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  • Starts off discussing the Cape Verde investment, and calls it his first step in diversifying outside of Macau. 

  • Published a profit warning a week ago, and briefly cited the weakening gaming market in Macau

  • They feel comfortable with their positioning in Macau particularly within the mass market segment 

Cape Verde Comments

  • Cape Verde is also a former Portuguese colony

  • They believe Cape Verde is well positioned for tourism expansion from markets like Europe, South Africa, Western Africa and South America

  • Main Airport is 10 mins from their property site 

  • Site will be in Praia the capital city, on the main island of Santiago

  • They view it is as the next Macau. Say the govt. is into new alternatives for growth. 

  • They'd like to bring about the same themes as Macau

  • They are aiming for completion of the integrated resort in 3 years 

  • They received the Island's 2nd license for land based gaming. HLT has the first license. 

  • Macau Legend now holds the exclusive license for online gambling/gaming and betting

  • They look to continue to build off the Portuguese culture and go where there are competitive tax rates, growing and established tourism, but look to help other countries grow and prosper along the way

  • Capital budget for the project 250 million euros, and will use the same contractors as they use in Macau. Reason being is they want to minimize execution risk

  • Property will include beach access and will also have island access.  

  • 150 hotel rooms, and additional Boutique hotel will be on the property

  • Cape Verde room rates and occupancy were cited as strong 

  • They were awarded two land leases, one for beach and for the island, both are 75 year long leases and offer favorable terms (which were not disclosed).

  • Taxes for their land based casino operations will be as follows

  • 10% on GGR for Mass

  • 7.5% on GGR for VIP 

  • There is no limit on the amount of tables or slots they can operate 
  • Cape Verde government is using Macau gaming laws as a basis for their laws

Comments on Cape Verde as Country

  • Noted as a safe and stable place 

  • Relatively developed and growing 

  • They have been enjoying a serious ramp in visitation, mostly from Europe and Africa

  • Flight times to Europe 3-6 hours 

  • Flight times to Brazil 3 hours 

  • Lots of Chinese in the surrounding areas

  • Europeans do not need visas 

  • Macau citizens do not need visas

  • Chinese citizens can obtain visas, process cited as "very simple and fast"

  • The project will include shopping and attempt to mix in Asian culture 

  • They will be rolling out online betting and gaming site which will open prior to the land based casino

  • They have plenty of financing available and have been approached by many firms and local banks that want to underwrite the financing on the project

