From Bear to Bull: Why McDonald's Is Going North of $100 (And Won't Look Back) | $MCD


In this brief excerpt from The Macro Show this morning, Hedgeye Restaurants Sector Head Howard Penney explains why he's gone from bearish to bullish on McDonald’s (MCD) and why shares have meaningful upside and limited downside from here.


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CCL’s earnings release and conference call went as planned.  A big Q2 beat but little change to 2015 yield or EPS guidance.  With the stock up today, it appears that investors view the guidance as conservative, once again.


We’ll take the other side to this – guidance looks reasonable to us, given the company’s struggles in Europe.  CCL, along with RCL, tends to trade on the assumption that Street estimates are too low.  If we’re right, in-line performance won’t be good enough and stock upside in both names should be limited.


Please see our detailed note:

Retail Callouts (6/24): WMT Squeezing Vendors Again, KATE Adds Depth To Org. Chart

Takeaway: Wal-Mart Squeezed Vendors In The Spring, Now It's Doing It Again. KATE adds depth to org. chart.

WMT - Wal-Mart Squeezed Vendors In The Spring. Now It's Doing It Again.



1) It’s been almost 3 months since a story hit about WMT squeezing its vendors for concessions. But this year, unlike prior years it is to pay employees instead of customers (or shareholders by way of better margins).

2)  We've seen a stark contrast in risk management processes from companies who operate in this space. When 3 of the top 6 private sector employers in the country (WMT, MCD, and TGT) announce that all employees will receive a 25% premium to the government mandated minimum wage it’s impossible to think that it won't have ripple effects across the industry. While many have talked down the potential hit, the well run companies are actively managing the business in a way to offset the rising employment cost pressures. That's exactly what this move by WMT is all about.

3) Unfortunately for WMT, the higher wage rate isn't resulting in a meaningfully better shopping experience -- or if it is, we're just not seeing it in WMT's comp. It makes sense that the retailer would take a second whack at pricing pressure.

4) All in we're looking at a 4%-8% annualized EPS hit at each of the following retailers if we extrapolate the estimated cost per employee at WMT to the relevant number of employees in each retailers workforce.  

Retail Callouts (6/24): WMT Squeezing Vendors Again, KATE Adds Depth To Org. Chart - chart1 6 24 15

5) The reason why we haven’t seen elevated compensation expense pressure yet is because we’re now at a seasonal lull for retail. By mid-July, retailers will start beefing up temporary workforce ranks for ‘Back to School’ and then they kick it up a notch again in October as they prepare for Holiday. With the exception of grocery retailers, they ALL follow that pattern. That’s precisely when we’ll see the biggest wage pressure.


KATE - Kate Spade & Company Appoints Emilia Fabricant Executive Vice President, President Of North America



KATE announced the addition of a President of North America to its ranks yesterday. This makes perfect sense from where we sit. The KSNY brand should hit the $1bn mark in NA by years end. And this will take some of the executional responsibility off the plates of the C-Suite. In fact, we're surprised that KATE has not added more people at the top ranks sooner. KATE now has leadership in place for both its North American and International segments with the announced hiring of Emilia Fabricant yesterday. We don't know Fabricant personally, and parts of her resume are kind of a head scratcher to us (bebe, Aeropostale, Charlotte Ruse). But Leavitt has made good HR decisions to date...and we'll give him the benefit of the doubt on this one while we vet her on our own. Also, this is not the kind of role (ie Creative) where a person can walk in the door and do damage on their first day on the job.


All in, we still like the KATE story a lot, and think it is egregiously undervalued here relative to the underlying earnings power and growth potential.




SPLS, ODP - Staples merger unlikely after judge blocks Sysco/US Foods union



JWN - Advantage Sales & Marketing LLC CEO Tanya Domier Joins Nordstrom Board Of Directors



CVS, TGT - CVS Health has a new marketing chief



Li & Fung Joins With Chinese Retailers for Joint Venture



Meijer opens first Wisconsin stores




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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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2 New Black Books In July: RH, WSM, PIR, BBBY, KSS, JCP, TGT, WMT, M, ETH, LZB

Takeaway: 1) RH – Roadmap to $300. 2) Broader ‘Launch’ of the Home Furnishings space – will also present results of our Consumer Survey on the space.

A quick note on two Black Books we just put on the calendar in July.


July 9th

RH: Roadmap to $300

We’ll be releasing a detailed RH Black Book on July 9th with many new thoughts, ideas and analysis that we have not yet articulated, and ultimately will show RH’s Roadmap to a $300 stock. This will include a full real estate analysis (including productivity and profitability estimates for new stores), quantifying the potential for RH Modern, identifying additional growth concepts/ideas, and detailing RH’s sourcing and vendor networks – which are both critical to its growth, margin structure, and capital intensity. Importantly, we’re also going to stress test our Bull case to see where we could be wrong.


July 29th

Home Furnishings Launch/Consumer Survey: WSM, W, PIR, BBBY, ETH, LZB

We’re going to leverage all the work we’ve done on RH and will ’Launch’ more broadly on the Home Furnishings Space.  Relevant tickers (aside from RH) include WSM, W, PIR, BBBY, ETH and LZB – not to mention KSS, JCP, TGT, WMT and M. We think there are some really interesting Long and Short ideas in what is an increasingly bifurcating space. In addition to detail on all these companies and the industry, this Black Book will also include the results of our Consumer Survey on all the different brands/retailers in the Home Furnishings space, and will look at things like price point thresholds for shopping online vs. in-store, spending capacity and shopping patterns for different aesthetics (i.e. traditional vs. contemporary/modern).


We also have other ‘sub-sector’ studies in the works, like we’ve already done for Athletic, Department Stores and now Home Furnishings. Specifically those include Dollar Stores, Home Improvement, and e-Commerce.


CHART OF THE DAY: We Are Still Bullish on Housing

Editor's Note: This is a brief excerpt and chart from today's morning note written by Hedgeye CEO Keith McCullough. Click here to learn how to subscribe. 


...But, but… “how can you be bullish on Housing and not the US economy?” That’s easy. Because I am. So tell your friends to stop whining about it and buy ITB (Housing) vs short Industrials and Transports (XLI and ITB).


Housing is early-to-mid-cycle, whereas Industrials are classic #LateCycle... 


CHART OF THE DAY: We Are Still Bullish on Housing - 06.24.15 chart

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