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September 2, 2015

September 2, 2015 - Slide1

 

BULLISH TRENDS

September 2, 2015 - Slide2

September 2, 2015 - Slide3

 

 

BEARISH TRENDS

September 2, 2015 - Slide4

September 2, 2015 - Slide5

September 2, 2015 - Slide6

September 2, 2015 - Slide7

September 2, 2015 - Slide8

September 2, 2015 - Slide9

September 2, 2015 - Slide10


MCD | ALL DAY BREAKFAST IS OFFICIALLY LAUNCHING ON 10/6

McDonald’s (MCD) is on the Hedgeye Restaurants Best Ideas list as a LONG.

 

The franchisees voted YES on the proposal last week to launch All Day Breakfast nationwide at all 14,318 U.S. locations. The vote confirmed on Tuesday, September 1st by the franchisee leadership council. This is a very important and monumental move by CEO Steve Easterbrook, and will define his legacy as the CEO that changed McDonald's and the rest of the industry for many years to come.

 

With this move we are also moving JACK and WEN from the bench to the Best Idea SHORT list.  In 2016, if MCD (with all day breakfast and an improved value message) can drive same-store sales up by 5%, the system will generate $1.9bn in incremental system-wide sales.  Needless to say, a healthy McDonald’s will make life difficult for a number of others in the QSR space.

 

As noted in our survey we released on July 27th it is evident that All Day Breakfast (ADB) will be a game changer for MCD. Breakfast is the single most requested item by McDonald’s customers, and listening to the customer is a tried and true way to succeed.

 

MCD | ALL DAY BREAKFAST IS OFFICIALLY LAUNCHING ON 10/6 - CHART ADB

 

MENU

Menu changes are coming as part of this initiative. MCD will have to remove some items from the previous menu to make way for ADB. They have already announced the removal of certain sandwiches and snack wraps and the simplification of the drive thru menu, but expect more to come on a region by region basis.  The company has said that they will be offering at minimum the Egg McMuffin, Bacon, Egg & Cheese Biscuit, Sausage Burrito, Hotcakes, Hash Browns and Fruit ‘N Yogurt Parfait.

 

KITCHEN CHANGES

As part of this move, operators will need to purchase separate grills and toasters. The grills will sit on rolling carts which will carry utensils used just for eggs to ensure the raw eggs do not contact any other food. The required investment will range from $500 to $5,000 per restaurant, depending on what equipment franchisees already have.  We would not be surprised to hear that corporate is helping to support the franchisees making this investment. 

 

TURNAROUND OUTLOOK

All Day Breakfast has the potential to be the “silver bullet” MCD will need to drive same-stores sales higher in 2016 and beyond.  This will undoubtedly drive incremental traffic, probably even from people that don’t normally go to McDonald’s. The momentum that they gain from this must be harnessed to turnaround customer perception. This is their time to shine and we are confident the system is ready to show off its bountiful improvements to bring back their lost customers and continue to serve their loyal ones.  ADB is coming sooner than we had thought, and we look forward to the November 10th analyst day in which we will assuredly be getting an early read on All Day Breakfast performance.

 

MCD | ALL DAY BREAKFAST IS OFFICIALLY LAUNCHING ON 10/6 - BEst IDeas list

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 


Cartoon of the Day: Bull Bomb

Cartoon of the Day: Bull Bomb - Bull bomb cartoon 09.01.2015

"[This] appears to be the most ominous setup in my macro model since 2008…As I look at what I call the downside of the “probable range” in Global Equity markets this morning, for the first time in my career I don’t think I want to be right. That’s a tough thing for me to write because the goal of the game is to be right. We’ve spent the last 7-8 years trying to evolve the Global Macro risk management process to the point where many aren’t unprepared for this. Unfortunately, many are.”  

- Hedgeye CEO Keith McCullough in the Early Look on 8/28/15


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Is the U.S. Knocking On Recession's Door?

 

In this special excerpt from The Macro Show this morning, Hedgeye CEO Keith McCullough and Senior Macro Analyst Darius Dale respond to a subscriber's question on whether the U.S. is inching closer to recession.

 

Subscribe to The Macro Show today for access to this and all other episodes. 

 

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CoreLogic | Would the Real HPI Please Stand Up

Takeaway: CoreLogic again shows dramatic acceleration in HPI in July. Our enthusiasm is tempered only slightly by the trend toward downward revisions.

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. 

 

CoreLogic | Would the Real HPI Please Stand Up - Compendium 090115

 

Today's Focus: July CoreLogic Home Price Report

 

CoreLogic HPI:  Home prices rose +1.7% month-over-month in July with year-over-year growth accelerating +130 bps sequentially to +6.9% - marking a 5th month of acceleration off the Feb ’15 RoC trough.   Prices lag demand trends by ~12 months and rising TTM demand along with the prevailing tight supply environment argue for further acceleration in HPI over the nearer-term.  

 

Revisions: Magnitude, Not Direction:  Downward revisions to prior month estimates have been serial in the CoreLogic HPI series over the last ~12+ months.  The August release continued that trend as the rate of change in HPI was revised lower by -30bps and -90bps in May and June, respectively (see 1st chart below). 

