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Today we bought International Game Technology (IGT) at $14.81 a share at 9:37 AM EDT in our Real-Time Alerts. Todd Jordan was back on our Morning Call reviewing the long-term bull case for IGT. Cheap stocks with improving fundamentals are what people have to chase, especially after a solid earnings report.




Chicken wing prices are, like last year, moving sharply higher to start the year.  The difference in 2012 is that prices are moving above $2 per pound for the first time with a possibility of further upside.  We continue to see risk to BWLD’s multiple.





In 2012, during the first 24 days of the year, chicken wing prices gained 14%.  For much of the remainder of last year, prices stayed within a range of roughly 180-190 cents per pound.  Year-to-date in 2013, wing prices are again moving higher: +7.2% YTD.  During the 3Q earnings call, management warned that the price of wings was trending to $2.07 for the first two months of the fourth quarter and stated that they expected it to exceed that level heading into the super bowl. 


The question is whether or not this expectation is baking in the possibility of McDonald’s expanding its testing of wings, currently in being sold in Chicago after a successful run in Atlanta, to its national system.  BWLD’s guidance for earnings growth of 20% seems dependent on a number of factors, one important one being some moderation in wing prices in 2H13, per remarks from CFO Mary Twinen in October.  MCD getting in on the act won’t help that happen.




  • We still believe that BWLD’s multiple needs to reset much lower as earnings move lower
  • Wing prices moderating in 2H13 could be difficult given industry conditions, wing demand, and potential weather impact on corn
  • Moderating wing prices seem to be central to the bull case
  • Selling wings by weight, rather than number, is likely to damage the brand and management knows this
  • The first six weeks of 1Q12 saw co-op SSS increase 12.9%, presenting a difficult compare for the same period in ’13.  If the switch is made to selling wings by weight, that could make comping last year’s strong first quarter even more difficult.




PERFECT TIME TO PANIC AT BWLD - chicken wings 6mo




Howard Penney

Managing Director


Rory Green

Senior Analyst

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Hedgeye Best Ideas: Federal Express (FDX)

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We believe FedEx has the ability to improve margins in its Express division.  With a large revenue base at a near 30-year low in margins, the division could be a value driver over the next two years.  Further, we see FedEx Ground as a winner in the US ground parcel market.  That division offers exposure to fast growing e-commerce package volumes.   Finally, FedEx Freight has been surprisingly profitable and may benefit from a rebound in US construction activity.



INTERMEDIATE TERM (the next 3 months or more)

We believe we are past the trough in FedEx Express margins.  Cost improvements are already underway and the macro environment appears likely to be more supportive of express services demand.  Estimates for fiscal 2014 should benefit from that momentum, in our view, and fiscal 4Q 2013 guidance may well be positive at the next report. We view an expanded network in Europe as a positive for FedEx Express, should the FDX end up acquiring TNT at an attractive price.


LONG-TERM (the next 3 years or less)

FedEx is a long-term position, in our view.  Reorganizing the Express division is a slow process, in part because high service levels cannot be disrupted as adjustments are made.  Cost reductions build through FY2016 and the long-run result may surprise to the upside.  FedEx Ground has been taking market share from UPS in US ground parcel for over a decade, but those gains may well reach a tipping point in coming years.  In our view, shares of FDX could offer 50% upside to fair value should the margin expansion at FedEx Express match its competitors'.



Hedgeye Best Ideas: Federal Express (FDX) - he bi FDX chart



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And they played unlucky!



As we wrote about in our Macau preview notes (“MACAU MODEL UPDATES”, 1/6/13 and “MACAU: EXAMINING THE Q4 HOLD IMPACT”, 1/7/13), MPEL should report 4Q EBITDA well above the Street on an actual and hold adjusted basis.  The stock has had a phenomenal run so most of the beat is probably reflected.  However, if we’re right on our adjusted EBITDA projection, full year 2013 consensus needs to go higher as well.


We are projecting that MPEL will report $1,080MM of net revenue and $261MM of EBITDA, 2% and 10% ahead of consensus, respectively.  On a hold adjusted basis (using each property's historical hold rate), our EBITDA estimate goes to $272 million.    





We estimate that City of Dreams will report $772MM of net revenues and $227MM in EBITDA; impressive considering the low hold at the property.

  • Our net casino win projection is $752MM
    • VIP net win of $399MM
      • Assuming 15% direct play, we estimate $22.7BN of RC volume (up 11% YoY) and a hold rate of 2.66%
      • Using CoD’s historical hold rate of 2.91%, EBITDA would be $15MM higher and net revenues would be $53MM higher
    • $312MM of mass win, up 50% YoY.  A record for CoD.  Mass revenues reached a record $118MM in December alone and were also north of $100MM in November based on our estimates.
    • $41MM of slot win
  • $20MM of net non-gaming revenue
    • $24MM of room revenue
    • $16MM of F&B revenue
    • $24MM of retail, entertainment and other revenue
    • $44MMM of promotional allowances or 69% of gross non-gaming revenue or 5.8% of net gaming revenue
  • $433MM of variable operating expenses
    • $373MM of taxes
    • $47MM of gaming promoter commissions in addition to the rebate rate of 90bps (we assume an all-in commission rate of 1.11%)
  • $24MM of non-gaming expenses
  • $87MM of fixed operating expenses up 3% YoY and $2MM QoQ

We project $273MM of net revenues and $43MM in EBITDA for Altira

  • We estimate net casino win $270MM
    • VIP net win of $245MM
      • $11.8BN of RC volume (5% YoY decrease) and a hold rate of 3.01%
      • Using Altira’s historical hold rate from the last 11 quarters of 2.9%, we estimate that EBITDA would be $4MM lower and that net revenues would be $12MM lower
    • $25MM of mass win, flat YoY
  • $3MM of net non gaming revenue
  • $193MM of variable operating expenses
    • $149MM of taxes
    • $41MM of gaming promoter commissions in addition to the rebate rate of 94bps (we assume an all-in commission rate of 1.29%)
  • $3MM of non-gaming expenses
  • $33MM of fixed operating expenses in-line with 3Q

Other stuff:

  • Mocha slots revenue and EBITDA of $36MM and $9MM, respectively
  • D&A:  $94MM (guidance of $90-95MM)
  • Interest expense:  $22MM (guidance of $23-25MM)
  • Corporate expense:  $18MM (guidance of $18-20MM)

Stocks Celebrate The Good Times

The market has treated bulls well with a great start to 2013. Several equity indices have hit multi-year highs and have put up extraordinary performance thus far considering that  it’s still only January. Here’s a breakdown of several indices and their year-to-date performance:


S&P 500: +4.88%

Nasdaq Composite: +3.94%

Russell 2000: +6.11%

Dow Jones Industrial Average: +5.53%


Stocks Celebrate The Good Times - INDEXS


The S&P 500 alone has been up for six consecutive days and is up +10.4% from its mid-November 2012 closing low. The bears have been killed and anyone who's fighting the broader market is in for a rough ride as fund flows continue to pour into US equities. Growth stabilizing is good for stocks, bad for bonds.

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