Takeaway: We are removing Owens Corning from Investing Ideas.
Please be advised that we are removing Owens Corning (OC) from Investing Ideas today.
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"The reason being is that our #HousingAccelerating call is starting to get priced into expectations," according to Hedgeye CEO Keith McCullough. "Owens Corning has had another nice move off its lows and we’d rather add it back to Investing Ideas on the next pullback."
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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CALL TO ACTION
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:
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.
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