The Economic Data calendar for the week of the 17th of November through the 21st 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.
Takeaway: We are adding HCA to Investing Ideas.
Editor's note: We added HCA to Investing Ideas last Friday 11/7. What follows below is our reasoning from our Healthcare Sector Head Tom Tobin.
HCA $90 +
We flagged the divergence between High Yield and HCA at the end of September as a reason to take profits, and did just that a week later after being up 72%.
Since then, the stock has corrected approximately -12% on the back of a few sell side downgrades despite strong Q3 earnings.
Key data points that we follow continue to show a positive fundamental environment for hospitals and HCA in particular. We view recent weakness as a buying opportunity, as our model points to continued EBITDA upside versus consensus through 2015 and a stock that can trade north of $90.
Price and Estimates Trending Higher
One of the problems we identified with HCA heading into 3Q14 earnings was the strong bias to the long side on both the buyside and sellside. With a few downgrades, incremental fear from SCOTUS, and a -12% move in the stock, we are far more excited by the name on the long side. If operating fundamentals excluding ACA continue their modest recovery, consensus EBITDA in 2015 and 2016 look way to low.
HCA Admissions Growth ex-Exchange Strong
Recent concerns among the Hospital names and HCA in particular have centered on the Supreme Court (SCOTUS) review of the legality of subsidy distribution through Federal Exchanges. We’d make 2 points:
1) Handicapping the SCOTUS outcome is close to impossible and
2) Under an adverse SCOTUS ruling scenario, the headwind would be modest
Japan’s equivalent of Janet Yellen (his name is Haruhiko Kuroda) essentially said that Hedgeye Macro nailed it on our #GrowthSlowing call and that the Bank of Japan is at a “critical point to overcome deflation.” There’s that word again, #deflation.
Forget what 80 TRILLION is in the context of what the Germans did in the 1920s for a second (99% of people in this world don’t get the econ #history lesson anyway) and think about what this Panic Policy in Japan is going to do to the rest of the world’s economics in 2015
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Takeaway: Retail sales not equal to Dept. Store #s. JWN better than the rest. TGT takes page from WMT playbook. NKE to players: don't mess with kicks.
Takeaway: A sequential tick up on both the 1 and 2 yr trend lines, though it wasn't reflected in the commentary we've heard from retailers over the past few days. Maybe the answer is as simple as people are buying less of what Department Stores are selling. If that answer works for M and KSS then it's good enough for us.
JWN - 3Q14 Earnings
Takeaway: The things that we like about JWN, in a space where we have an overwhelmingly negative view, all looked solid. 3.9% Revenue growth, 5% square footage growth, 22% DTC growth on the full-price banner, and 34% growth in Hautelook/Rack.com. After the week of earnings we've seen across the department store space the top line was all that mattered (+9% reported, ~+8% if you exclude the estimated Trunk Club benefit). But, the earnings algorithm was weak, 9% revenue growth translated into a 5% growth in earnings (ex. Trunk Club dilution EPS growth = 11%). The SIGMA trajectory is punk with inventories growing 15 percentage points ahead of sales and margins declining. That almost always equates to a negative margin event in the short term. We added JWN to the long bench on 10/16, but still aren't comfortable with a name operating in a space where we think 93mm square feet needs to disappear over the next 5 years.
TGT - Target Follows WMT E-comm Acquisition Playbook
Takeaway: TGT taking a page out of the WalmartLabs playbook. To keep score - WMT has acquired 15 small tech startups since 2010. Everything from a streaming video service to a recipe and meal planning service. TGT's acquisition strategy has been more company focused to date, i.e. chefs.com and dermstore.com. Maybe none of WMT's deals are homeruns but it has allowed the company to build its digital acumen through the acquisition of people and technology. TGT is way behind on this front and we'd point out has one of the worst dot.com track records in all of retail over the past 8 years.
NKE - Nike warns NFLers Not To Mess With Kicks
Takeaway: We don't blame Nike for reinforcing its endorsement policy and protecting its investment. The company is shelling out $220mm per year for the NFL deal on top of what it is paying its endorsees to wear it's gloves/cleats, and pay to wear fees. Players are billboards and that strategy doesn't work if you can't see the swoosh. Maybe the answer is neon colorways à la the London Olympics or the 2014 World Cup - though we doubt the NFL would let that fly.
KATE - Kate Spade Opens 1st West Coast Location
WMT - Wal-Mart Told Store Managers to Match Online Prices With Amazon
GPS - Old Navy Blasted for Higher Cost of Its Women’s Plus-Size Jeans
LULU - Lululemon pushing menswear, expansion
BABA - Alibaba's boutique shop 11 Main opens doors on mobile
AMZN - Hachette Looks Like the Winner as Its War With Amazon Ends
Takeaway: We are removing GLD from our high-conviction stock idea list.
We are removing Gold (ETF: GLD) from investing ideas on the bounce within a bearish @Hedgeye TREND (+1%) to step aside from the steamroll that is #QUAD4 deflation.
Both gold and oil (the most tightly correlated commodities to the USD) are bearish on an intermediate-term TREND basis vs. the USD in a bullish TREND set-up. The bearish TREND set-up for the Japanese Yen and Euro against the dollar remains intact and are models suggest these large currency moves have even more room to run.
With growth setting up to surprise to the downside in the U.S. (which was the set-up which got us into gold on the long-side back in May), deflation’s ugly head (growth slowing and rates moving lower) has more to say over the intermediate-term. Economic data continues to confirm an early cycle slowdown continues with extremely difficult CPI comps even if commodities started going down in Q4 and Q1 2015 (when inflation surprised to the upside) because of the year-over-year comparative basing effect.
This is an excerpt from Hedgeye morning research. Click here to learn more.
The Russell 2000 (IWM) tried her best @Hedgeye TREND resistance (1187) and failed (again).
We can’t begin to count how many people who A) missed shorting this in July now saying B) the small cap “bottom is in!” But it’s a lot of people.
So fade that as the Liquidity Trap that has been this index just made yet another lower-all-time-#Bubble high.
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