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REPLAY | Healthcare Q&A | #ACATaper, Jobs Report & Top Stock Ideas

Takeaway: Join us at 12:00PM for a live presentation on #ACATaper, the most recent Jobs Report, updates on our Top Ideas & an anonymous Q&A session.

Watch the replay

 

Our healthcare team presented on #ACATaper, the most recent Jobs Report and updates on our Top Ideas. As always, our analysts Tom Tobin and Andrew Freedman answered questions from viewers live.


INITIAL JOBLESS CLAIMS | LATE CYCLE IS AS LATE CYCLE DOES

Takeaway: Claims remain steady but the cycle grows longer in the tooth by the week.

Below is the breakdown of this morning's labor data from Joshua Steiner and the Hedgeye Financials team. If you would like to setup a call with Josh or Jonathan or trial their research, please contact 

 

3, 2, 1 ... Countdown

Claims remain on a countdown ...  We're now 19 months into the sub-330k environment. For reference, the last three cycles saw claims stay below 330k for 24, 45 and 31 months, respectively before the cycle gave way to recession. The average of those three cycles is 33 months. This implies ~14mos of track to the average of the last three cycles. Obviously, this is simply a reference point and the duration could more closely resemble that of the late 1980s (24mos), which would imply ~5mos of track remaining, or that of the late 1990s (45mos) implying ~26mos of track. 

 

One thing that's more certain and more imminent is the re-convergence toward zero in the rate of change Y/Y. This week that rate of change compressed to -6.6%, down from -9.1% in the prior week. We're finally lapping the floor in claims and within a month the Y/Y rate of change will be ~0%. From that point on, flagging early stage deterioration in the labor market will be a function of noticing any persistent and/or trending rise in Y/Y claims activity.

 

INITIAL JOBLESS CLAIMS | LATE CYCLE IS AS LATE CYCLE DOES - Updated LT Recession Chart normal

 

 

The Data

Prior to revision, initial jobless claims fell 7k to 275k from 282k WoW, as the prior week's number was revised down by -1k to 281k. The headline (unrevised) number shows claims were lower by 6k WoW.

 

Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 0.5k WoW to 275.75k. The 4-week rolling average of NSA claims, another way of evaluating the data, was -6.6% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -9.1%.

 

INITIAL JOBLESS CLAIMS | LATE CYCLE IS AS LATE CYCLE DOES - Claims2 normal  4

 

INITIAL JOBLESS CLAIMS | LATE CYCLE IS AS LATE CYCLE DOES - Claims3 normal  4

 

INITIAL JOBLESS CLAIMS | LATE CYCLE IS AS LATE CYCLE DOES - Claims4 normal  4

 

INITIAL JOBLESS CLAIMS | LATE CYCLE IS AS LATE CYCLE DOES - Claims5 normal  4

 

INITIAL JOBLESS CLAIMS | LATE CYCLE IS AS LATE CYCLE DOES - Claims6 normal  4

 

INITIAL JOBLESS CLAIMS | LATE CYCLE IS AS LATE CYCLE DOES - Claims7 normal  4

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


INITIAL JOBLESS CLAIMS | LATE CYCLE IS AS LATE CYCLE DOES

Takeaway: Claims remain steady but the cycle grows longer in the tooth by the week.

3, 2, 1 ... Countdown

Claims remain on a countdown ...  We're now 19 months into the sub-330k environment. For reference, the last three cycles saw claims stay below 330k for 24, 45 and 31 months, respectively before the cycle gave way to recession. The average of those three cycles is 33 months. This implies ~14mos of track to the average of the last three cycles. Obviously, this is simply a reference point and the duration could more closely resemble that of the late 1980s (24mos), which would imply ~5mos of track remaining, or that of the late 1990s (45mos) implying ~26mos of track. 

 

One thing that's more certain and more imminent is the re-convergence toward zero in the rate of change Y/Y. This week that rate of change compressed to -6.6%, down from -9.1% in the prior week. We're finally lapping the floor in claims and within a month the Y/Y rate of change will be ~0%. From that point on, flagging early stage deterioration in the labor market will be a function of noticing any persistent and/or trending rise in Y/Y claims activity.

 

INITIAL JOBLESS CLAIMS | LATE CYCLE IS AS LATE CYCLE DOES - Updated LT Recession Chart

 

 

The Data

Prior to revision, initial jobless claims fell 7k to 275k from 282k WoW, as the prior week's number was revised down by -1k to 281k. The headline (unrevised) number shows claims were lower by 6k WoW.

