Monday Mashup

Monday Mashup - CHART 1






7/23/15 CPB | Analyst Day Notes

7/21/15 GIS | Green Giant Divestiture is the Worst Kept Secret



Saturday, August 1

K | Announced the completion of new master contract agreement with BCTGM, the primary workforce for cereal manufacturing (click here for article)


Thursday, July 30

MDLZ | Downgraded to neutral from buy at Goldman Sachs, however target price increased to $46 from $43

CAG | Eliminating BPA from canned packaging (click here for article)


Wednesday, July 29

BN-FR / SBUX | Partner up to create a Greek yogurt brand for sale at retail (click here for article)

WFM | Caught a few downgrades as a result of poor performance stemming from the pricing scandal (3Q15 earnings release here)

MDLZ | Investing more than $130mm to modernize North American supply chain (click here for article)


Tuesday, July 28

CAG | Rumored to be in talks with TreeHouse and Post regarding private label auction (click here for article)

PG | Appointed David Taylor, a company veteran to President and CEO (click here for article)

LWAY | Probiotics gaining adoption (click here for article)


Monday, July 27

UNFI | Downgraded to market perform from outperform at BMO Capital, target cut to $52 from $71

GOOG | Google recently attempted to acquire Impossible Foods, a plant-based cheeseburger company (click here for article)



Food and organic stocks that we follow outperformed the XLP last week. The XLP was up 1.3%, the top performer from our list was BDBD posting an increase of 20.5%, although BDBD is still down -43.2% in the last 52 weeks. This sharp increase was due to an activist disclosing his stake in the company.

Monday Mashup - CHART 2



From a quantitative perspective, the XLP remains bullish on a TRADE and TREND duration.

Monday Mashup - CHART 3


Food and Organic Companies

Monday Mashup - CHART 4

Monday Mashup - CHART 5



Takeaway: We are elevating Castlight Health (CSLT) from our long bench to our Investment Ideas List as a Long ahead of earnings on 8/5.

CSLT | GOING LONG INTO EARNINGS - 2015 07 31 Position Monitor


We are elevating Castlight Health (CSLT) from our long bench to our Investment Ideas List as a Long ahead of earnings on 8/5.  We are not expecting any surprises going into the quarter, with consensus sales estimate of $17.8 mill in-line with our model.  However, at 4.9x NTM EV/Sales, the stock trades at a steep discount to its growth rate relative to peers, implying only 18% sales growth for 2016.  This compares to the 68% sales growth the company is on track for in 2015, and significantly below our 2016 estimate for +50% growth.  Further, we expect the data sharing agreement with UNH to set the stage for strong bookings growth into the seasonally strong back half of the year. CSLT fits well within our theme of Healthcare Deflation and we can see +40% upside based on our growth estimates over next 12-months. 



CSLT provides participants in self-insured health plans the ability to shop for healthcare using Castlight's cloud-based suite of products.  The company is at the interchange between the employer, employee and managed care organization, aggregating data and providing analytics to help support the Enterprise.  Their offering is built on price transparency and cost savings, which fits well into our Healthcare Deflation Theme.  




55% of covered workers in the United States are part of an employer self-insured health plan. In attempt to control rising costs, employers have shifted more of the premium expense onto the employee whether through Consumer Direct Health Plans (CDHP) or outright increase in annual contributions. Castlight is well positioned to capitalize on this trend as employers look for tools to reduce health costs and employees facing greater out-of-pocket expense begin to frame consumption decisions around value.


Castlight's value proposition comes in three major forms:

  • Cost Savings to the Employee - Increase in high deductible plans and excessive premium growth continues to put pressure on consumers of healthcare.  Castlight provides a platform for price transparency and quality information, which allows employees to frame medical consumption decisions around value.
  • Cost Savings to the Employer - For self-insured employer health plans, cost savings to the consumer is cost savings to the employer.  Castlight also provides educational tools to help avoid unnecessary visits to high cost care settings such as the E.R. 
  • Employer Control/Access to Information - Castlight provides employers with a dashboard and control system to monitor healthcare spending, identify areas of cost savings and implement employee benefit plans. 


show me the data

Castlight relies on access to claims data from managed care companies for their pricing information.  With every new data sharing agreement, the company has to build out the infrastructure to get access to this information.  The last major hurdle the company faced was getting access to UNH's network, which they did earlier in 2015.  Prior to that, the company was unable to target the customers of the largest managed care organization in the United States.  We believe this will provide a nice tailwind to new bookings growth as we enter the seasonally strong back half of the year. 



Castlight went public in March 2014 at an offering price of $16/share.  The stock jumped +150% out of the gate, and at a price in the low $40s, was trading over 100x NTM EV/Sales.  Since then, we have watched shares come down to earth and stabilize in the $7-9 range or 5-7x NTM EV/Sales.  Short interest is currently 30%, and has been relatively stable over the last year (~9-10 mill shares sold short) when compared against fully adjusted available float (~30 mill shares). 




