Takeaway: Adding it to the SHORT bench.

Our Healthcare Team has developed the Macro Monitor, a web-based tool for identifying relationships across thousands of data sets.  They have since expanded the Macro Monitor to include restaurant related macro and company fundamental time series.  We started the process several months ago and have identified several relationships that we think are interesting and worth tracking over time.  Our plan of action is to continue to build out our data sets and capabilities using the Macro Monitor and come out with additional high frequency trackers that provide a read into the company’s fundamentals. This note represents our first tracker, THE DONUT TRACKER, right now we are using it to focus on DNKN, but will expand it to KKD in the near future.


DNKN is a name that we track very closely.  That being said, it has not been on the immediate radar screen, but it is moving up the list.  The business model is enviable, but only if they are generating positive same-store sales.  Same-store sales for DNKN are important, but only as a leading indicator for future development. 


With the company making $0.02-$0.03 in EPS on every new store opened, development is crucial to the overall DNKN story.  Once same-store sales trends turn negative the development pipeline will begin to slow down as franchisees will not want to open up stores at the same rate.



In this context, at 13.4x EV / NTM EBITDA the stock is overvalued.  As a result, we are adding DNKN to the Hedgeye Restaurants Best Ideas list as a SHORT, but on the BENCH for now.




The company has guided to 1-3% same-store sales growth for 2015 and 2-4% over the next five years.  Same-store sales are currently tracking at the low end of expectations.  In 2015, they will open 410-440 total net units (excluding the speedway closures).  Over the next five years they will grow units 4-6% versus 5.1% and 5.3% in 2013 and 2014, respectively.   


Given the current trends in same-store sales over the past three years and the increased competition, DNKN sales trends are under pressure.  No question DNKN will be one of the companies that will be impacted by a resurging McDonald’s.



Given the size of the DNKN system it will be difficult to get a good read on system same-store sales by talking just to franchisees.  In addition to our conversations, we will be looking to other sources of data to indicate how sales trends are faring.  Over the past year we have tracked a number of other reliable indicators that show a strong correlation to DNKN quarterly same-store sales. 


Consumer price index (CPI) and producer price index (PPI) information provided by the Bureau of Labor Statistics (BLS) has proven to be a good indicator of the overall trend for DNKN. Below we provided four charts out of the 6-8 that are working well since we started to track them. CPI – Bakery Products YoY % is the tightest, and most relevant correlation to DNKN SSS at a 0.89 correlation. We find this to be very indicative of performance given its strong relevance to DNKN and the tight correlation over the last five years.  


With these indicators being reported monthly we can get a strong sense of how sales are trending intra-quarter.  We will be using these data sets in order to get a read on the trend and what to expect from DNKN. In addition, we will monitor menu changes and quarterly LTO’s to gauge how the company is managing the business.






We would also note that DNKN reported traffic declines of 70bps last quarter.  Over the last couple of years the company has increased menu complexity and used price aggressively to drive same-store sales.  Both of those actions are separate issues that will need to be addressed if sales trends continue to decline.



We will continue to update you on the progress of our trackers on a regular basis.


Please call or e-mail with any questions.


Howard Penney

Managing Director


Shayne Laidlaw




Big Hedgeye Healthcare Victory In This Battleground Stock | $ATHN

Takeaway: Our Healthcare team scores big long Athenahealth and short AMN Healthcare Services.

It’s been a huge week for our healthcare team. Two monster calls which have worked out very well.


Big Hedgeye Healthcare Victory In This Battleground Stock | $ATHN - z athn


First up.


Healthcare analyst Tom Tobin’s long call on battleground stock Athenahealth (ATHN) with 30% short interest.


Spot on.


ATHN shares rocketed over 24% after delivering strong 3Q results. The healthcare technology company continues to take market share as it builds product awareness among physicians.


(Case in point? Check out the company's hilarious, new #LetDoctorsBeDoctors campaign, with full-fledged music video featuring doctor/rapper ZDogg, in “EHR State of Mind”)

Tobin sees at least 30% upside from here.


Here's an update on ATHN from Healthcare analyst Andrew Freedman post today’s run-up in the stock:


“The quarter was very strong across most key metrics. But Doc adds were the big upside surprise in the quarter with 3,953 net collector physicians added compared to 2,846 consensus. While we flagged the sequential acceleration in our ATHN practice tracker in the quarter, we were still surprised by how strong the number was.  


Despite a seasonal dip in bookings in Q3, management stated that they are tracking in-line with their 30% bookings target year-to-date."


We maintain that ATHN is a $200+ stock as they are best positioned competitively to take share in a consolidating ambulatory practice management and EHR management.”


Big Hedgeye Healthcare Victory In This Battleground Stock | $ATHN - athn docs


Click here (and here) to read more on our Healthcare team’s Athena thesis.


