LEISURE LETTER (08/11/2015) - LVS, MPEL, 880.HK, XHR, Airbnb, RCL, NCLH, CCL





August 11: 8:00am: IGT 2Q CC ; PW: 2521829 

August 11: 4:30pm: STN 2Q CC

August 28: 10:00am: PENN - Meeting with Management at Plainridge Park 




LVS - Insider Transaction: Robert Goldstein, the President & COO, unloaded 153,254 shares with an average market price of $56.50 for a total transaction sum of $8,658,85. 


Takeaway: Not a lot of confidence exuded exude by the #2 guy at LVS. Big sale after a mini runup in the stock - still well off its 52 week high


MPEL -  City of Dreams Manila, is said to have “suspended” 100 workers as a cost-cutting measure.  



MPEL - MelcoLot Ltd, a Hong Kong-listed company controlled by MPEL co-chairman Lawrence Ho, says it expects a second-phase public tender for a casino resort near Barcelona, Spain, to start “shortly."  



880.HK - Angela Leong On Kei, executive director of SJM Holdings Ltd., says the company has not considered more cost-cutting measures despite the city’s 14-month decline in gross gaming revenues. “For other gaming companies, I still cannot see it [more cost-cutting measures] being introduced,” Ms. Leong remarked yesterday.



XHR - Announced that it has agreed to acquire the Hotel Commonwealth in Boston, Massachusetts for a purchase price of $136 million. ($399K per key) 



Airbnb - Quebec will be the first province in Canada to legalize and regulate Airbnb, starting this fall. The government will pursue tax revenue and increase the number of inspectors on the ground. 


Takeaway: A nice win for Airbnb in Canada. 

HLT - Today introduced Digital Key, an all-new feature of the Hilton HHonors app.

  • Digital Key now gives frequent guests the option to bypass the hotel check-in counter and access their rooms, as well as any other area of the hotel that requires a key, directly via the Hilton HHonors app on their smartphones. 
  • By early 2016, HHonors members will be able to use their smartphones as their room key to enter more than 170,000 rooms at 250 U.S. properties within the Hilton Hotels & Resorts, Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts and Canopy by Hilton brands.



RCL - Details for Royal Suite Class 



NLCH - Announced yesterday the launch of a secondary public offering of 20 million of its ordinary shares by certain funds affiliated with Apollo Global Management, LLC, Star NCLC Holdings Ltd. and certain funds affiliated with TPG Global, LLC. NCLH will not sell any ordinary shares in the offering and will not receive any of the proceeds from the offering. The offering is pricing at $59.25.


LEISURE LETTER (08/11/2015) - LVS, MPEL, 880.HK, XHR, Airbnb, RCL, NCLH, CCL  - NCLH

Takeaway: Their last offering in May was also for 20 million shares. Apollo, Star NCLC, and TPG have now reduced their ownership positions to 17.1%, 13.3%, and 2.3% respectively. We anticipate more secondaries in the future.

CCL - announced that its new social media Internet packages, which are now available on more than half of its ships, are scheduled to be implemented fleetwide by the first quarter of 2016.

  • The packages offer access to a variety of popular websites for $5 per day. 
  • Additionally, the line’s new mobile app – currently available on Carnival Breeze and offering a new “chat” feature – has been well received, with a third of the ship’s guests actively using the app during their cruise, Carnival said. 
  • The app is expected to be available on five additional ships by the end of the year and be fleetwide by summer 2016.
  • Currently available on 13 ships, Carnival’s enhanced Internet access offers increased bandwidth and speed, while the social media package provides unlimited access to Twitter, Facebook, Instagram, Snapchat, LinkedIn, Pinterest and other popular sites for $5 per day, with discounted plans available for the entire cruise.  


Takeaway: This upgrade is coming in a quarter ahead of schedule. This is a good response to RCL's Voom internet package. 


Alaska Air-Quality Regulations - The violations were revealed Friday in Norwegian Cruise Line's quarterly Security and Exchange Commission filing. SEC filings filed July 31 also indicate that the Alaska Department of Environmental Conservation cited Royal Caribbean International and Celebrity Cruises for similar alleged violations. 



