Steiner: This Is The Single Biggest Risk Facing U.S. Stocks Over The Next Decade


During this brief excerpt from today's edition of The Macro Show, Hedgeye Financials Sector Head Josh Steiner goes deep into the weeds on the single biggest risk facing U.S. equities right now.

VIDEO | $YELP Best Idea SHORT Update

Hedgeye's Internet & Media Team hosted an update call to our SHORT Yelp (YELP) Best Idea. YELP's business model is unsustainable and is already breaking down. Further, a new major red flag has emerged, which we believe is what prompted YELP to shop itself. However, we don’t believe YELP will find a buyer.


We updated our bearish thesis and explained why we see an additional 35%+ downside from here.



  • Extreme Attrition Rate: Overwhelming majority of customers are churning off annually.
  • Insufficient TAM: is not the low-hanging fruit, it's a pipe dream.
  • New Major Red Flag: The story is going to turn much sooner, and get much uglier, than we initially expected
  • Is There a Buyer? Assessing the M&A landscape in terms of both ability and willingness of potential suitors

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




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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.

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Keith's Daily Trading Ranges [Unlocked] - Slide11
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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

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