Q & A

  • Project will be on the island of Santiago, the main commercial island, with the most people and visitation. 
  • Cite that they will tap into tourism junket business in Europe as a big opportunity 
  • There are 4 intl airports on CV, and their property is next to the biggest one, which is currently getting an upgrade
  • Caribbean feel to the island, it's not like the Maldives or Fiji 
  • Chow focused on the idea the Santiago could be a good spot for the VIP market, citing that business people travel in and out. Wealthy from Africa and Europe. 
  • They are seeking first mover advantages, by being the first to offer a integrated resort experience. Islands close by and will offer great experience for guests for day trips
  • They expect customers from the UK, the Netherlands, Angola, South Africa, Western Africa, South America (short flights)
  • Why Cape Verde? Opportunity to generate a new market in this part of the world, and could compliment and draw European gamblers and specifically all the Chinese people who have immigrated to Europe. 
  • Chow saying that there is potential for GGR to bigger than European casino market. 
  • Basically, there is no comp in the area.
  • Tax advantages are a huge for the bottom line
  • Continued to cite that they feel there is a need for a casino 
  • Question on Market size? EBITDA? ROIC? 50 tables 150 slots/EGT's - "EBITDA margin can be better than Macau"
  • Would not give any forecasts on EBITDA
  • ROIC - something starting with "2" and has to beat Macau which they are confident that it will
  • How will they finance the project?  As of now, they will seek a bank loan, term loan financing + a mix of corporate level financing 
  • How should the hotel perform? A lot of the hotel rooms can be sold - both non gaming EBITDA has potential to be very strong 
  • Chow has a very close relationship with the CV govt. 
  • Question about the project prior to the full opening:  Online/sports betting component and exclusivity, a major a plus. But they will not operate a temporary casino, Chow doesn't want to hurt the brand name before official opening.
  • Chow cited huge opportunity in being a leader in online gambling and sports betting on the island and in the region. 
  • For construction - Phase 1 shore zone, Phase 2 island zone - both should be done at the same 3 year period.  
  • Angola very relevant, because of the influx of Chinese companies and Chinese people there. 
  • Synergies from Macau for the new project? Chow mentioned that marketing will create the network, and Chow's network is strong and will leverage that in the future to bring customers to the project. Operational synergies exist. Govt. connection, hotel oprations synergies from the Macau properties. 
  • Chow calls Cape Verde the new Caribbean, because it is untouched and offers the same qualities. 
  • Online gaming exclusivity is huge. anyone from a country with legalized online gaming can clear through them. They cite it as an opportunity for online gaming around the world. 
  • No guidance when the online gaming will begin, but will definitely be before the land based casino. They would like to use it as a marketing tool for the resort. 
  • How big of a portion should the online gaming be to EBITDA? No projections. Land based gaming contribution tends to be the biggest, then online gaming, then regular hotel operations. 
  • Question on their balance sheet being stretched, needing for additional funding for these new projects and expansions?
  • Chow: "Fisherman's Wharf needs no more financing or funding efforts, and the second hotel is approved, and will be building it as fast is the labor market permits."
  • CV project should be heavily sought after in terms of debt financing, and they expect to finance very competitively on any future projects. 
  • For Macau they will not be laying off any workers but will be relocating workers around their existing properties after closing some of their VIP tables. 
  • Cites China stock market crash as potential to further erode junkets earnings and the Macau gaming market in general
  • Smoking ban? Chow doesn't think the government will put full ban on smoking and sees room for the government and casino operators to make a deal. 




Takeaway: StreetAccount consensus estimates for Q2 net physician adds were just released and they look reasonable.



StreetAccount consensus estimates for Q2 net physician adds were just released and they look reasonable.  Relative to consensus, our estimate comes within a margin of error for athenaCollector and athenaClinicals, which are the most important products when gauging the health of the business.  We are ~500 lower for athenaCommunicator after adjusting our mix assumptions due to several quarters of coming in higher than actual results.  However, we don't think it will make a difference as our model is forecasting above consensus Sales and Non-GAAP EPS of $229.3 mill ($227.0 mill Consensus) and $0.30 ($0.25 Consensus), respectively.  Chart above above shows the build up and break down of how we arrived at the net physician count for the quarter.


We will get into the details of our process and provide a comprehensive review of our long thesis in a Best Idea Update Call tomorrow at 11:00 am ET.  As a reminder, the company will be reporting earnings after the close that day.


key metrics

  • athenaCollector
    • Consensus 1,697 vs HRM 1,642
  • athenaClinicals
    • Consensus 1,077 vs HRM 1,154
  • athenaCommunicator
    • Consensus 1,907 vs HRM 1,415


Please call or email with questions.


Thomas Tobin
Managing Director 



Andrew Freedman



Cartoon of the Day: Bull vs. Bear

Cartoon of the Day: Bull vs. Bear - Bull and bear extra cartoon

"It’s probably different this time," Hedgeye CEO Keith McCullough wrote in an Early Look earlier this week. "Post a 6yr equity ramp shouldn’t you pay 351x earnings for Netflix or chase QQQs? I’m hearing the charts 'look good.' They did in 2000 and 2007 too."


real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

P: Notes from WebIV Closing Arguments

Takeaway: We doubt anyone left thinking P had the upper hand yesterday, but what we learned is P is largely on its own, and SX is going for its throat


