUG - net unit growth

Q: Blackstone assets - able to be sold without brand?

  • Some of BX's assets are in Hilton like-kind exchange funnel

Q: RevPAR 2015:  US vs Intl?

  • US: Higher End
  • ROW: mid range
  • blended to 5% to 7%

real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.