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The Euro, Oil and China

Client Talking Points

EURO

Pretty straightforward trade here with another socialist compromise equating to Euro +1% vs. USD and all of the correlation trades to USD reflating. The key here isn’t being reactive, its making good decisions at the low and high end of the range which is now 1.09-1.12 EUR/USD. In other words since we have no European shorts on, we’ll probably start making sales at EUR/USD $1.12 (they can’t print growth). 

OIL

Euro Up equals Dollar Down equals Commodities/Oil Up, but the risk ranges here have widened, big time (leading indicator of continued volatility) – the risk range for WTI is now $49.62-55.29 and we see no reason why you can’t test the top-end of that range if Janet Yellen is dovish in here Cleveland speech.

CHINA

Last, but not least, big night for the non-halted (> 1400 stocks still halted) part of the market – Shanghai Comp +4.5% on the session but still in crash mode, -24.5% month-over-month. We’re not smart enough to dip a toe in this market yet (plus we wouldn’t want it chopped off by a Chinese dude if we then made a sale).

 

**The Macro Show - CLICK HERE to watch today's edition at 8:30AM ET with CEO Keith McCullough and Macro Analyst Ben Ryan.

Asset Allocation

CASH 52% US EQUITIES 4%
INTL EQUITIES 8% COMMODITIES 2%
FIXED INCOME 28% INTL CURRENCIES 6%

Top Long Ideas

Company Ticker Sector Duration
KATE

We’re all-in on Kate Spade at current levels. The Hedgeye Retail team believes that comps are accelerating into the double digits in 2H, and we think that KATE’s margin guidance for this year will prove conservative. Ultimately, we think that numbers this year are 10% too low – a delta that widens to 20%+ next year, and to 50%+ by 2018 when we think KATE has $2.50 to $3.00 in earnings power. Using decelerating multiples as growth accelerates and the P&L matures gets us 50%+ upside in a year and a 2-3-bagger by 2018.

PENN

Our Gaming, Lodging and Leisure team reiterates its high-conviction thesis on Penn National Gaming. PENN remains one of our favorite names on the long side. It maintains the best new unit growth story in domestic gaming. PENN's property in Massachusetts has had an excellent start. We expect June to be as strong as May, setting up Q2 to be estimate-beating quarter for PENN.

TLT

The Hedgeye Growth, Inflation, Policy (GIP) model is signaling a move into QUAD 3 for the second half of 2015. This is a set-up for the domestic economy where growth is slowing and inflation is accelerating. We reiterate our intermediate to long-term bullish bias on long-duration Fixed Income and gold. Our back-testing results cast a favorable outlook for Long-Term Treasuries, REITs, and Gold with a favorable set-up as seen in the first three charts below. When growth is slowing (QUAD 3 and QUAD 4), long term rates tend to move lower.  The logic is simple:

  • #GrowthSlowing: As growth slows, a revision in forward-looking growth expectations manifest in lower yields
  • #InflationAccelerating: Commodity prices have made a significant move off of the 2015 lows as seen in the last chart below, and we expect the follow-through to play out in Q3 inflation readings. CPI readings track the commodity price sample used in chart #4 below very closely and CPI compares are easy in 2H 2015 vs. more difficult GDP comps (QUAD 3)       

Three for the Road

TWEET OF THE DAY

McCullough: #Draghi Is Gearing Up For More 'Cowbell'

https://app.hedgeye.com/insights/45133-mccullough-draghi-is-gearing-up-for-more-cowbell

via @KeithMcCullough on @FoxBusiness

@Hedgeye

QUOTE OF THE DAY

The greatest of faults, I should say, is to be conscious of none.

Thomas Carlyle

STAT OF THE DAY

As of 2013, ~41% of Households making < $45K paid more than 50% of income towards housing costs while over 70% of households paid more than 30% of income towards rent.  


