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Keith's Macro Notebook 3/18: Oil | VIX | Russell 2000

 

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


PENN: Removing Penn National Gaming from Investing Ideas

Takeaway: We are removing PENN from Investing Ideas.

Please note that we are removing Penn National Gaming (PENN) from Investing Ideas today. PENN was added on 2/24/15 and is up 1.4% versus a 2.2% decline in the S&P 500.

 

According to Hedgeye Gaming, Lodging & Leisure Sector Head Todd Jordan: 

 

"We continue to like PENN over the intermediate and long term but negative same store revs in March could pressure regional gaming stocks."

 

In addition: 

  • We’re forecasting a return to negative same store revenue in the regional gaming markets following 3 straight months of gains.  A monthly downturn would counter the recent regional gaming narrative and could hurt sentiment and the stocks: BYD, PENN, PNK, and GLPI
  • We are removing PENN even though the company’s return to growth in beginning in 2H 2015 should drive a higher stock price.  Our concern rests with the potential reversal in sentiment as March gaming revenues are released by the states in early April.
  • Early weekly revenue read from a few markets is mixed as a much weaker Pennsylvania was offset by a stronger Missouri. 

PENN: Removing Penn National Gaming from Investing Ideas - zj

 


GTECH/IGT MARCH 2015 INVESTOR DAY NOTES

Presentation HERE

 

 

CONF CALL

  • DoubleDown: highest rate of monetization per social user
  • Will continue to invest in R&D (IGT: ~$200m, GTECH: ~$100m)
  • Growing market share in instant ticket printing: currently 12%
  • Partnered with MGM with interactive sports-betting and gaming opportunity
  • Interactive business: skewed towards B2C, compared with B2B
  • Atronic/Spielo:  in the early years, had negative EBITDA. Big turnaround.
  • Consumers want content across different platforms
  • iLottery UK: 70% of offering
  • Combined company LTM ending Dec 2014
    • $6.048bn revs
    • $2.039 BN EBITDA
  • 2015/2016 Capex: will not include Lotto.  When it is stable in 2017, they will include it. 
  • Synergy chart - opportunities in SG&A

GTECH/IGT MARCH 2015 INVESTOR DAY NOTES - AB

  • Revenue synergies of $50m is 'low hanging fruit'
  • Want IGT to have a presence in Italy
  • Net debt/adjusted EBITDA: <4x 
  • Dividend policy: transition to quarterly dividends.  Advise Board to issue stable dividend in dollars, in-line with historical GTECH #s
  • Sustained pressure on IGT.  
  • Expect some headwinds from currency as they move euros to dollars.
  • Combined 2015 guidance no later than Q2 15 results
  • Maintenance capex historically €170-€220 million for GTECH 
  • IGT capex historically $60-$100 million 
  • 2015 / 2016 / 2017 also impacted by Italian Lotto renewal (€350m / €250m / remainder)

Q & A

  • Being outbid in Turkey - GTECH thinks their competitors were too aggressive. 
  • B2C:  sees opportunity to become lottery operator
  • $300m capex:  most of it will be gaming operations and a little bit of interactive. Lottery don't need much capex.
  • Will assess IGT's team and get the best talent

the macro show

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RTA Live: March 18, 2015

Hedgeye CEO Keith McCullough breaks down the current Real-Time Alerts positions and answers viewer questions.

 


REPLAY | Fed Coverage Hosted By Hedgeye CEO Keith McCullough

 

VIEW THE REPLAY BELOW

Keith provided unobstructed, real-time commentary regarding the impact today’s FOMC decision and language have on markets with 10yr yields retesting 2% this morning, USD strength, oil crashing (WTI -21% YTD), and other key factors.

 

 

 



Oil Crashing

Client Talking Points

OIL

Never mind oils epic crash of 2014, now it’s crashing (again) in 2015 – with today’s #deflation of -2.9%, WTI Oil is now -21% for 2015 year-to-date and they’re going after Saudi stocks (-4.3% this morning); Greek stocks back in crash mode, -21% since FEB.

VIX

The VIX remains in what we’ve called a bullish phase transition since July of 2014 (see our #VolatilityAsymmetry Macro Themes deck); no matter what the Fed does today, we expect cross asset volatility to remain bullish.

RUSSELL 2000

We’ve liked the IWM (iShares Russell 2000 ETF) but we don’t like chasing things at their all-time closing highs (the Russell 2000 hit that again yesterday at 1242) – ahead of this Fed circus of mismanaged expectations, we say book some profits, raise cash.

Asset Allocation

CASH 46% US EQUITIES 12%
INTL EQUITIES 11% COMMODITIES 0%
FIXED INCOME 18% INTL CURRENCIES 13%

Top Long Ideas

Company Ticker Sector Duration
ITB

We’ve liked the IWM (iShares Russell 2000 ETF) but we don’t like chasing things at their all-time closing highs (the Russell 2000 hit that again yesterday at 1242) – ahead of this Fed circus of mismanaged expectations, we say book some profits, raise cash.

PENN

Penn National Gaming is the best way to play improving domestic regional gaming trends due to its superior operational management and unit growth opportunities. Catalysts include positive estimate revisions, the opening of the first Massachusetts casino in June, and industry leading earnings growth in 2015 and 2016.

TLT

Low-volatility Long Bonds (TLT) have plenty of room to run. Late-Cycle Economic Indicators are still deteriorating on a TRENDING Basis (Manufacturing, CapEX, inflation) while consumption driven numbers have improved. Inflation readings for January are #SLOWING. We saw deceleration in CPI year-over-year at +0.8% vs. +1.3% prior and month-over-month at -0.4% vs. -0.3% prior. Growth is still #SLOWING with Real GDP growth decelerating at -20 basis points to +2.5% year-over-year for Q4 2014.The GDP deflator decelerated -40 basis points to +1.2% year-over-year.

Three for the Road

TWEET OF THE DAY

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@KeithMcCullough

QUOTE OF THE DAY

They sleep, we grind.

-Erykah Badu

STAT OF THE DAY

Foot Locker estimates that 90% of their online traffic will come from phone/tablet in 2018. 


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