Retail Callouts (1/5): Idea List, Retail Trading Focus, TGT, AMZN, NKE

Takeaway: Going into preannouncement season, XRT at all-time high, peak multiple, trough short int, trough vol (conviction). Be careful what you own.

HEDGEYE RETAIL IDEA LIST

 

Retail Callouts (1/5): Idea List, Retail Trading Focus, TGT, AMZN, NKE - 1 5 chart1

The only change this week is that we removed AMZN from our Short Bench. We're in the middle of our research process for our e-commerce Black Book, which will be released on Thursday January 22. We'll likely come out with a more conclusive opinion on AMZN -- which could just as easily be positive as negative. We'd rather take it off our list now, and then add back in the appropriate place when our research is done. 

 

 

RETAIL INDUSTRY

 

This chart of the XRT is so telling to us.

  1. Price is at all time high.
  2. Earnings and margins are all time high.
  3. Multiple is at all time high.
  4. Short interest (the white line in the chart below) is at 5-year low – in line w levels 9 months before the ’08 meltdown. (We know it's risky to gauge sentiment based on short interest in an ETF, but the sequential slowdown is notable).
  5. Volume is near all-time lows (volume = conviction. i.e. conviction in owning the group has never been worse).

 

We question how people could objectively  own names like KSS, M, FL, TGT, GPS, etc…etc…etc… with this kind of setup?

Retail Callouts (1/5): Idea List, Retail Trading Focus, TGT, AMZN, NKE - 1 5 chart2a

Source: Factset 

 

COMPANY HIGHLIGHTS

 

TGT - Canada Exit Rumors

 

Takeaway: A lot of media outlets have picked up the idea that Cornell is set to shut down Canada in 2015. We have a hard time seeing that as an option so early into the new CEO's tenure. Even so, we'd argue that Canada speculation was the primary catalyst behind the run from $58 to $75.  15 months ago TGT execs. laid out the 2017 financial targets which called for Canada to generate $6bil in revenue and $0.80 in earnings power. We're a long way from that now. The bigger question for us is, "what led Target into Canada in the first place?" The answer isn't that business prospects in the US were just so dang good. We get the easy comp argument through 2Q because of the 2013 data breach, but TGT is one of the most expensive names in retail relative to its underlying growth. Based on our 2016 earnings number of $3.75, TGT is trading at 17x earnings (ex. Canada) and 20x earnings of the combined entity. We have a hard time reconciling that type of valuation.

 

 

OTHER NEWS

 

DKS, BBBY, GME, PIR - Pier 1, Dick’s Are Among Retail LBO Picks: Real M&A

(http://www.bloomberg.com/news/2015-01-05/pier-1-dick-s-are-among-retail-lbo-picks-real-m-a.html)

 

AMZN - Amazon Sellers Sold Record-Setting More Than 2 Billion Items Worldwide in 2014

(http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=2002794)

 

Japan Retailers See Mixed Dec. Sales

(http://www.wwd.com/business-news/financial/japan-retailers-see-mixed-dec-sales-8088871?module=Business-latest)

 

WTSL - Wet Seal Receives Default Notice From Creditor

(http://www.bloomberg.com/news/2015-01-02/wet-seal-says-it-received-default-notice-on-27-million-in-notes.html)

 

NKE - Nike Golf Patent: Recycled Golf Ball

(http://www.bloomberg.com/news/2015-01-02/nike-playboy-activision-gitanjali-gems-intellectual-property.html?cmpid=yhoo)

 

 


7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more