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October 14, 2015

October 14, 2015 - Slide1

 

BULLISH TRENDS

October 14, 2015 - Slide2

October 14, 2015 - Slide3

October 14, 2015 - Slide4

 

BEARISH TRENDS

October 14, 2015 - Slide5

October 14, 2015 - Slide6 

October 14, 2015 - Slide7

October 14, 2015 - Slide8

October 14, 2015 - Slide9

October 14, 2015 - Slide10


LEISURE LETTER (10/14/2015) - STATION, AIRBNB, CCL, UBER

TICKERS: STATION, AIRBNB, CCL, UBER 

events

October 15: VAC 3Q CC ; PW: 13620306

October 15: WYNN 3Q CC , PW: 55746426 

COMPANY NEWS 

Station Casinos - Station, which has been privately held since 2008, announced plans Tuesday for an initial public offering that will return the company to the stock market. 

ARTICLE HERE

Takeaway: As evidenced by our long BYD call, we like the LV locals gaming market exposure. We'll have more to say on this name.


AIRBNB - Jersey City could soon have something New York does not. On Monday, Mayor Steven M. Fulop will introduce legislation to legalize the use of all short-term sleepover web services, like Airbnb and HomeAway. The law is expected to be approved by November.  In exchange for agreeing to let some of Jersey City’s 262,000 residents rent out a couch, a bedroom or even their entire apartment or house on Airbnb, the company would charge users the same 6% hospitality tax currently levied on guests at the city’s dozen hotels.  

ARTICLE HERE

 

CCL - As cruise lines continue to jump into the growing Chinese cruise market, Carnival Cruise Line and AIDA -- both owned by Carnival Corporation -- announced that they will have ships in the country by 2017.  The move by Carnival Corp. means that four of the company's 10 brands will have a foothold in China. Costa Cruises has been offering voyages in China since 2006, while Princess Cruises has been in China since 2014. In 2015, Carnival expects over 500,000 passengers in China, up from about 350,000 in 2014 -- a 43% increase YoY.

ARTICLE HERE

Takeaway: 2017 is shaping up to be a true test for the Chinese cruise market. 

 

Star Cruises - Star Cruises could be upping its deployment to Vietnam nearly four times in 2016, according to a report in The Saigon Times Online.  With 50 scheduled port calls in 2015, Star may be targeting upwards of 200 in 2016 with the SuperStar Libra and SuperStar Virgo, according to the report, sailing from Hong Kong and mainland China.

ARTICLE HERE

 

UBER - Uber is coming back to Broward County.  Broward County (Fort Lauderdale, FL) commissioners finalized a new ordinance Tuesday for ride-sharing services such as Uber and Lyft. The ordinance passed in a 6-2 vote. The amended ordinance comes after Uber suspended its service in Broward County on July 31 after the county passed new requirements for ride-sharing drivers, including county background checks and a mandatory chauffeur's license.

ARTICLE HERE

INDUSTRY NEWS

Macau Airport Traffic - Macau International Airport handled over 120,000 passengers during the National Day golden week of holidays in the mainland this month, 6% more than in the corresponding period last year, the operator says. 

ARTICLE HERE

Takeaway: A positive and consistent with the visitation data. GGR growth is much more difficult to come by. 

 

Macau Tourist Price Index -  The Statistics and Census Service (DSEC) indicated that for the third quarter of 2015 the Tourist Price Index dropped by 2.72% YoY to 131.46, the first decline since the third quarter of 2002.  Notable decrease were observed in the price index of Accommodation (-10.88%) and Clothing & Footwear (-6.96%); meanwhile, price index of Food, Alcoholic Beverages & Tobacco; Transport & Communications; and Entertainment & Cultural Activities increased by 5.87%, 3.94% and 3.14% respectively.

ARTICLE HERE

 

Macau Consumer Confidence - The Macau University of Science and Technology’s index of consumer confidence in the city fell by 5.09% to 81.57 in the third quarter of this year.  

ARTICLE HERE

 

China Macro - China's imports slumped by nearly 18% YoY to 924 billion yuan in September, while exports slipped by 1.1% YoY to 1.30 trillion yuan, Customs said. But that was an improvement on August's decline and better than the 6% drop forecast in a survey of economists by Bloomberg News.

ARTICLE HERE

  

REGIONAL REVENUES (SEPT): 

  • Iowa SS GGR:  +2.1% YoY
    • BYD: +9.1% YoY
  • Missouri SS GGR: +3.6% YoY
    • PENN: +9.2% YoY

Takeaway: As predicted, September looking much better in regional gaming than August. Earnings visibility for BYD and PENN looks good.