July 10, 2015

July 10, 2015 - Slide1

 

BULLISH TRENDS

July 10, 2015 - Slide2

July 10, 2015 - Slide3

 

BEARISH TRENDS

July 10, 2015 - Slide4

July 10, 2015 - Slide5 

July 10, 2015 - Slide6

July 10, 2015 - Slide7

July 10, 2015 - Slide8

July 10, 2015 - Slide9

July 10, 2015 - Slide10

July 10, 2015 - Slide11
July 10, 2015 - Slide12

July 10, 2015 - Slide13

 


McCullough: Draghi Is Gearing Up For More 'Cowbell'

Hedgeye Risk Management CEO Keith McCullough offers his take on what's going on in Europe, China and Greece with Fox Business anchor Maria Bartiromo and FBN’s Charles Payne and Cheryl Casone.


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.


JUST CHARTS | CMG

We would like to introduce a note that we will be releasing periodically called, Just Charts. The purpose of this will be to revisit our restaurant dashboard and analyze our Long and Short names as well as other notable names in the industry.

 

There won’t always be a definitive call made, but we will give you our perspective on current trends and expectations.

 

That being said, the first name we would like to revisit is Chipotle (CMG).  CMG remains on the Hedgeye Restaurants ideas list as a LONG.

 

CMG has been under significant selling recently as we approach the 2H15, when the company will be up against very challenging comparisons.  Despite these near-term challenges we like CMG for the tail duration.  How to trade this stock going into the 2Q print is difficult to call.  I suspect that a “better than bad” same-store sales print could cause some short covering.      

 

JUST CHARTS | CMG - CHART 1

 

PRICE PERFORMANCE

 

CMG shares are down 9.6% year-to-date versus up 0.3% for the S&P 500.  The short-term sales comparisons are a cyclical and not secular problem for the company.  One turn on the EV/NTM EBITDA multiple suggest 5.7% upside/downside in the name. 

 

JUST CHARTS | CMG - CHART 2

 

FINANCIALS

 

SAME-STORE SALES

CMG is facing some very difficult comparisons over the next three quarters and that has the street nervous.  Will CMG post declining same-store sales over the next three quarters?  The 2Q15 print will set the tone for the balance of the year.  The consensus estimate of 6% for 2Q15 suggests only a slight slowdown in two-year trends from 11.9% in 1Q15 to 11.7% in 2Q15E.  I suspect that 6% might be an aggressive estimate for 2Q15.     

 

JUST CHARTS | CMG - CHART 3

 

MARGIN TRENDS

 

RESTAURANT LEVEL MARGINS

Restaurant level margins are expected to be 28.04% in 2Q15, up 74 bps year-over year.  The company should benefit from lower food, labor and other costs in the quarter. The trend in margins supports our LONG thesis.

 

JUST CHARTS | CMG - CHART 4

 

EBIT MARGIN

Operating margins will also improve nicely in 2Q15.  G&A should come down by 88bps to help push operating margins up 18.8%, up 164bps year-over year.  There continues to be significant leverage in the business model.

 

JUST CHARTS | CMG - CHART 5

 

SENTIMENT AND VALUATION

 

JUST CHARTS | CMG - Chart 6 replace 

 

EV / NTM EBITDA

Trading at 16.6x EV/NTM EBITDA the stock is not cheap, but it’s not aggressively overvalued given the opportunities for the company. Yes, CMG is trading at a premium to its peer set, but deservingly so, as we said previously, it will grow into the valuation.

 

JUST CHARTS | CMG - CHART 7

 

JUST CHARTS | CMG - CHART 8

 

SHORT INTEREST

CMG’s short interest is low hovering right around 4-4.5% of the float.  While it has moved up in 2015, there is not a big negative bet against this company.      

 

JUST CHARTS | CMG - CHART 9

 

SELL-SIDE SENTIMENT

With 60% of the analysts having a buy on the stock and no sell ratings, there is also a positive bias to the name.  Given the financial performance of the company for the past two years, the bullish bias appears to be justified. 

 

JUST CHARTS | CMG - CHART 10

 

HEDGEYE RESTAURANTS IDEA LIST

 

JUST CHARTS | CMG - CHART 11

 

 


MUST-SEE MACRO CHART: Why the Next Move > 300K Jobless Claims Is a (Huge) Problem

Our macro team has spent considerable time highlighting why staying < 300,000 won’t happen forever. Unless, of course, it’s different this time.

 

Employment is #LateCycle. Period.

 

Click to enlarge

MUST-SEE MACRO CHART: Why the Next Move > 300K Jobless Claims Is a (Huge) Problem - z mack

 

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investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

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