 

Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 0.5k WoW to 275.75k. The 4-week rolling average of NSA claims, another way of evaluating the data, was -6.6% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -9.1%

 

INITIAL JOBLESS CLAIMS | LATE CYCLE IS AS LATE CYCLE DOES - Claims2

 

INITIAL JOBLESS CLAIMS | LATE CYCLE IS AS LATE CYCLE DOES - Claims3

 

INITIAL JOBLESS CLAIMS | LATE CYCLE IS AS LATE CYCLE DOES - Claims4

 

INITIAL JOBLESS CLAIMS | LATE CYCLE IS AS LATE CYCLE DOES - Claims5

 

INITIAL JOBLESS CLAIMS | LATE CYCLE IS AS LATE CYCLE DOES - Claims6

 

INITIAL JOBLESS CLAIMS | LATE CYCLE IS AS LATE CYCLE DOES - Claims7

 

INITIAL JOBLESS CLAIMS | LATE CYCLE IS AS LATE CYCLE DOES - Claims8

 

INITIAL JOBLESS CLAIMS | LATE CYCLE IS AS LATE CYCLE DOES - Claims9

 

INITIAL JOBLESS CLAIMS | LATE CYCLE IS AS LATE CYCLE DOES - Claims10

 

INITIAL JOBLESS CLAIMS | LATE CYCLE IS AS LATE CYCLE DOES - Claims11

 

INITIAL JOBLESS CLAIMS | LATE CYCLE IS AS LATE CYCLE DOES - Claims19

 

Yield Spreads

The 2-10 spread fell -2 basis points WoW to 146 bps. 3Q15TD, the 2-10 spread is averaging 155 bps, which is lower by -3 bps relative to 2Q15.

 

INITIAL JOBLESS CLAIMS | LATE CYCLE IS AS LATE CYCLE DOES - Claims15

 

INITIAL JOBLESS CLAIMS | LATE CYCLE IS AS LATE CYCLE DOES - Claims16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 

 


 


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KATE | Why KATE’s 8K Matters

Takeaway: KATE gave additional info to stem neat-term modeling volatility. But it’s what they didn’t say that’s probably more important.

The company filed an 8K in conjunction with its presentation today. A couple quick thoughts…

1) No change in guidance. It’s pretty safe to say that if business has been trending down, or was negative in any way, shape, or form, then KATE would have been obligated to disclose that in this 8K. Given how the stock has been trading, this is critical.

 

2) The company gave additional information related to store count and square footage in the US vs. Int’l. This might sound like a ‘who cares’ event, but given the poor level of disclosure at KATE, it is a step in the right direction.

 

3) Similarly, the company provided new information as it relates to the size of Jack, and Saturday, as well as the top line impact of its efforts to improve Quality of Sale.  Does any of this allow us to build a more accurate 2017 model for units, productivity or margins? No, but it offers up some clarity for people who are scratching their heads wondering why the company is beating on comp, and yet missing on the top line. It won’t matter anymore after the 4Q report. But should stem some of the volatility in results until then.

 

No Change to Our Thesis

We Still think KATE’s top line will double and margins will go from 6.6% last year to the high teens in three years’ time. All in, we’re looking at better than $2.50 in earnings for a stock that can’t seem to stay above $20. The CAGR needed to get to $2.50-$3.00 is well north of 50%, and yet the stock is trading at a high teens multiple on next year’s $1.07. This is a company that hasn’t meaningfully turned a profit since 2008, and once people get visibility into 2016, we think that investor sentiment around its growth and profitability will turn up substantially. This is a name that could, and should double by the end of next year. KATE remains one of our top picks in retail.

 

KATE | Why KATE’s 8K Matters - kate financials

 


CHART OF THE DAY: The Most Over-Owned Stock In Human History

Editor's Note: The chart and excerpt below are from this morning's Early Look written by Hedgeye CEO Keith McCullough. Click here to bid farewell to lousy, consensus research once and for all.

 

...Back to the most over-owned stock in human history (in market cap and manic media news-flow terms), newsflash: “Apple is relatively cheap” @WSJ (today). Really? I didn’t know that. What does the company do again? Right. It’s got big cap beta.

 

Particularly in developing bear markets (born out of economic and profit cycle peaks = 2000, 2007, 2015) never underestimate the power of the alpha turning into beta.

 

CHART OF THE DAY: The Most Over-Owned Stock In Human History  - z app l ll  ll 09.10.15 chartvf


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