This central planning game will not end well.
Our Financials team of Josh Steiner and Jonathan Casteleyn will be hosting a conference call tomorrow Thursday, December 4th at 11 a.m. EST with Lipper Fund Research, a leading mutual fund ratings and research firm to discuss the current "money in motion" within the investment management industry. Representing Lipper will be the Head of Americas Research Jeff Tjornehoj. Our topics to be addressed on this call include:
- The historical importance of the Bill Gross move from PIMCO to Janus and why it has been an industry watershed event.
- Estimates of how much investor capital will eventual flow out of PIMCO Total Return and other funds and which firms stand to benefit most.
- How much capital and the total impact that Bill Gross can have on stock fund manager Janus Capital.
- Other current industry topics including a stabilizing Invesco after a major PM departure and the early results from new products including Liquid Alts.
This call aims to be applicable to investors in the following stocks:
BLK, LM, BEN, TROW, JNS, IVZ, WDR, AMG, EV, CNS, AB, FII, WETF, OZM, KKR, CG, BX , FIG, GS, MS, JPM, ALV GY
Participant Dial-In Instructions - Thursday December 4th at 11 am EST:
- Toll Free Number:
- Direct Dial Number:
- Conference Code: 176731#
- CLICK HERE to automatically add this call detail to your Outlook calendar
Jonathan Casteleyn, CFA, CMT
Joshua Steiner, CFA
To issue sovereign QE, it ‘tis the question.
We polled our customer base earlier today and the verdict is decidedly mixed -- in fact it's a dead heat. 50% say “YES” Draghi will announce a QE program when the ECB meets tomorrow. 50% said “NO” he won’t.
Unfortunately, our crystal ball is in the repair shop. But as we’ve noted in a previous note, recent language from Draghi, his VP Victor Constancio, and other policy heads (including those of the governing council) all seem to suggest that tomorrow’s meeting will disappoint the YES vote. The likeliest scenario? The ECB will remain in a “wait-and-watch” mode to assess its concurrent programs.
We do suspect a lack of action (hold on rates and a QE announcement) is due to the fact that the Bank only just started to purchase ABS (November 21), the 2nd tranche of the TLTROs will only be allocated a few days following the ECB meeting, and the covered bond purchasing program is in early innings. In addition, we also suspect that the ECB will have to contend with the Germans who oppose sovereign QE on legal grounds.
Tomorrow we’ll also get updated ECB staff GDP and Inflation estimates – you know our call is for the estimates to be revised DOWN #EuropeSlowing.
What’s our investment call?
As Keith noted this afternoon, European Stocks (EuroStoxx 600 Index) are signaling immediate-term TRADE overbought with a risk range of 337-351. The EUR/USD is signaling immediate-term TRADE oversold at $1.23. Broadly, with the “risk ranges” being at the top and/or bottom end of the range increases the probability of a short-term reversal – the probability is as high as it’s been of seeing a big macro reversal.
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BOBE remains on the Hedgeye Best Ideas list as a long.
We continue to believe BOBE represents an under-the-radar special situation story. The company first caught activist investor Sandell Asset Management’s eye back in July 2013. Bob Evans successfully fended off the activist for over a year. However, in August 2014, Sandell won four seats on Bob Evans’ board of directors. We understand Sandell’s infatuation with the company, due in large part to an abundance of low-hanging fruit. In our view, these opportunities would undoubtedly narrow the gap between the stock’s current price and its intrinsic value.
We believe the board could create significant value for shareholders in a variety of ways, the most appealing of which would be a spinoff of BEF Foods, which has an estimated enterprise value of $600-800 million. Not only would this immediately generate a substantial amount of cash for a cash-strapped company, but it would allow management to re-focus its efforts on efficiently running its restaurants. We continue to believe a separation of the foods business is likely, considering the board recently engaged Lazard to serve as an independent financial advisor (this time under a different scenario). Outside of this, opportunities exist to refranchise restaurants, cut excess SG&A, and explore the sale of restaurants and real estate.
With a spinoff of BEF Foods and harsh SG&A scrutiny, we value the stock at approximately $70-80 per share.
The quarter was slightly disappointing, but we didn’t expect much else. For what it’s worth, FY15 earnings guidance looks achievable, but we’re waiting for a transformational transaction.
The Good in 2Q15
- 3Q15 QTD same-store sales running at 2.7% (3Q15 estimate at +1.7%)
- Guided FY15 same-store sales between +1.5-2.5% (above current estimate of +0.7%)
- Broasted Chicken platform drove same-store sales at lunch and dinner; outperformed restaurants without the platform by 130 and 690 bps at lunch and dinner, respectively, during the quarter
- Off-premise sales were strong at Bob Evans Restaurants, up +13.5% in the quarter
- Plant efficiencies at BEF Foods resulting in a 280 bps y/y improvement in adjusted operating margin
- Side dish volumes up 9% y/y at for BEF Foods
- BEF Foods should benefit from reduced full-year forecasted sow costs (down from $1.80-1.90 to $1.78-1.82), operating efficiencies, and higher sales volumes
- Company is exiting its interest in a private aircraft
- Board of Directors' Finance Committee (3/5 members newly elected to the Board) is "engaged in a comprehensive, fresh review of strategic, financial and capital allocation plans"
- Finance committee has engaged Lazard to serve as an independent financial advisor
- Company has retained Deloitte to complete a review of the company's SG&A structure
- Company is exiting its interest in a private aircraft
- Plan to drive 300-350 bps of operating margin improvement by FY18
The Bad in 2Q15
- Missed revenue estimates and guided FY15 consolidated sales to $1.35-1.37 billion (below current estimate of $1.38 billion)
- On-premise sales were weak at Bob Evans Restaurants, down -1.7% in the quarter
- On-premise sales deteriorated across all three dayparts (breakfast, lunch, and dinner)
- Food costs expected to increase 60-80 bps y/y in 2H15
- Off-premise sales driving higher cost of sales, due in large part to higher packaging costs
- Expect continuation of increased healthcare costs in 2H15
- BEF Foods' net sales were flat y/y and guided FY15 net sales to $3.88-398 million (below current estimate is $412 million)
- -16.4% decline in sausage pounds sold at BEF Foods
Hedgeye CEO Keith McCullough discusses his outlook for the markets, economy and Fed with Fox Business "Opening Bell" host Maria Bartiromo.
Editor's note: This is an excerpt from Hedgeye research earlier this morning. For more information on how to subscribe to the fastest-growing independent research firm in America click here.
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The Weimar Nikkei was +0.3% overnight, taking its centrally planned ramp to +22% since Oct 17th. Right now (into the FX event in Europe tomorrow) the Yen is signaling immediate-term TRADE oversold at $119.56 (and, not surprisingly, the Nikkei is signaling immediate-term TRADE overbought).
If there was a spot to play for a short-term reversal, we think this is it…
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