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The Hedgeye Gaming, Lodging, and Leisure Team is adding BYD as a best idea LONG, and will be hosting a call today at 11am to discuss our views on the stock. Here is a brief summary of our thesis.



  • Regional Gaming Stability = Earnings Visibility 
    • As predicted, August would look weak and pressure the stocks. However, the states will begin releasing stronger September results beginning next week. 

    • The underlying demand/supply fundamentals in regional gaming are much improved and likely sustainable

  • Operational improvements and favorable market exposure could drive upside

    • Atlantic City and LV Locals could be surprise growth drivers. Supply exodus in AC is mostly to Borgata and the sustained housing recovery is finally translating into gaming revenue growth. These markets generate higher incremental margins for BYD's aggregate portfolio.
    • BYD's management changes are paying dividends  
  • Valuation

    • 15% free cash flow yield and 8x EV/EBITDA. PNK going out ~10x EV/EBITDA and PENN/GLPI split around 10-11x.
    • We believe BYD is undervalued at current prices 

USD, Rates and Stocks

Client Talking Points


The UST 10YR hits 2.08% on slowing Durable Goods; rises to 2.16 on Janet Yellen's forecast – the #1 risk remains her forecast. FX market moves 70 basis points on this (USD vs both Yens and Euros), but looks far from convinced. The USD Index would have to breakout above 97 (Euro below 1.09) for us to believe that the market actually believes she’ll hike into the Q3 GDP slowdown.


This is the 8th time this year that the UST 2YR will test 0.75%, but on what? There’s certainly no inflation or growth data to support a rate hike – but Yellen has clearly been politicized to change her tune at the whim of stock market moves, so good luck with that. The UST 10YR risk range is low-vol and manageable = 2.07-2.21%.


What kind of stocks love the idea of USD up? Japanese and European stocks! Because their FX is down on that trade, but don’t forget the context of today’s Nikkei and DAX “bounce” (the German stock market is in crash mode -22% since APR). We would short more U.S. Financials and Industrials today too.


**Tune into The Macro Show with Hedgeye CEO Keith McCullough at 9:00AM ET - CLICK HERE

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

McDonald’s remains one of our Restaurant teams Best Ideas on the LONG side.  We continue to believe that 3Q15 will be the inflection point for the company’s turnaround and that we are going to be looking at a much different company 1-3 years from now.


Urgency has been instilled from the top down by new CEO Steve Easterbrook. He wants more speed and is encouraging people to get things done faster. The food and experience provided to the customer will greatly improve over the coming months as “Experience the Future” is implemented across the system. It won’t be instantaneous though, as MCD has a lot of work to do around changing the perception to bring back customers it may have lost.


Penn National Gaming continues to be our favorite Regional Gaming stock.


Regional numbers for August have come in soft, but we predicted the August weakness. September revenues should rebound and serve as a catalyst for the stock going into Q3 earnings. On the research side we have not altered our views of PENN’s long term growth story. We continue to see more upside from current price levels. 


Slower (and Lower) For Longer remains our non-consensus call. It's nice to see that the Fed is finally starting to see what the #GrowthSlowing late-cycle data does.


  1. GROWTH: is #LateCycle and will be slower (again) in Q3 than it was in Q2
  2. INFLATION: misreported, yes – in the area code of the Fed’s 2% “target”, no


Our estimate for Y/Y% GDP for Q3 is a range of 0.1% to 1.5%. Even the Q/Q SAAR # that consensus hangs on will be comping against a 3.7% Q/Q SAAR GDP print (second revision). Good luck positioning for a rate hike. Prepare for the fade…. AGAIN.


Three for the Road


Cliggott: ‘Uncomfortably High Probability of Significant Correction’ https://app.hedgeye.com/insights/46495-real-conversations-doug-cliggott-an-uncomfortably-high-probability… via @HedgeyeDJ #markets  



I found out that if you are going to win games, you had better be ready to adapt.

Scotty Bowman


4.6 million people tuned in to watch Donald Trump on The Late Show with Stephen Colbert  on Tuesday, a  46% increase from the previous Tuesday.

September 25, 2015

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The Macro Show Replay | September 25, 2015



Hedgeye will host a call analyzing the investment prospects in Boyd Gaming (BYD), a regional gaming/hotel operator.


Call Details:

Today, September 25, 2015 at 11am.  Attendance on this call is limited.  Please contact sales@hedgeye.com for details. 


Points of discussion include: 

  • Near term catalysts for BYD and regional gaming
  • August vs September – a tale of two months
  • Q3, Q4, and 2016 earnings outlook
  • BYD’s operational performance vs the competition – opportunities for improvement?
  • The emergence of 2 surprising growth markets for BYD
  • Valuation


Takeaway: Here's a graphical overview as to why we think this quarter is Nike's Greatest Of All Time.