* * *


Another big win (this time on the short side) is AMN Healthcare Services (AHS). It's plummeted a whopping 17% on the week after a number of hospitals, including HCA and CYH, reported disappointing quarterly results.


Even though the stock is up today, we’re sticking with our bearish call. Here’s another update from Freedman:


"AHS came under pressure this week as the hospitals continue to report disappointing volume growth related to the #ACATaper.  Hospitals have been on a hiring spree to catch up with incremental ACA related demand, and now that is starting to slow as evident by the most recent Healthcare JOLTS data. 


With think organic growth collapses in coming quarters and stock that ultimately trades back down to the mid-teens."



Click here to read our Healthcare team’s short thesis on AHS.


**If you're an institutional investor and are interested in subscribing to our research please send an email to

FMHQ (Friday Morning Housing Quant)

Takeaway: It was another strong week for builder stocks as the average builder is now up +7.2% QTD. BZH rose 8% in the latest week.

Our FMHQ (Friday Morning Housing Quant) tables present the state of the publicly traded homebuilders in a visually-friendly, quantitative format that takes about 60 seconds to consume. 


Quick Quant Takeaways: 

  • Performance Roundup: Housing stocks put in another very strong week with the sole exception of Pultegroup (PHM), which sank on disappointing earnings. Interestingly, PHM is the one builder that has historically put up underwhelming 4Q returns so it begs the question whether there's something recurrent going on there. Returns remain extremely strong almost across the board with QTD absolute returns for ITB and XHB at +6.4% and +6.0% vs the S&P 500 +6.9%. Meanwhile, the average builder from our tables below is +7.2% QTD, while the median is +6.4%. Our preferred four horsemen of 4Q among builders are KBH, BZH, LEN & NVR, which are +2.4%, +14.2%, +7.7%, +8.2% QTD. BZH had a monster week, rising 8.0% on the week, while LEN and NVR were +4.1% and +5.8% on the week, respectively. KBH, meanwhile, declined by -2.5%. 

  • Insider Buying: Not much to report here, as there's been none recently.
  • Beta: The highest beta names (1YR) remain HOV (1.45), KBH and BZH which are tied at 1.30. At the other end of the spectrum, the lowest beta plays are NVR (0.60), MDC (0.89) and TOL (0.98).
  • Short Interest: DHI, HOV and KBH have seen SI creep higher, rising as a % of SO by 2.6%, 2.6% and 2.2%, respectively in the latest month. BZH has seen SI fall by 0.8%.
  • Sell Side Sentiment: MTH has seen the largest drop in sell side support, while BZH, TMHC and DHI have seen the largest bump in support.
  • Valuation: The cheapest names in the group currently are BZH (9.6x), TPH (9.5x) and TMHC (9.5x), while the most expensive are NVR (15.3x), LEN (13.4x), and TOL (13.4x).


FMHQ (Friday Morning Housing Quant) - BQ 1


FMHQ (Friday Morning Housing Quant) - BQ 2


FMHQ (Friday Morning Housing Quant) - BQ 3


FMHQ (Friday Morning Housing Quant) - BQ 4




Joshua Steiner, CFA


Christian B. Drake

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Hedgeye's Internet Analyst Nails Pandora Short Call | $P

Takeaway: Our contrarian Internet analyst made the short call on Pandora (P) before the bottom fell out.

It’s been a (really) rough day for Pandora shareholders. The stock has cratered over 30% today after the online radio streaming company reported ugly 3Q results.  


Hedgeye's Internet Analyst Nails Pandora Short Call | $P - 10 23 2015 Pandora


One Wall Street analyst wasn't caught by surprise. Hedgeye Internet & Media analyst Hesham Shaaban has long been skeptical about the stock. It was added to his Best Ideas Short list on 12/22/2014. Since then, Pandora is down 29%.    


Here’s an update from Shaaban following results:


“Pandora's 3Q release was pretty ugly.  P wound up missing 3Q revenues after guiding high on the last print, and cut 2015 revenue guidance back toward the low end of its initial 2015 guidance release, which it had raised twice this year.  More importantly, P may have telegraphed that it expects to lose Web IV through both its Ticketfly acquisition and its pre-1972 settlement.  Once the Web IV decision is out, P could be a single digit stock.” 


***Click here to read Shaaban’s research note earlier this week heading into the print.


Check out the slide below on Pandora. It's from his “Quarterly Internet Best Ideas Call” he hosted last week with institutional subscribers where he reviewed major themes and incremental developments for a slew of his best idea longs/shorts including Yelp!, LinkedIn and more.


Hedgeye's Internet Analyst Nails Pandora Short Call | $P - Pandora


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RTA Live: October 23, 2015



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