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Retail Callouts (6/4): TGT, AMZN, KSS, UA, NKE

Takeaway: TGT says it will beat AMZN, easier said than done. The year of UA continues with Curry and Murray rolling.

TGT, AMZN, KSS - "Target Will Beat Amazon" Online



Takeaway: Pretty bold statement by TGT's head of E-Comm. Granted he joined the company in 2013 and was elevated to his current position in December of 2014, so he isn't responsible for the company's historically bad track record online (see chart below). We'd actually be concerned if he wasn't talking up his team's digital prowess. The company set ambitious DTC goals at its analyst day back in March, calling for 5 years of 40% growth. But we think it’s a little too early for TGT to throw down the gauntlet with AMZN whose online revenues are 17x that of TGT. TGT has the physical brick and mortar assets and a beefed up online presence which should help curb showrooming, but it'll be incredibly difficult for TGT to undercut AMZN especially when the retailer has no margin to protect.

Lastly, TGT needs to prove that it can grow its online business without cannibalizing its brick and mortar sales. Look no further than KSS to see how difficult this actually is (the company has comped negative in its stores in every quarter but one from 2012-2014 as e-comm grew at a 28% CAGR). Plus, for TGT that channel comes in at a gross margin 650bps below the in-store average.

Retail Callouts (6/4): TGT, AMZN, KSS, UA, NKE - 6 4 chart1



UA, NKE - The Year of UA Continues



Takeaway: The year of UA continues with MVP Steph Curry leading his team to the NBA finals to take on NKE's poster boy King James. On the tennis court -- Andy Murray is in the semi-finals at the French Open (dressed head to toe in UA, but still wearing Adi kicks). Plus Tom Brady and Jordan Spieth had big wins at the Super Bowl and The Masters, respectively. UA has changed its endorsement tune a bit over the past few years going after more established talent, but that's been expensive for UA. Endorsements as a percent of sales have climbed ~400bps over the past 2yrs with the top line growing at an average of 30%. If there’s any real takeaway here it’s that as UA grows and succeeds in its own right, it is competing increasingly against the big boys (NKE, Adidas, Reebok, Puma) for marketable talent. It has a great advantage in that the brand is so hot, authentic and relevant. But those factors do not trump the economics associated with a higher ante-chip for sponsorship deals. We can see what’s coming on the cost side, now we just need the revenue to follow. It’ll probably come. But anyone looking for margins to go up might be in for a surprise.





AMZN - Amazon offers free shipping for light items



WMT - Walmart renews commitment to associates, makes ‘significant’ change to name badges



Authentic Brands Group Signs Partnership Deal with Global Brands Group for Jones New York Brand



Zara USA Faces $40M Discrimination Lawsuit



H&M to Open First Indian Store in New Delhi



Neiman Marcus to be shoppable on Pinterest





Takeaway: Research Topic: Who has the most to lose in an increasingly imbalanced supply demand environment over the next two years?

We will host a conference call on Friday, June 5 at 1PM ET to discuss the latest Macau data, our outlook on the market and the stocks and the presentation of a new, original research topic.




LVS, WYNN, MGM, MPEL, 0027.HK, 1128.HK, 1928.HK, 2282.HK, 6883.HK, and 0880.HK.




  • Details behind May GGR 
  • Discussion of base mass trends
  • The impact of Mass re-classifications
  • Revised 2015 monthly market projections
  • Hedgeye company EBITDA estimates vs the Street (LVS, WYNN, MGM, MPEL, and Galaxy Entertainment) 
  • Who has the most to lose in the increasingly imbalanced supply demand environment over the next two years? 



Attendance on this call is limited. Ping  for more information.



Keith's Daily Trading Ranges [Unlocked]

This is a complimentary look at today's Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers weekday mornings by CEO Keith McCullough. Click here to subscribe.