We welcome anyone to challenge our statement that this is the best and most impressive quarter in Nike’s 35 years as a public company. Our rationale is below. But whenever any company’s performance is so mind numbing – both on an absolute basis and relative to expectations – one has to wonder if there’s room to go. Is this the time to peel some off, or sell outright? The stock closed Thursday at a $99.2bn market cap. It flirted with $100bn only twice before. But Friday it will hit the triple digits, and the question is whether it will fall below $100bn ever again. We’re going to answer that question in depth when we release our Nike Black Book on October 12th (two days before the analyst meeting). But our initial sense is that the best is yet to come.


Interestingly enough, the only negative in the quarter was a high level of inventories in the US. This will be nothing more than a hiccup for Nike, but it should absolutely slow growth, or impact margins for Retailers like Foot Locker and Hibbett, two of our top shorts.


Here’s why we think this quarter is Nike’s #GOAT… (note: not all of these factors are at historical peaks, but collectively, they paint a GOAT picture).


1) Growth Algorithm.  5% top line, 7% gross profit, 17% EBIT, and 24% EPS growth. It’s tough to ask for more from a $33bn revenue company. Moreover, check out the chart below which shows that directionally, the company had a nearly identical Algorithm five quarters in a row. The number 5 is very important, because it ‘comped the comp’. There’s nothing stopping it from getting to 6, 7 or 8.
NKE | #GOAT - NKE 9 24 chart1


2) EBIT Growth. Despite only 5% revenue growth, this was the second largest EBIT growth quarter in Nike history as measured in incremental dollars – something that should technically not be happening in the heart of a down-cycle in FX.

NKE | #GOAT - NKE 9 24 chart2


3) Pure Unadulturated Growth. Seriously…this company just put up a 17% (currency neutral) futures number. We’ve only seen that once before over the past 10 years, and that includes a time period (’05) that had $20bn less in revenue. Growth should be slowing, but someone forgot to send Nike that memo.

NKE | #GOAT - NKE 9 24 chart3


4) Let’s put this growth into context. First off, nearly every geography and most categories are growing double digits – all at the same time. The only real negative callout is Emerging Markets. This has been a gripe for us over the past year. Last we checked, Emerging Markets are supposed to ‘emerge’ as opposed to grow at half the rate of mature markets like the UK and US. Every sport is up for Nike except for Football due to a hangover from World Cup last year (we’ll give a pass on that one).  If we look at the implied dollar value growth over the upcoming futures window, that’s about $2.6bn. If you annualize it, it is the size of UnderArmour and AdiBok’s US business combined.

NKE | #GOAT - NKE 9 24 chart4


5) Currency Immune? Nope. The chart below shows that revenue is doing exactly what it should be doing given FX pressure. But EBIT is not. We still think it’s amazing that nobody questions why gross margins are positive despite the negative hit in FX. In every single past FX downcycle back to the time it started to sell outside the US in earnest (circa 1990), Nike’s margins got hit dramatically due to FX transaction impact. Did the company acquire a black box to hedge better? No. Is it making more product locally? No (though that should soon happen).  The stark reality is that the massive growth ramp in e-commerce is materially padding margins – much more so than the company casually admits on the conference calls.  Consider the following math. If we assume that e-comm and DTC growth (which grew at 46% and 21%, respectively in the quarter) was in line with the company average at 5%. With implied margins at e-comm of 70% and DTC of 50% that means that the base business was down 38bps in the quarter with outsized DTC growth driving 125bps of the margin change.

NKE | #GOAT - NKE 9 24 chart5B


6) RNOA Looks Solid. While not perfect, due to higher inventory levels, the overall trajectory of RNOA is outstanding – sitting at 42%. As a reminder, this analysis looks at the only two things that consistently drive value creation for consumer brands and retailers – 1) tax adjusted operating margins x 2) operating asset turns. A company can usually improve any one of those in any period, but can rarely improve both at the same time.  Nike is better than any company we’ve ever seen in driving value in this regard.

NKE | #GOAT - NKE 9 24 chart6B

NKE | #GOAT - NKE 9 24 chart7




NKE | New NIKE Black Book


Takeaway: We’re issuing a detailed Black Book on Nike just ahead of its Oct 14 Investor Day, and will dive deep into all the key issues as we see ‘em.


There’s going to be several key areas of focus for Nike in the three weeks between NKE’s print this evening, and it’s Analyst meeting on October 14th. As such, we’ll tackle them prior to the analyst event in a deep dive Black Book and presentation on Monday, October 12th at 1:00pm ET.  Key issues include…


1) Global growth algorithm – how will today’s building blocks be different in 1, 3 and 5 years.

2) US Distribution -- how much runway exists for Nike to profitably grow in the US.

3) ASP Cycle -- Where are we, what keeps it going higher, and where’s the downside risk.

4) e-commerce – why Nike sandbagged on its targets, and will sandbag again.

5) GM%: Why a 50%+ Gross Margin is achievable for Nike

6) China: How weakness in the Chinese economy could affect Nike’s growth

7) Athlete Endorsements – we’ll look at returns on athletes, which are largely diminishing

8) Competitive Landscape – especially in the US. Also how customers are becoming competitors

9) Investor Meeting: How this analyst meeting should be different from others.


Call details will be provided one week prior to the call.

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