Unlike many recent IPOs, Castlight is an early stage growth company working off small revenue base of $75 mill (2015 estimate).  This provides a rare opportunity to get in on the ground floor of what is likely to be a multi-year growth story.  We expect the company to grow sales by +50% in 2016, on top of the +68% revenue growth in 2015.  




At 4.9x NTM EV/Sales, the company trades at a -46% discount to its sales growth rate relative peers. While it can be argued that the discount is deserved given the company's immature and unprofitable status, we believe it also represents an attractive margin of safety.


CSLT | GOING LONG INTO EARNINGS - 2015 07 31 CSLT Peer Valuation



Castlight Health fits well within our theme of Healthcare Deflation and we can see +40% upside based on our growth estimates over the next 12-months.  At the same time, we recognize the risks embedded in the position given its small size ($658 mill market cap), short history as a public company (~1.5 years) and high short interest (+30%).  We would also disclose that we don't have the same type of visibility as we do with our other top long ideas (HOLX, ATHN, MDSO), but we will be expanding our knowledge base as we continue to focus more intently on the name.  However, we believe the risk/reward is in our favor given the valuation discount and data sharing agreement with UNH that sets the stage for strong bookings growth in the back half of 2015.




CSLT | GOING LONG INTO EARNINGS - 2015 08 02 CSLT Insurance Major Expenses


CSLT | GOING LONG INTO EARNINGS - 2015 08 02 CSLT Deductibles

CSLT | GOING LONG INTO EARNINGS - 2015 07 31 Premium Growth Excessive


Please call or e-mail with any questions.


Thomas Tobin
Managing Director 



Andrew Freedman




CHART OF THE DAY: Rising Deflation Expectations


CHART OF THE DAY: Rising Deflation Expectations - 08.03.15 chart

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Deflation's Arena

“The credit belongs to the man who is actually in the arena…”
-Teddy Roosevelt


After all, it is we, the men and women of the Global Macro gridiron, “who strive valiantly; who errs, and comes short again and again, because there is no effort without error or shortcoming”…


We might not get everything right. But we tend to not implode on the big risks when consensus does.. and, at a bare minimum, our place on Wall Street “will never be with those cold and timid souls who know neither victory nor defeat.”


Deflation's Arena - 08.03.15 chart


Back to the Global Macro Grind


Yep. That’ll fire me up on any Monday morning – never mind one in the arena of August heat. Your summer has been a relatively victorious one if you stayed clear of what many hoped was a “reflation” TRADE morphing into a legitimate TREND.


Here’s last week’s Currency/Commodity score, with a 3-month overlay to contextualize it:


  1. US Dollar Index flat week-over-week and +2.7% in the last 3 months
  2. Euro (vs. USD) flat week-over-week and -2.1% in the last 3 months
  3. Japanese Yen -0.1% week-over-week and -3.6% in the last 3 months
  4. Canadian Dollar -0.3% week-over-week and -7.7% in the last 3 months
  5. Russian Ruble -5.3% week-over-week and -16.3% in the last 3 months
  6. CRB Commodities Index -1.2% last week and -11.7% in the last 3 months
  7. Oil (WTI) -2.6% last week and -24.1% in the last 3 months
  8. Gold +0.8% last week and -7.6% in the last 3 months
  9. Copper -1.2% last week and -18.5% in the last 3 months
  10. 5yr UST Break-evens -3bps wk-over-wk to 1.40% (-38 bps in the last 3 months)


I know. Break-evens aren’t currencies or commodities, but since I like to play dirty sometimes I thought I’d slip that in there (mainly because that macro read-through on inflation expectations is highly instructed by FX and Commodity deflations).


The read-through to Global Equity markets was dominated by rising #Deflation expectations too:


  1. US Energy Sector (XLE) was the only one to close down wk-over-wk and is -16.1% in the last 3 months
  2. Emerging Markets (MSCI) and EM LATAM (MSCI) deflated another -1.8% and -0.7%, respectively
  3. Russian Stocks (RTSI) carried XLE-like negative alpha wk-over-wk (again) and are -16.6% in the last 3 months


Fortunately, I think the Fed gets this. That’s why the #1 change in their language last week was their concern on losing their almighty illusion of growth (inflated asset prices). That’s mainly why the doves took home the Low-Beta cake staying with the Long Bond too.


For those of you who took advantage of the correction in both Long-term Treasuries (TLT) and US Equities that look like bonds, well done. Oh my face was “marred by dust and sweat” (no blood) on that front. And I’m damn proud we stuck with the #process too.


Utilities (XLU) ripped higher into Friday’s month-end markup, taking their July absolute and relative gain vs. Energy (XLE) to:


  1. Utilities (XLU) +6.10%
  2. Energy (XLE) -7.69%


So, in terms of what happens next, this week’s US jobs report (Friday) should matter to what’s been working for the last week and month. Consensus is still looking for another > 225,000 (only because estimates anchor on what happened last time).