INVITE | THOUGHT LEADER CALL | THE LOOMING CRASH IN RED MEAT

In short, the economy is slowing; the ag commodity complex prices are crashing; the herd is fat and growing and consumers are consuming less red meat.  Therefore, the current set up for a crash in red meat is nearly perfect:

  1. Because beef is among the most expensive proteins.
  2. The strong dollar is hurting the export market for beef.
  3. U.S. per-capita beef consumption in 2015 will decline to 53.9 pounds per person, the lowest in government data that goes back to 1970. 
  4. Cattle futures are in a free fall and could crash further and stay low for an extended period of time.  As a result, the bubble in red meat prices is going to burst, and could be in a bear market for years.

 

COMPANIES IMPACTED ― TSN, HRL, CAG

 

On Thursday, October 15th at 1:00pm ET we are holding a Thought Leader call discussing the current crash in cattle prices and the long-term implications for the industry.  On the call will be James G. Robb, Senior Agricultural Economist and Director, Livestock Marketing Information Center. 

 

The call will focus on the following:

  1. Historical context to the current cattle market supply and demand dynamics
  2. The free fall in cattle prices
  3. The cattle life cycle and why the largest cattle herd expansion in history is now underway
  4. Why the “fat” inventory of cattle will continue to drive prices lower
  5. The ramifications of falling beef prices across the supply chain
  6. A time table for key industry events that could drive price down further

 

JIM ROBB BIO

Jim Robb is the Senior Agricultural Economist at the Livestock Marketing Information Center (LMIC) and for 18 years has served as the Director. He has written several hundred articles and newsletters on a variety of agricultural marketing and cattle industry topics. Jim is a regular speaker at conferences throughout North America and has given expert testimony to the US Senate Agriculture Committee.

 

Prior to joining the LMIC, Jim was an Agricultural Economist at the University of Nebraska. He also has worked in the agricultural banking sector. Jim received degrees in Agricultural Economics from the University of California-Davis and from Michigan State University.

 

The LMIC began in 1955 and is a unique cooperative effort that supports market education, research, and outlook. Currently, the Center includes 28 US Land Grant Universities, Utah State University was a founding partner. The Center also includes six USDA agencies, and several associate organizations.

 

CALL DETAILS

Toll Free:

Toll:

Confirmation Number: 13622214

Materials: CLICK HERE

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 


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INVITE | THOUGHT LEADER CALL | THE LOOMING CRASH IN RED MEAT

In short, the economy is slowing; the ag commodity complex prices are crashing; the herd is fat and growing and consumers are consuming less red meat.  Therefore, the current set up for a crash in red meat is nearly perfect:

  1. Because beef is among the most expensive proteins.
  2. The strong dollar is hurting the export market for beef.
  3. U.S. per-capita beef consumption in 2015 will decline to 53.9 pounds per person, the lowest in government data that goes back to 1970. 
  4. Cattle futures are in a free fall and could crash further and stay low for an extended period of time.  As a result, the bubble in red meat prices is going to burst, and could be in a bear market for years.

 

HEDGEYE LONG IDEAS - MCD, DFRG, YUM

 

ADDITIONS TO THE HEDGEYE LONG BENCH - RUTH, TXRH

 

OTHER BENEFICIARIES - SHAK, QSR, SONC, JACK, BLMN, HABT, WEN, RRGB 

 

INVITE | THOUGHT LEADER CALL | THE LOOMING CRASH IN RED MEAT - CHART 100

 

On Thursday, October 15th at 1:00pm ET we are holding a Thought Leader call discussing the current crash in cattle prices and the long-term implications for the industry.  On the call will be James G. Robb, Senior Agricultural Economist and Director, Livestock Marketing Information Center. 

 

The call will focus on the following:

  1. Historical context to the current cattle market supply and demand dynamics
  2. The free fall in cattle prices
  3. The cattle life cycle and why the largest cattle herd expansion in history is now underway
  4. Why the “fat” inventory of cattle will continue to drive prices lower
  5. The ramifications of falling beef prices across the supply chain
  6. A time table for key industry events that could drive price down further

 

Purchasing over $1 billion of red meat, McDonald’s is one of the biggest beneficiaries of the lower beef prices.  We are bullish on the MCD turnaround and now the company will likely be seeing a significant commodity tailwind in 2016-2017.