China Loan/Deposit Growth - China July new yuan loans CNY1.48T vs consensus CNY750B and CNY1.28T in June

  • Loan growth +15.5% y/y vs +13.4% in June
  • Deposits +13.4% y/y vs +10.7% in June
  • M0 +2.9% y/y vs +2.9% in June
  • M1 +6.6% y/y vs +4.3% in June
  • M2 +13.3% y/y vs consensus +11.8% and +11.8% in June

Singapore GDP - The Singapore economy grew by 1.8% on a YoY basis in 2Q 2015. Real GDP growth in 2015 is expected to be between 2.0% and 2.5%. 


McCullough on China: They're Centrally Puppeteering This Whole Thing


On today's edition of The Macro Show, Hedgeye CEO Keith McCullough discusses China's biggest devaluation in 20 years and the implications to capital markets throughout Asia.



Hedgeye is hosting a visit to PENN’s Plainridge Casino in Plainville, MA on Friday August 28th at 10am. We will meet with PENN’s COO Jay Snowden and Plainridge’s GM Lance George and tour the facility as well. As you know, Plainridge is a big growth driver for PENN and could contribute an estimated 15% of the company’s property EBITDA in 2H 2015.


Following the PENN meetings, we will drive over to visit Plainridge’s primary competitor, the Twin River casino in Lincoln, RI, about 30 minutes away.


Please let Todd Jordan or your Hedgeye salesperson know if you are interested in attending. Thanks.

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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.


TAKEAWAY: We view LNCE as a high quality, small cap name in the Consumer Staples space.  The company’s brands are well positioned in the snacking category to allow for sustainable volume growth and margin expansion for the next 3-5 years.  


Snyder’s-Lance (LNCE) reported 2Q15 numbers yesterday after the close that beat the street on both the top and bottom line. As a result of this beat and a strong outlook for the next 12-18 months, we are raising LNCE up to the Hedgeye Consumer Staples Best Ideas list as a LONG.



We will dive deeper into this idea next Wednesday, August 19th at 11:00am ET when we present our Black Book on LNCE. Formal invite and details will follow later today.



Snyder’s-Lance is a leader in the snacking category, their portfolio of brands is something that actually brings people to the center-of-the store. It is exciting to see the innovation they are implementing across the top brands as well as driving growth through increased distribution. There is still plenty of white space out there that LNCE can fill as they expand their operations. In early analysis we see 25%+ upside in the name, as we are confident the team can continue to grow organically, as well as acquire fast growing snacking brands to plug into their DSD network.



As previously noted LNCE beat the street on both the top and bottom line. Reporting net sales of $431.4mm versus consensus estimates of $430.2mm and operating income of $32.3mm versus consensus of $31.0mm. In the quarter, management improved their operating margin by 50bps, as they leveraged the manufacturing footprint and continue to streamline operations. Moving down to EPS, LNCE beat the street by a penny, posting $0.27 versus estimates of $0.26. The great financial performance was coupled with impressive share gains by all of the core brands, which include; Snyder’s of Hanover, Lance, Cape Cod, Pretzel Crisps and Late July.



Innovation is a key source of growth, and they are showing their brands can expand well across categories. Cape Cod’s early days in RTE popcorn are proving to be positive, and they are spreading innovation across better for you snacking all the way to premium snacks. Seeing these actions shows they are most likely casting a wide net across the space when looking at possible M&A targets. At first thought, Popcorn Indiana, Angie’s, KIND Snacks, Justin’s and thinkThin jump to mind as possible targets.



In 2Q15, LNCE’s core brands net sales grew an impressive, 9.1%, with volume up 10% and increasing market share across the board. But there is still plenty of more room as they enter different channels. LNCE just recently entered e-commerce, it is growing well for them and expanding as their products cater well to this platform. Drug channel and C-store are also areas to improve as they are in most location but sometimes with just Lance or just Cape Cod, and management’s goal is to get broad distribution across all brands.



From 2012 to 2014 LNCE spent $227mm on capital expenditures to update the manufacturing footprint and streamline the business. This was ~72% more than the previous three year period, as it was time to update manufacturing lines and infrastructure to improve efficiencies. Now that this spend has begun to taper off, they can focus their cash on growing the business. For starters they have updated their packaging across the core brands to increase consumer appeal on the shelf. They have also ramped up marketing spend both digital and media, to get in front of the consumer and drive awareness and trial of new products and old staples.



