This week there have been rumors that PepsiCo (PEP) is looking at taking a minority stake in Chobani.  Despite the notion that PEP might be better broken up, the current business model seems to be working as good as any in the consumer staples space.


The Chobani rumor might be an indication about what the company is thinking going forward and what its next move might be to add another growth platform.  We believe that PEP could benefit from more exposure to snacking and or breakfast.  To that end, PEP could accomplish its push into snacking and breakfast by acquiring General Mills (GIS).


We know, it’s dilutive in the near-term, but acquiring GIS is a long-term play. Besides, Chobani is no longer as meaningful in the Greek yogurt market as it was 3-5 years ago when they were the trendsetter. The bigger competition, such as Dannon and Yoplait have improved their products and caught up with Chobani.  It makes more sense for PEP to dive a little deeper into snacking and acquire GIS, who has a strong global yogurt franchise in Yoplait.   


Chobani is not going to be cheap; with comps like Annie’s out there, this deal will most likely be dilutive albeit to a much smaller degree. This deal would be so small for PEP that the dilution would probably be undetectable.  Chobani has slightly over $1bn in sales making them a top three player in the Greek yogurt market. This is a highly contested market with major manufacturers like General Mills and Danone plowing millions into marketing and promotion at the shelf. Given this level of competition this isn’t a category for the faint of heart, you want a global team that has the knowledge to navigate changing consumer trends. With GIS, PEP would be buying into a global powerhouse that has decades of experience within yogurt and across the food category.


The rumors about PEP (and KO, although they have denied it) wanting to get into yogurt are also a bullish sign for our long call on GIS.  General Mills’ yogurt business is one the company’s strongest and best performing brands. Yogurt is not just for the breakfast occasion it truly is becoming a snack for all day-parts.


In addition, GIS has an undervalued cereal franchise that stands at the top of the market. Although the majority believes it to be struggling, cereal has merely reached a point of maturity. The innovation and marketing that GIS and other industry leaders have executed over the last 6-12 months are just now starting to pay dividends. We believe the companies will continue to see positive trends in the category as calendar year 2016 plays out.


PEP would also be buying into a stellar and growing natural and organic franchise. Representing roughly $600mm in sales, General Mills’ natural and organic brands consist of; Annie’s, Food Should Taste Good, Lärabar, Cascadian Farm, Liberté, Immaculate Baking, Mountain High and Muir Glen. These are strong brands within their respective categories and GIS is always looking at other acquisition to grow this portfolio.


Both GIS and PEP have strong brands that have transcended time.



In fact bringing the two companies together would create a very powerful company in the Consumer Staples space.



While it’s unlikely that PEP will buy GIS the opportunity is intriguing:

  • PEP could accelerate GIS brand growth internationally
  • Easy to marry each respective foodservice teams and dominate the industry in both front-of-house and back-of-house.  Foodservice is a $700bn industry projected to grow at a 4.2% CAGR over next 4 years
  • General Mills’ products would be a great healthier addition to Pepsi vending machines (Lärabar, Nature Valley, Bugles, Gardetto’s, Food Should Taste Good etc.)
  • Combination would make it even easier to work with retailers and distributors, would be a one stop shop for many items across the store creating efficiencies for all
  • Focus on healthy mornings: Items purchased and consumed together, paring items for deals in store (ex: buy a box of cheerios, get $1 off Tropicana)
  • A lot of the same culture and goals, brand building, innovation, productivity, execution and investment in their brands.  Seems like PepsiCo’s management has the fire in them to guide GIS’s portfolio in the right direction
  • Buying the “Better-for-you” company
  • A brand for every occasion


Please call or e-mail with any questions.


Howard Penney

Managing Director


Shayne Laidlaw



An Update On That Barbarous Relic Gold | $GLD

We didn’t add Gold (GLD) to the long side of our Macro Best Ideas until we could see what Gold loves more than anything else (Down Dollar, Down Rates – at the same time) in play.


An Update On That Barbarous Relic Gold | $GLD - zzzzzz gold


The question now? How fast can the U.S. data slow before ECB President Mario Draghi has to do EuroQE? That will be an up-Dollar #Deflation event. Stay tuned.


Back on August 28th, we advised Hedgeye subscribers to buy GLD in Investing Ideas. As you can see in the chart below, the recent run-up has been a profitable one for our subscribers. (Our view was based on slower U.S. economic data and our view that the Fed would keep rates #LowerForLonger.)


Since then, GLD is up 5.1% versus the S&P up just 1.9%. Right now, as an immediate-term trade, Gold looks overbought. It’s time to book some gains. 


An Update On That Barbarous Relic Gold | $GLD - keith twitter gold


Editor's Note: Click here for more non-consensus investing ideas.

McCullough: How to Use My Risk Ranges


In this clip from a recent edition of The Macro Show, Hedgeye CEO Keith McCullough answered a subscriber’s question about how to use his risk ranges. “Think of the range as the strike zone,” McCullough says. “When it’s outside, high and up, or down and out—like when it’s in the middle of the range—that’s not a pitch to swing at. That’s not where you make buy and sell decisions or covers and shorts. Wait for your pitch.”


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


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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


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.


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%).


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


Top Long Ideas

Company Ticker Sector Duration

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.


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.


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


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



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

-Kent M. Keith


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. 




  • 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


real-time alerts

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This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.