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Guest Speaker Call: OUTLOOK FOR NATURAL GAS PRICES AND BASIS

Guest Speaker Call: OUTLOOK FOR NATURAL GAS PRICES AND BASIS - Marketing Image

 

On Wednesday, February 18th at 11:00 a.m. EST Hedgeye’s Macro and Energy teams will host a guest speaker call on US natural gas fundamentals with Keith Barnett, Head of Fundamental Analysis at Asset Risk Management (ARM), which is an independent producer services company that provides solutions for more than ninety clients through financial hedging advisory, physical marketing, and midstream solutions.

Topics for Discussion

  • Rapid growth in US production driven primarily by emergence of Marcellus / Utica shale play has created basis price dislocations as infrastructure and demand re-calibrate to new supply / demand regional balances…
  • Demand growth along the US Gulf Coast [industrial, LNG exports, and pipe exports to Mexico] create a “battle zone” for basis differentials to re-balance in 2016-2020, with the Haynesville waiting in the wings…
  • British Columbia / Northern Alberta shale plays will look for a home, especially if BC LNG exports continue to be delayed and lower crude prices dampen oil sands (gas demand) development…
  • Lower crude prices will affect the supply side through reduced liquid-oriented gas, and the demand side by impacting petchem plant development, global LNG price arb, and Mexico project development…
  • And more…

A visual presentation will be included and circulated along with dial-in information prior to the call.

 

About Keith Barnett……Keith Barnett is Senior Vice President and Head of Fundamental Analysis at Asset Risk Management.  He has over 30 years of experience in the energy industry with leading companies like Chevron, Columbia Gas Transmission, American Electric Power, and Merrill Lynch Commodities. Keith held engineering, managerial and executive positions with those companies in the areas of production, drilling, offshore platform design, natural gas marketing, fuel procurement, trading and structuring analytics, corporate strategy and fundamental analysis of energy markets. He had significant participation in two National Petroleum Council studies; including leading the power demand team in the 2003 natural gas study and serving on the steering and report-writing committees. Keith was also the Natural Gas Task Force lead for the Edison Electric Institute for several years. He has testified before the Federal Energy Regulatory Commission and the Senate Sub-committee on Energy on natural gas and power matters. He is a frequent speaker on natural gas, power, and global energy markets. 

 

Prior to joining Asset Risk Management, Keith served as Director of Strategic Analysis for Merrill Lynch Commodities where he led the effort to create an integrated global point of view for energy commodities that could serve short term trading and longer-term investment horizons. He also worked most recently with Spring Rock Production, which is producing a state of the art natural gas and oil production forecast for the USA and Canada.  Keith has an engineering degree from Texas A&M University.

 

About Asset Risk Management……Headquartered in Houston (with offices in Chicago, Denver and Pittsburgh), Asset Risk Management (ARM) has been helping oil and gas producers make better hedging decisions since 2004. ARM represents more than 85 public and private companies and interacts with all major energy commodity counterparties. ARM’s value is realized not only in the development and implementation of dynamic strategies, but in the ongoing optimization of those strategies as warranted by market volatility, execution efficiencies, reporting and continual monitoring of technical and fundamental factors in the market with the client's best interests and specific objectives in mind.  Learn more: http://asset-risk.com/.


GLD: Removing Gold from Investing Ideas

Takeaway: We are removing Gold from Investing Ideas.

We are removing Gold from Investing ideas in the aftermath of reported Q4 U.S. macro data and a Fed meeting which was largely uneventful. Remember, we like Gold (which is quoted in U.S. dollars) against a declining dollar and a compressing yield curve.

GLD: Removing Gold from Investing Ideas - gl9

The truth is that the 10-year Treasury yield has ticked up to 2.0% from 1.65% at the end of January. The dollar is down 0.70%, but we believe the incremental FED reversion on an interest rate cut on the back of a Q4 GDP miss would have been more of a catalyst if this trade had legs.

 

Over the longer-term, we still think the dollar could strengthen against the Euro and Yen which would be bad for Gold by historical evidence.     


February 13, 2015

 

In today's edition of RTA Live, Hedgeye CEO Keith McCullough outlines the Reatl-Time Alerts positions as of 10:15AM, gives a crash course in volatility, and takes subscriber questions on the phone.


