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BYD: AC GROWTH?

Takeaway: The performance of Borgata could lead to EPS upside in Q3 and beyond

The performance of Borgata could lead to EPS upside in Q3 and beyond 

  • A central tenet to our Long BYD thesis is the potential for actual sustained growth (not just stability) in 2 of BYD's highest margin but chronically underperforming markets: Las Vegas locals and Atlantic City
  • Borgata in AC, 50% owned by BYD, posted a 14% increase in GGR in September and Q3 overall which should put EPS and EBITDA above Street expectations, 2c and $2-3m above, respectively, per our estimate. Remember that New Jersey offers the 2nd lowest gaming tax rates behind only Nevada so flow through on incremental revenue growth is high
  • Borgata is benefitting from a better macro picture certainly, but the real upside is coming from supply contraction. As can be seen in the chart, both slot and table volumes began ascending following the first closure (AC Hilton in February of 2014
  • Borgata is the most desirable property in Atlantic City and seems to be gaining the most share from the recent casino closings.

 

BYD: AC GROWTH? - borgata


USD, Gold and SPY

Client Talking Points

USD

Looks like the most expedited part of the “Dovish Fed” pivot got priced in, so be careful with the “reflation” trades (Oil & Gas stocks +3% yesterday) as USD holds its AUG support level of 93.40 (USD Index) and EUR/USD backs off at 1.14.

GOLD

Pre the recent U.S. jobs miss, our pivot was A) not to be short commodities and B) be long Gold – that’s signaling immediate-term TRADE overbought (because USD and rates are signaling oversold with 3-month Treasuries yielding negative -0.1%).

SPY

What happens when 10,000 hedge funds are using the same hedge? Looking forward to seeing how many shorts covered when we get the CFTC data today; sentiment at 15-16 VIX is off-side to the bullish side again; no resistance for VIX to 24-28 and/or support for SPX to 1965, then 1917 – Financials (XLF) our fav sector short right now vs. Utilities (XLU) long.

 

**Watch a replay of The Macro Show with Restaurants & Consumer Staples analyst Howard Penney - CLICK HERE

Asset Allocation

CASH 65% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 5%
FIXED INCOME 30% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
RH

We think that the catalyst calendar is just starting to pick up, and should be the best that Restoration Hardware has seen – perhaps ever. There are two new and significant merchandising initiatives, which are solid on their own. But to pair them with the square footage growth acceleration seems almost like a fantastic coincidence. But it’s not. This has been in the plan all along. There’ll be many more new concepts and classifications – though we’d argue that the company can go deep and add $2bn in revenue with what it has.

 

To be clear, there’s much more to this story than just square footage growth – like the ability to consistently merchandise product people want in quantities they need.  Without the ability to deliver on that requirement, a retailer could have the greatest store in the hottest location with the best demographics, and it will still be nothing but a liability (regardless of how low the rent might be). That’s why square footage growth is grinding to a halt for other U.S. retailers. That’s also why the growth profile at RH is so powerful, and unmatchable by anyone we see in Retail today.

PENN

As we predicted, a rise in September regional revenues would serve as a catalyst for regional gaming stocks, and in particular, Penn National Gaming. For the record, PENN is up +12% since we added it to Investing Ideas back in May, outperforming the S&P 500 which has fallen -5% since then.

 

We believe shares of PENN have a lot more room to run, given its strong performance in key markets like Ohio and its successful opening in Massachusetts.  A handful of states still need to report their September revenue figures, but numbers have been in line with our expectations thus far.

 

PENN will be reporting Q3 earnings on October 22nd.

TLT

Bottom Line: We remain 50% below Bloomberg Consensus on GDP growth. Wall Street, the IMF, World Bank and OECD are all still forecasting global growth of around 3% for 2015.  We reiterate our call for growth to come in at or below half that rate.

 

While most #LateCycle growth expectations in macro markets peaked in April, the US stock market peaked in July as bond yields hit the market with their last head-fake of a “breakout.” That makes this bear market in growth expectations relatively young. With that considered, sit back and relax with your TLT and EDV.

Three for the Road

TWEET OF THE DAY

We remain the most bullish house on Wall st, on the Long Bond

@KeithMcCullough

QUOTE OF THE DAY

People are illogical, unreasonable, and self-centered. Love them anyway.

-Kent M. Keith

STAT OF THE DAY

Alcohol cost $77 billion in impaired productivity at work in 2010, according to the CDC's breakdown published in the American Journal of Preventive Health.


EVENT: internet BEST IDEAS Quarterly Update

Takeaway: Please join us for our call Tuesday, Oct 20th at 1:00pm EDT. Dialing instructions will be published Tuesday morning.

We will be hosting our quarterly INTERNET BEST IDEAS Update Call next Tuesday.  We will be reviewing the major themes and incremental developments to our Best Idea Short theses (YELP, P), our Best Idea Long thesis on LNKD, as well as our Short thesis on TWTR.  The emphasis of this call will be to outline our view over various durations (particularly 2016) as well as the upcoming catalyst calendar; identifying the major risks and catalysts to each position over the near-to-intermediate term. 

 

Join us for our call Tuesday, Oct 20th at 1:00pm EDT.  Dialing instructions will be published Tuesday morning. 

 

 

KEY TOPICS WILL INCLUDE

  • LNKD: Sheepish guidance ≠ deteriorating fundamentals; why LNKD is poised to breakout from major 1H15 investments (not Lynda).
  • P: Model can’t handle much more than a best case scenario under Web IV; why the worst-case is more likely.
  • YELP: Model is broken, but street now understands that; what we’ll be monitoring to assess the short from here.
  • TWTR: Aggressive monetization tactics creating structural headwinds; why there is at least one more leg down to the short.

 

Hesham Shaaban, CFA

@HedgeyeInternet 


investing ideas

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.

The Macro Show Replay | October 16, 2015

 


October 16, 2015

October 16, 2015 - Slide1

 

BULLISH TRENDS

October 16, 2015 - Slide2

October 16, 2015 - Slide3

October 16, 2015 - Slide4

 

 

BEARISH TRENDS

October 16, 2015 - Slide5

October 16, 2015 - Slide6

October 16, 2015 - Slide7

October 16, 2015 - Slide8

October 16, 2015 - Slide9

October 16, 2015 - Slide10


CHART OF THE DAY: Overly Bullish Retail Growth Expectations

Editor's Note: Below is a chart and brief excerpt from today's Early Look written by Hedgeye U.S. Macro Analyst Christian Drake. Click here for more information on how to subscribe. 

 

CHART OF THE DAY: Overly Bullish Retail Growth Expectations  - WMT CoD2

 

Retail growth expectations are overly bullish.  The Chart of the Day says it all…it shows the consensus EPS growth rate for a basket of bellwether names in the retail sector. After bottoming in FY15 (WMT FY16) consensus has numbers accelerating to 10% and 12% in FY16 and FY17 respectively. Compare that to WMT guiding to -10% in its FY16 (calendar ‘15), -9% at the midpoint of the guide in FY17 (calendar ’16), and flat in FY 18 (calendar ’17). Bottom line…either WMT sandbagged, or growth for others will come down. Such a significant gap has not sustained itself for any more than a few quarters.


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