While the rate of change in Non-Farm Payroll gains has been slowing since FEB, pro-cyclical economists haven’t had to react to jobs prints that have looked as nasty as Texan deflation has. Alas, this is a cycle – give it time…


Away from capitalizing on #Deflation what else continued to work both last week and in July? From a Macro Style Factor perspective:


  1. BETA: Low-Beta was up another +1.9% last week (vs. the Dow +0.7% and SP500 +1.2%) and was +3.2% for July
  2. SIZE: Large-Cap was up another +1.5% last week and was +1.9% for July
  3. SHORT INTEREST: Low-Short-Interest was +1.3% wk-over-wk and +2.0% for July


In other words, if you were long something boring with non-cyclical cash flow, low-short-interest (2%), and a big market cap ($35B) like General Mills (GIS), you were up +1.9% on that in July. That’s not flashy, but it helped us achieve the goal – victory in the arena.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.18-2.28%

SPX 2067-2130
VIX 11.89-14.31
USD 96.58-97.96
EUR/USD 1.08-1.10
Oil (WTI) 46.05-48.69


Best of luck out there today,



Deflation's Arena - 08.03.15 chart1 image

August 3, 2015

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Welcome to August

Client Talking Points


Sub 12 in the front-month VIX has been a clean cut sell signal for U.S. Equities post every rally to lower-highs in 2015. What was most interesting about last week’s month-end markup was Friday’s total U.S. Equity volume -13% and -21% vs. the 1 month and 1 year averages.


After a -2.6% #Deflation move last week, WTI drops another -1.5% this morning to $46.40, taking its 1-month crash to -26%. We have no idea how consensus is complacent about this after being too complacent on last year’s initial crash (Russia’s Ruble and stock market continue to crash too).  


With both Global Growth & Inflation Slowing what does consensus chase (other than charts)? The Long Bond. Yep. AFTER the non-consensus 1 month move from 2.54% to 2.19%, CFTC futures/options net position moves back to net LONG +58,783 contracts.


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

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

HOLX’s earnings release were as good as we expected, and in some spots, much better than our optimistic view. Given the move in the price, we did begin to do some work on Hologic’s Diagnostic segment. We touched base with a lab Director who currently does his testing on Hologic/Gen-Probe’s Panther system. During the call management made some positive comments about uptake of the systems and rising utilization per box. Our contact suggested the benefit from the Affordable Care Act was substantial  over the last 12 months, pushing volume up to a mid-teens growth rate, but that trends were flattening. But on the positive side Qiagen continues to cede share with an out of date test and the alternatives are primarily Roche and Hologic, but not Cepheid’s system. The bottom line is that we may be too conservative with our estimates for Diagnostics, which we’ve been assuming treads water from here.  However, we’re starting to think there is some incremental acceleration that’s possible, which would be welcome news indeed. 


After attending PENN’s analyst day at the Plainridge Casino in Massachusetts our Gaming, Lodging & Leisure Team struggled to find any negative takeaways. The property opened very strong in late June, and the strength continued in July. We are now raising our win per day per slot assumption to $500 from $400. Terrific highway access, a lower gaming tax rate and garage parking provide a competitive advantage in what seems to be a deeper market than the consensus view. Our 2015 and 2016 estimates are materially above the Street for EBITDA and EPS. Most importantly, we think PENN should generate an ROI of 28% on Plainridge, much higher than the Street anticipates.


As largely expected a sequential acceleration in GDP from Q1 to Q2 on a seasonally adjusted annual basis pulled forward the market’s expectation for a rate hike which = USD strength. The USD finished positive on the week (+0.50% on Thursday’s print alone).

  • U.S. GDP reported Thursday for Q2 came in at +2.3% on a Q/Q seasonally-adjusted annual rate and the market took it as a positive print à rate hike expectations pulled forward.
  •  Remember that 1) Consensus focuses on this SAAR number and 2) The GDP acceleration came off of an awful Q1 print (Q1 revised to a measly +0.60% for Q1 vs. initially reported -0.20%)
  • On a Y/Y basis (crazy Hedgeye speak) GDP for Q2 actually decelerated to +2.3% YY vs. 2.9% prior
  • With very difficult base effects in our model for 2H 2015 GDP we expect Q2 data (especially the GDP print) to provide support for the USD
  • Our expectation for Y/Y GDP in Q3/Q4 are +1.6% Y/Y (+1.4% Q/Q SAAR) and +1.5% Y/Y (+1.7% Q/Q SAAR) respectively; These prints (Q3 will come in October) will stoke a relatively more dovish FED for a short time (USD headwind) but until then we’ll ride the Q2 data train.  

Three for the Road


VIDEO: Demographics Expert Neil Howe Returns for Rapid-Fire Discussion on Election, Housing, and More… via @hedgeye



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