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Cartoon of the Day: Same Crap, Different Day

Cartoon of the Day: Same Crap, Different Day - Greece cartoon 02.12.2015

Greece remains an unmitigated hot mess.


Keith's Macro Notebook 2/13: USD | Oil | Europe

Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.


Elevating Some Shorts

We’ve been hesitant to add to our list of shorts due to the significant uptick in industry sales trends.  We have a long list of stocks we don’t like but, in this environment, timing is critical and we wanted to get past 4Q earnings prints given the easy comparisons.

 

However, after hearing from PNRA and CAKE, we feel it is prudent to short companies that we believe have broken business models.  It’s become evident that the improvement in sales trends will not be enough to mask the structural issues that some companies face.  In addition, labor costs are increasing across the industry and we believe CAKE made it very clear that this will be a significant headwind for the entire restaurant industry.

 

With that being said, we are adding PNRA, DFRG, CHUY, and NDLS to our Investment Ideas list as shorts.

 

Elevating Some Shorts - 1

 

PNRA: This may look like a reactive move but, given the release and subsequent earnings call, we still believe there is considerable downside to the name.  After testing Panera 2.0 for nearly two years, it’s unclear that this is the right strategic move for the company to make.  Importantly, they are not putting all of their resources behind the effort, as they’ve accelerated new unit openings over the same time.  The accelerated growth rate and accompanying inefficiency is adding pressure to the P&L.  We believe Panera will earn $6.00 at best in 2015 and not much more in 2016.

 

DFRG: Del Frisco’s found itself on our Short List for a stint in mid-2014 as we found street estimates to be far too aggressive and refused to credit the Grille as being a viable growth concept.  Since that time, it’s become increasingly clear to us that 1) Sullivan’s can’t grow 2) the Grille isn’t ready to grow (and may never be a viable growth vehicle) and 3) the Double Eagle Steakhouse can only grow at a rate of one restaurant per year.  Consensus is looking for 17% and 26% earnings growth in 2015 and 2016, respectively, after a flattish 2014.  There’s no way this happens – and hopefully the street will realize this sooner rather than later.  This stock could get cut in half this year and, for that, it’s found its way back onto the Short List.

 

Black Book: CLICK HERE 

 

CHUY: Akin to Del Frisco’s, Chuy’s spent some time on our Short List last year and is moving back to this familiar spot for 2015.  If you recall, Chuy’s scaled back expectations for new unit economics at the ICR conference in January, as it decreased AUV and cash-on-cash return targets for its restaurants (down from $4.2mm and 40%, respectively, to $3.75mm and 30%).  Coincidentally, this comes at a time when the company is attempting to grow outside of its core market.  Chuy’s classes of 2012-2014 stores in immature markets have been ~50% less profitable than those in its mature market, but management insists this is a short-term phenomenon and will be corrected by its backfilling strategy.

 

Chuy’s development strategy, in which it is targeting long-term annual restaurant growth of 20%, calls for 1) the identification and pursuit of development in major markets and 2) “backfilling” smaller existing markets to build brand awareness.  If you are long this stock, you are essentially betting that this expansion plan into new markets will go smoothly and that immature markets will mature well.  That’s not a bet we’re willing to make and the street’s estimates, particularly for 2016 seem unconscionably high.

 

Black Book: CLICK HERE

 

NDLS: While Noodles is an intriguing, proven concept with an experienced management team, its first full-year as a publicly traded company was one to forget.  Management’s 2014 guidance was miserably off-target and this year’s guidance is similarly unsettling.  In 2015, Noodle’s expects to deliver:

  • 12-14% unit growth
  • 2.5-4% same-store sales
  • ~25% earnings growth (consensus at 27%)

To be clear, the chances of this happening are slim-to-none.  Yes, industry sales are currently strong, but we’d be foolish to expect this trend to continue throughout all of 2015.  And, if our memory serves us correctly, the company is coming off a year in which it delivered 0% earnings growth.  For the street to assume the company will grow earnings 27% and 30% in 2015 and 2016, respectively, is disconcerting.  Trading at 56x an inflated forward earnings number, management has no room for error.  Since this is a relatively new name, we’ll have more details out on this call early next week.


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