 

In short, the recurrent trend in CoreLogic estimates has been this: 

 

Initial estimates show a remarkable sequential acceleration in HPI ---> Subsequent downward revisions reflect only a modest acceleration ---> the direction of the 2nd derivative trend remains intact upon final revision but the magnitude of RoC improvement is significantly more muted than original estimates.

 

Given the prevailing trend, it’s likely the July figures see another downward revision while leaving the larger trend towards accelerating price growth in tact.  The larger trend towards acceleration is the key takeaway as rising price growth supports higher ASP’s, builder margin expansion, and positive equity performance across the housing complex.    

 

Further, it’s likely the trend across all three primary price series (CoreLogic, FHFA, Case-Shiller) becomes more congruent as the price trend matures.  Specifically, we’d expect the Case-Shiller series - which is the most lagging and currently reflecting flat price growth – to play catch-up to the CoreLogic data on a lag and as the trend becomes more firmly entrenched.  Historically, as can be seen in the 2nd chart below, the catch-up and overshoot dynamic has been typical of the Case-Shiller data over the last two decades. 

 

 

CoreLogic | Would the Real HPI Please Stand Up - CoreLogic July   June Revision

 

CoreLogic | Would the Real HPI Please Stand Up - CoreLogic vs CS LT

 

CoreLogic | Would the Real HPI Please Stand Up - Corelogic YoY TTM

 

CoreLogic | Would the Real HPI Please Stand Up - Corelogic Ex Distressed YoY TTM

 

 

 

 

About CoreLogic:

CoreLogic HPI incorporates more than 30 years worth of repeat sales transactions, representing more than 55 million observations sourced from CoreLogic's property information database. The CoreLogic HPI provides a multi-tier market evaluation based on price, time between sales, property type, loan type (conforming vs. nonconforming), and distressed sales. The CoreLogic HPI is a repeat-sales index that tracks increases and decreases in sales prices for the same homes over time, which provides a more accurate constant-quality view of pricing trends than basing analysis on all home sales. The CoreLogic HPI covers 6,208 ZIP codes (58 percent of total U.S. population), 572 Core Based Statistical Areas (85 percent of total U.S. population) and 1,027 counties (82 percent of total U.S. population) located in all 50 states and the District of Columbia."

 

Joshua Steiner, CFA

 

Christian B. Drake


P: Be Very Careful (WebIV)

Takeaway: Both sides of the trade need to be careful into the next catalyst. P could rip on fool’s gold, but will likely lose out in the end.

KEY POINTS

  1. THE NEXT CATALYST: SoundExchange (SX) went over the top in its Proposed Conclusions of Law, trying to get the P-Merlin deal thrown out altogether; suggesting that the deal is a derivative of the Pureplay Agreement, which is inadmissible as a benchmark for Web IV.  The CRB judges have punted to Copyright Register, asking if they are allowed to consider a market agreement if it references and/or is influenced by the Pureplay agreement.  The Register will make a decision within 30 days after the last submission from the involved parties (i.e. no later than 9/14). 
  2. NOT SURE WHO WINS HERE: In short, P is arguing that P-Merlin is admissible since the statute only only forbids compromise agreements (e.g. Pureplay) between the receiving agent (i.e. SX)  and the Services (e.g. P) from being considered, and SX was not involved in P-Merlin.  SX is deferring to Congressional intent, suggesting that the broad language of that statue doesn’t allow for a narrow interpretation, otherwise Congress wouldn’t have included qualifiers such as “or otherwise taken into account”.  It’s tough to build conviction either way.
  3. SELL THE NEWS REGARDLESS: Two potential outcomes; both tilted in SX's favor.  1) The Register could rule in favor of Sx, and imply that P-Merlin is inadmissible (game over for P).  2) the Register could punt back to the CRB judges, which the street will mistakenly view as a premature victory for P.  However, the latter only means that the decision falls back to the CRB judges to rule on the P-Merlin deal as a valid benchmark.  The fact that the CRB judges are asking the Register whether it should throw it out to begin with suggests that it already believes that P-Merlin is a weak benchmark. 
  4. P MAY HAVE ALREADY LOST: P has conceded in its initial response to the CRB Judges' questions to the Register that P-Merlin was influenced by the Pureplay agreement, which it is also called the prevailing “statutory rate”.  For context, The Web III Remand judges stated that, “The Act instructs the Judges to use the willing buyer/willing seller construct, assuming no statutory license”.  That said, the Web IV CRB judges would need to dissent from the prior Judges' decision for P-Merlin to get any credence.  Both the Web II and Web III Judges used prior Judges' interpretations as precedent in their rulings.  We're not sure why that would be any different this time around.

 

See notes below for supporting detail on our Web IV analysis.  Let us know if you have any questions, or would like to discuss in more detail. 

 

Hesham Shaaban, CFA


@HedgeyeInternet 

  

WEBCASTER IV NOTES 

 

P: Notes from WebIV Closing Arguments
07/22/15 01:26 PM EDT
[click here]

 

P: Losing the Critical Debate?
04/08/15 08:53 AM EDT
[click here]

 

P: Worst-Case Scenario? (Web IV)
03/23/15 09:30 AM EDT
[click here]

 

P: Webcaster IV = Powder Keg
01/13/15 02:49 PM EST
[click here]

 


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