Just about one year ago on June 30, 2014, LNCE closed the deal to divest their private label business, which included two manufacturing facilities in the U.S. and Canada. Shearer’s Foods a subsidiary of Wind Point Partners purchased the business for $430mm. The private label business accounted for $287.8mm in net revenue in FY2013, 16.4% of the companies then $1.76bn in total net revenue. This was an important step for LNCE management, which allows them to focus 100% of their attention on the branded portfolio. Freed up cash to be put to better use on innovation and expanding the core branded portfolio of brands. As LNCE is lapping the one year mark of divesting this business the company is looking stronger than ever, very focused on growth and innovation.



Management did not change guidance for 2015, they are still shooting for net revenues for the full year of $1.69 to $1.72 billion. The earnings per diluted share estimate range also remains at $1.11 to $1.19 and capital expenditures to be between $60 and $62 million. 

Panic! China Central Planning Style

Takeaway: This is one more sign of panic by Chinese central planners—their 7.0% "growth" number is a lie.

When in doubt, devalue!

*  *  *  *  *

Panic! China Central Planning Style - z Yan


Big news this morning as Beijing opts for a central planning move that doesn’t work. Yep, we taught them that (after Japan, Argentina, Zimbabwe, etc. tried the same for the sake of “exports”). The biggest devaluation move in two decades begs the basic question: just how made-up is the +7.0% GDP story in China with -9% exports?


Expect cross-asset class volatility to continue to rise and FX/correlation risk to ramp on this.  The Shanghai Casino Composite is down 1 basis point on the news … #funny


If you didn't know why locals have been selling Singapore, Taiwan, Indonesia (-4-6% in the last month) well now you know #Yuan


This is simply one more sign of panic by Chinese central planners—their 7.0% "growth" number is a lie.

Panic! China Central Planning Style - China GDP cartoon 07.16.2015

China, USD and Volatility

Client Talking Points


When in doubt, devalue! Yep, we taught them that (after Japan, Argentina, Zimbabwe, etc. tried the same for the sake of “exports”) – biggest devaluation move in 20 years begs the basic question – how made-up is the 7.0 GDP story in China with exports -9%?


Cross-asset class volatility and foreign currency correlation risks should ramp on China trying to centrally-plan markets, but this is coming off a relatively big down day for USD after Fed’s Fischer acknowledged economic gravity. The EUR/USD 1.10 is at the top end of our 1.08-1.10 range.


Inasmuch as UST 2YR resistance of 0.75% has held all year long, so has 11.34 @Hedgeye TREND support for front-month VIX – total U.S. Equity market volume (including dark pool) was -24% vs. its 1 year average on yesterday’s no volume “reflation” day.


**The Macro Show - CLICK HERE to watch today's edition at 8:30AM ET.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

In an analysis of the demographics of the newly insured, Pap testing, HPV, and mammography were at the top of the list of products that would be positively impacted by the ACA.  As we reach the #ACATaper stage, will HOLX take a hit to their Diagnostic segment? It is possible, in our view, but so far a minor risk. As we learned last week from a lab operator, Qiagen is likely to continue to cede their 14% HPV testing share to HOLX. So while the #ACATaper appears to be finally here, there are offsets. On a disappointing note, our 3D Tomo Tracker update for July came in at 24 facilities. Down sequentially from June, and down from a peak of 54 in May. Our forecast algorithm, which is based on these updates, remains unchanged. While 20 is low, it is probably a blip in the longer term adoption cycle.  


PENN has emerged as the first domestic gaming growth story in 10 years with a new casino in Massachusetts this year and one in San Diego next year. Meanwhile, regional gaming trends have stabilized, providing near term earnings visibility and upside. Upcoming catalysts include the monthly release of State gaming revenues for July, including Massachusetts, and positive earnings revisions.


Sometimes the macro rotation and allocation playbook is relatively straightforward. As growth slows and "reflation" deflates, you want to be buying A) Long-term Bonds and B) stocks that look like bonds. Bond proxies and defensive yield consistently outperform alongside the dual deceleration in demand and prices and Utilities and REITS remain the go-to sectors for growth slowing, defensive yield exposure.  

Three for the Road


Van Sciver: Fade Caterpillar's "Barron’s Bounce" | $CAT… @HedgeyeIndstrls




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