Keith's Daily Trading Ranges [Unlocked] - Slide1


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Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%

Short CHK | New Best Idea | Thesis and Call Invite

Thesis Overview


In this new era of low hydrocarbon prices, North American E&Ps can no longer pursue reserve and production growth at any cost.  We believe that equity investors have, and will continue to, shift their primary preference away from growth, and to profitability: full-cycle economics, returns on invested capital, and free cash flow.


We are adding Short Chesapeake Energy Corp. (CHK) to our Best Ideas list with a fair value range of $3 - $7/share based on an Investor Recycle Ratio of 1.5x at above-current-strip commodity prices.  It is possible that CHK could become severely distressed over a 2 – 4 year time frame, calling into question any equity value at all, should commodity prices remain low for long.  At the current price of $13.50/share, we believe that CHK is pricing in ~$90 WTI and ~$4.00 Henry Hub.  CHK equity investors are paying $1.90 per proved Mcfe for a company that only generates $1.60 of undiscounted EBITDA per Mcfe produced (at $65 WTI and $3.25 Henry Hub).


In our view, the market is mispricing CHK’s move to one of the highest-cost, large-cap E&Ps in North America, largely due to its massive and growing midstream expenses, a situation that worsens in the years ahead.  These iron-clad, multi-decade commitments make CHK a highly-unlikely takeout candidate, and may also make asset sales difficult.  We also believe that the market is underappreciating CHK’s leverage due to its $2.9B cash balance and $1B realized hedge gain in 2015; by our model CHK will burn ~$1.5B of cash each year for the foreseeable future, and net debt / EBITDA will be ~5.0x at YE16.


CHK is no longer growing production and its economic earnings / free cash flow are sharply negative; in 2016 we expect CHK to lose ~$1.2B ($1.85/share) at current strip prices, before minimum volume commitment payments.  We estimate that CHK needs ~$70 WTI and ~$4.00 Henry Hub just to sustain production and be cash flow neutral.  In short, unless commodity prices increase meaningfully from current levels, the long-term outlook for CHK is dire




We will publish our analysis supporting our short CHK thesis in a comprehensive slide deck on Thursday, June 11th.  We will host a conference call that day at 1pm EST to walk through the key slides and field questions.  The slide deck and dial-in information will be sent to all current subscribers next Thursday morning.  The slides and call will explore:


  • CHK’s full-cycle cost structure with an emphasis on its midstream expenses and price differentials;
  • A deep-dive into the CHK / ACMP gas gathering agreements (it’s not the minimum volume commitments that really hurt!);
  • Comparative analysis of CHK’s full-cycle economics relative to peers (E&P investing is often a relative game);
  • Valuation analysis and commodity price sensitivities.
  • Catalysts, risks, sentiment
  • Sidebar: Should Williams Companies (WMB) be worried?


Kevin Kaiser

Managing Director

Epic 3-Day Move

Client Talking Points


We think ECB President Mario Draghi made his 1st big mistake yesterday in classifying economic growth the way he did (sequentially most European growth data has been slowing) and basically saying #deflation isn’t a risk anymore. The German DAX is down -1.5% this morning and down -3.1% in the last month.


German Yields have almost doubled (not a typo) in the last 3 days – that’s normal! Swiss Yields have gone from negative to positive +0.04% and all this matters if only because markets weren’t ready for it. Probably the best buying opportunity in long-term U.S. Treasuries in a year, especially if the jobs report is bad tomorrow (35-40 basis points of daily downside in the UST 10YR). 


Blue Horseshoe “Golden Sun Securities” under siege as the sketchy-ness of it all ramps. The Shanghai Composite Index dropped 5% intraday, then experienced a straight up ramp into the close that put it +0.8% on the day = +144% in the last year.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

We see stability in regional gaming revenues over the next several months providing some much needed earnings visibility. PENN maintains the best new unit growth story in domestic gaming with the opening of the Plainridge casino in Massachusetts in June and the Jamul casino in Q2 2016. Both properties should well exceed current Street estimates for win per slot and EBITDA. PENN has a proven track record as the best regional casino operator and recently proved its prowess at successfully opening racinos (casinos at racetracks) with estimate beating Dayton and Mahoning commencing slot operations last year.