 

JIM ROBB BIO

Jim Robb is the Senior Agricultural Economist at the Livestock Marketing Information Center (LMIC) and for 18 years has served as the Director. He has written several hundred articles and newsletters on a variety of agricultural marketing and cattle industry topics. Jim is a regular speaker at conferences throughout North America and has given expert testimony to the US Senate Agriculture Committee.

 

Prior to joining the LMIC, Jim was an Agricultural Economist at the University of Nebraska. He also has worked in the agricultural banking sector. Jim received degrees in Agricultural Economics from the University of California-Davis and from Michigan State University.

 

The LMIC began in 1955 and is a unique cooperative effort that supports market education, research, and outlook. Currently, the Center includes 28 US Land Grant Universities, Utah State University was a founding partner. The Center also includes six USDA agencies, and several associate organizations.

 

CALL DETAILS

Toll Free:

Toll:

Confirmation Number: 13622214

Materials: CLICK HERE

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 


DFRG | WHEN UGLY TURNS BEAUTIFUL

Del Frisco’s Restaurant Group (DFRG) is on the HEDGEYE Restaurants Best Ideas list as a LONG. 

 

We see as much as 25% upside from current levels.

 

As a reminder we are hosting a conference call on the looming crash in beef prices on Thursday, October 15th at 1:00pm ET, view our invite HERE

 

As expected, DFRG reported an ugly quarter, but the worst is behind the company and management is adjusting its operating strategy to improve profitability in 2016.  The current EPS estimate of $0.95 for 2016, looks to be manageable given the changes the company is making to the operating strategy.  Importantly, the current estimate does not likely reflect the improved profitability ($0.10-$0.12) from closing the two underperforming stores in 2015. 

 

THIRD QUARTER FISCAL YEAR 2015 FINANCIAL PERFORMANCE

DFRG reported consolidated revenues of $68.6 million, coming in short of consensus estimates of $70.25 million. A bright spot in their performance was Cost of Goods management, bringing down the cost as a percentage of revenue to 29.0% from 30.2% and versus consensus estimates of 29.48%. Adjusted net income came to $0.9 million, or $0.04 per diluted share, missing consensus estimates of $1.03 million in total but matching consensus EPS estimates of $0.04.

 

CURRENT SALES GUIDANCE

The company is now guiding to total comparable restaurant sales of -1.0% to 0.5% versus previous estimates of 0.5% to 1.5%.  Consensus estimates are now suggesting 0.1% for the year, well within the range of possible outcomes for the quarter. 

 

3Q15 SAME-STORE SALES PERFORMANCE

Del Frisco’s Double Eagle same-store sales (SSS) declined -1.4%, the decline in comparable restaurant sales was comprised of a -4.3% decline in customer counts, partially offset by a +2.9% increase in average check.  Importantly, the Double Eagle 2-year trends improved by 40bps sequentially.  If you are bearish on DFRG, at this point it’s easy to highlight this performance as a concern.  The issues at the Double Eagle franchise are cyclical, not secular, as this is one of the best brands in the industry. 

DFRG | WHEN UGLY TURNS BEAUTIFUL - CHART 1

 

Sullivan’s SSS increased +1.2%, the improvement in comparable restaurant sales was comprised of a +0.8% increase in customer counts and a +0.4% increase in average check.  Importantly, Sullivan’s 2-year trends improved by 200bps sequentially.  Sullivan’s has made progress on improving the top line, but we do not have significant improvement built into the model for 2016.

DFRG | WHEN UGLY TURNS BEAUTIFUL - CHART 2

 

Del Frisco’s Grille SSS decreased -3.5%, the decline in comparable restaurant sales was comprised of a -1.2% decline in customer counts and a -2.3% decline in average check.  In 3Q15, The Grille’s traffic trends improved by 250bps sequentially.  If management can get SSS at the Grille to flat in 4Q, and provide a stronger outlook for performance in 2016, the company’s valuation will improve.

DFRG | WHEN UGLY TURNS BEAUTIFUL - CHART 3

 

THE 2016 SETUP

We like the 2016 set up for DFRG.

 

While the company is not providing guidance for 2016, the current consensus numbers look to be conservative.  The company is facing a number of tailwinds in 2016 that will benefit margins and profitability:

  1. A favorable red meat commodity environment in 2H16 and 2017.
  2. Lower costs associated with unit growth.
  3. Margin expansion.
  4. Easy same-store sales comparisons.

 

SELL BELOW INTRINSIC VALUE

DFRG | WHEN UGLY TURNS BEAUTIFUL - CHART 4

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 


The Macro Show Replay | October 14, 2015

 


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Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

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