  1. ECONOMICS VS. LAW: Bulls vs. Bears: trying to prove that P has the better economic argument vs. considering the legal parameters of the Copyright Act that governs the WebIV proceeding.  During closing arguments yesterday, both SoundExhange (SX) and the Services (P included) each presented what could be viewed as compelling economic arguments depending on who you were rooting for. But the big difference is the legal arguments, with SX literally citing multiple passages from the Copyright Act stating that the copyright owner’s (the labels) rights takes precedent.  P’s only rebuttal here was that SX was being too literal, and asking the judges to operate outside of their mandated roles.
  2. P = ODD MAN OUT: The parties representing the “Services” are not all on the same side of the table. The NAB's priority is clearly on simulcast rates, which SX isn’t really challenging (NAB council made a point to call this out).  IHRT's core platform is terrestrial radio, and the focus of its WebIV filings are largely on simulcast as well.  Note that IHRT’s rate proposal is largely based on the iHeart-Warner deal, which we believe leverages IHRT's much larger terrestrial radio platform (link), which is outside the scope of WebIV.  However, the agreement touts the leverage terrestrial radio (by extension simulcast) has over the labels, which was probably IHRT's agenda.  We suspect all parties are tacitly horse trading; SX is yielding simulcast in exchange for less pushback from NAB/IHRT on webcasting, making P the odd man out.  
  3. LOSING THE KEY DEBATE: Does P have a basis to request lower ad-supported royalty rates (vs. subscription rates)? We've always contended that this debate has been both P’s weakest argument and where it has the most to lose.  P’s only basis is trying to use the Pandora-Merlin agreement as a benchmark, which SX spent much of its time yesterday attacking.  Note that SX already provided rebuttal testimony from the involved Merlin parties stating the agreement is a derivative of the Pureplay Agreement, which is inadmissible for WebIV.  Note that of all the major parties involved, P is the only one asking the judges to distinguish rates by how the copyright buyer chooses to monetize those tracks, which the judges of Web III Remand essentially ruled out (see link below for exact quote).  


Let us know if you have any questions, or would like to discuss in more detail.  


Hesham Shaaban, CFA




P: Losing the Critical Debate?

04/08/15 08:53 AM EDT

[click here]


June-boree | Demand ↑, Supply ↓, Price ↑

Takeaway: Today’s triple header of housing data tells a congruous story of ongoing demand improvement, tight inventory, and accelerating price growth.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume. 


June-boree | Demand ↑, Supply ↓, Price ↑ - Compendium 072215 


Today's Focus: June Existing Home Sales, FHFA HPI & MBA Purchase Apps


1. EHS follows PHS to new highs. 2. EHS Inventory & FHFA corroborate HPI acceleration. 3. Purchase Apps signal stable demand trends to start 3Q.   


Today’s triple header of housing data tells a congruous story of continued improvement in demand trends with price and inventory data supportive of accelerating price growth. 


Existing Home Sales, which headlined this morning’s data, rose +3.2% sequentially and accelerated to +9.6% YoY as transaction activity in the existing market made a new post-crisis high. 


Taking a composite view of today’s releases, there are a few key takeaways:


PHS vs EHS | Predicting the Present:  The strength in June EHS was not unexpected and was well telegraphed by the multi-month strength observed in PHS.  As we’ve highlighted repeatedly, Pending Home Sales are a strong leading indicator for Existing Home Sales and EHS re-coupling to PHS after short-term dislocations has been as high probability a call as one could make.  The re-convergence between the two series is largely complete following the advance in EHS in June.  We show the divergence-convergence trend over the last 18 months in the 1st chart below.


1st-time Buyers | Worse …. No, wait, Better .. it depends:  Last month’s rise in 1st-time buyer share to 32% of sales (a 33-mo high) proved a quasi-headfake as their share of sales in June retreated moderately to 30%.  Given the rise in total sales, the decline in absolute sales to 1st-time buyers was more modest and belies the magnitude of ongoing improvement for this demographic.  Indeed, sales to 1st-time buyer are up a notable +17.4% YoY – a premium to the +9.6% YoY growth in EHS in aggregate as distressed/investor/cash sales continue to decline and the slow march to market normalization progresses.  So long as labor/income fundamentals continue to improve and the employment recovery for 25-34 years continues to mature, headship rates among young adults should rise with single-family purchase demand manifesting on a lag.  As can be seen in the 2nd chart below, mean reversion to 40% share for 1st-time buyers implies upside to >6.0 mm in EHS.  