Housing went 3 for 3 as the Trinity of Fundamental Data Points released in the latest week continued to reflect accelerating rates of improvement across both the New and Existing markets. New Home Sales in April rose +6.8% month-over-month to +517K.  More notably, sales were up a remarkable 26% on a year-over-year basis as NHS re-converged back to the trend in New Home construction. Pending Home Sales rose +3.4% sequentially in April, accelerating to +14% year-over-year with the Index making a new 101-month high.  Pending Home Sales represent signed contract activity and are a historically strong lead indicator of Existing Home Sales.  The MBA’s weekly Mortgage Purchase Application Index re-captured the 200-level, rising +1.2% week-over-week and accelerating +250bps sequentially to +13.1% year-over-year.  


We believe the U.S. economy is past peak in rate-of-change terms and sliding down the slope to an eventual cliff (i.e. recession). That’s our call and we’re sticking to it. Friday’s negative revision takes our full-year estimate for real GDP growth down to +2% (from +2.3% prior). Both the Fed and Street are up at +2.5%, both of which continue to careen down from perpetual expectations of rainbows-and-puppy dogs (i.e. 3-plus percent growth) earlier this year. We reiterate our call to be long of long-duration in its many forms:  TLT, VNQ, EDV, and GLD (gold has historically performed well in down-dollar and down-interest rate environments and we think the June 17th FOMC statement has a high probability of being dovish and dollar-bearish).

Three for the Road


We've got an Idea Vetting Book on $RL coming down the pike on Mon to drill down the battleground issues.



The empires of the future are empires of the mind.

Winston Churchill


MBA Purchase Activity was mixed as demand declined -3.0% sequentially but accelerated from +13.1% to +13.9% on a year-over-year basis.  


The Macro Show - CLICK HERE to watch today's edition at 8:30am ET.




  • June 4: CCL special press announcement in NYC


G13.SI- Genting Singapore bought back 136,500 shares at 90.5 Singapore cents each on Tuesday and another 2 million shares Wednesday at 91 Singapore cents per share. 


RCL - The upcoming dry docks for Azamara Club Cruise's two ships, Journey and Quest, will result in significant changes to the two upscale vessels. "From bow to stern, and stern to bow, there is no area on the line's ships that will be untouched," Azamara CEO Larry Pimentel said.


The refurbishment of the 15-year-old ships - both former R-class vessels, so named because they were acquired from Renaissance Cruises - will take place in 2016.  Azamara Journey will enter dry dock in January 2016 in the Bahamas and Azamara Quest will receive the changes during an April 2016 dry dock in Singapore.

Takeaway: Much needed makeover for Azamara.




Junket smoking area request rejected - Secretary for Economy and Finance, Lionel Leong, dismissed requests from Macau's junket association for smoking rooms in VIP gaming areas. This rejection comes shortly after secretary Alexis Tam also asserted his position against the request in a meeting with the group three days ago.


MGM China CEO Grant Bowie also called for casinos to be able to retain smoking lounges. While the company supports the ban, the customers’ interests also have to be taken into account, he was cited as saying by TDM Macau. “We clearly support the initiatives of the government in terms of protecting the interest of the staff, and therefore, have supported the banning of smoking on the gaming floor but we would also suggest that we should allow people to smoke in smoking lounges,” he said.


Takeaway: Full smoking ban is an inevitability 


China river tragedy - Major travel agencies, when contacted, said there have been no trip cancellations yet as of Tuesday. 


"It is an exceptional case," said Zhou Yingfeng, product manager at China Youth Travel Service Shanghai. Zhou said the travel agency had no customers on the boat and it has not yet received any notices of cruise cancellations on the Yangtze River after the accident.


Takeaway: Damage control by the river cruises following incident. Given media coverage, the sentiment could be negative towards any cruising in China. 


Yellow Brick Road Casino - had a grand opening on June 2nd. The casino near Schenectady, NY has 430 slots. 


Hedgeye Macro Team remains negative on Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway:  European pricing has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely in 2015.

Early Look

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