Inventory ↓ = Future HPI ↑:   Units of inventory rose +0.9% MoM in June to 2.3 mm but with sales growing at a premium to supply for a second month, inventory on a month-supply basis dropped -2.2% to 5.03-months – representing a second month of tightening supply and the 34th month below the canonical balanced market level of 6-months.  Tight - and tightening - supply in the 90% of the market that is EHS remains supportive of improving HPI trends.  Indeed, the FHFA HPI series for June released this morning showed price growth accelerating +30bps sequentially to +5.6% YoY in June (vs +5.3% prior) and playing catch-up to the (more leading) CoreLogic HPI series which has shown accelerating improvement in each of the last 3-months.  Improving 2nd derivative trends in HPI augurs positively for housing related equities given the strong contemporaneous relationship between the two. 


Rates:  Interest rates on the 30Y FRM contract held flat at 4.23% for a 3rd straight week.  Rates remain -2.3% lower than the corresponding period last year with the current rate of 4.23% comparing to the full year 2014 average of 4.35% and the 1H15 average of 3.97%. 


Purchase Applications = Less Noise, More Signal:  Purchase applications rose +1.0% WoW while accelerating to +17.8% YoY, taking the index up to 198.3.  Given the typical peri-holiday volatility in the data, this week represents the first clean read on underlying demand for 3Q.   In short, transaction activity appears stable and roughly in line with the 2Q15 average. 


While good on an absolute basis, flat sequentially in 3Q15 represents an end to the large-scale, positive reversal we’ve seen over the last ~3qtrs.  Whether #Good Is Good Enough against harder comps and pervasive seasonality remains a tough call, especially with rates providing no discrete head or tailwind to affordability at current levels. 



June-boree | Demand ↑, Supply ↓, Price ↑ - EHS vs PHS


June-boree | Demand ↑, Supply ↓, Price ↑ - EHS 1st time buyer upside


June-boree | Demand ↑, Supply ↓, Price ↑ - EHS 1st time buyers


June-boree | Demand ↑, Supply ↓, Price ↑ - EHS Inventory Mo Supply


June-boree | Demand ↑, Supply ↓, Price ↑ - EHS Inventory Units


June-boree | Demand ↑, Supply ↓, Price ↑ - EHS LT


June-boree | Demand ↑, Supply ↓, Price ↑ - EHS Median Price YoY


June-boree | Demand ↑, Supply ↓, Price ↑ - EHS regional


June-boree | Demand ↑, Supply ↓, Price ↑ - EHS Units   YoY TTM


June-boree | Demand ↑, Supply ↓, Price ↑ - PHS Comps


June-boree | Demand ↑, Supply ↓, Price ↑ - Purcahse   Refi YoY


June-boree | Demand ↑, Supply ↓, Price ↑ - Purcahse YoY


June-boree | Demand ↑, Supply ↓, Price ↑ - Purchase 2013v14v15


June-boree | Demand ↑, Supply ↓, Price ↑ - Purchase Index   YoY Qtrly


June-boree | Demand ↑, Supply ↓, Price ↑ - Purchase LT


June-boree | Demand ↑, Supply ↓, Price ↑ - 30Y FRM


June-boree | Demand ↑, Supply ↓, Price ↑ - FHFA HPI YoY



About Existing Home Sales:

The National Association of Realtors’ Existing Home Sales index measures the number of closed resales of homes, townhomes, condominiums, and co-ops. Existing home sales do not take into account the sale of newly constructed homes. Existing home sales account for 85-95% of all home sales (new home sales account for the remainder). Therefore, increases in existing home sales tend to signify increasing consumer confidence in the market. Additionally, Existing Home Sales is a lagging series, as it measures the closing of homes that were pending home sales between 1 and 2 months earlier.



The NAR’s Existing Home Sales index is published between the 20th and the 22nd of each month. The index covers data from the prior month.


About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 



The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.




Joshua Steiner, CFA


Christian B. Drake

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