prev

LNKD | Tracker Update (Talent Solutions)

Takeaway: Our tracker is seasonally declining, but not a concern yet. However, we're still cautious about staying long into the 2016 guidance release

KEY POINTS

  1. SEASONAL BUT MUTED DECLINE: Our LNKD JOLTS tracker declined sequentially into the first month of 4Q15, which is expected given seasonality in LNKD's selling environment.  That said, our focus on our tracker over the next two quarters is more about magnitude than direction; the former is fairly muted QTD.  As a reminder, our LNKD Talent Solutions TAM analysis suggests that the bulk of that TAM is in the upsell opportunity (ARPA) vs. new account volume (see 2nd note below for detail).  
  2. STILL MULLING THE 2016 GUIDANCE RELEASE: Our concern is not LNKD's fundamentals, but rather a conservative mgmt team that probably isn't willing to box itself into guidance that is can't confidently raise throughout the year.  From here, we'll be monitoring our tracker (1-2 update prior to guidance), and keeping an eye on the EUR/USD since Fx was LNKD's single largest headwind this year (despite all the noise around Display).  We may stay long into the guidance release if Fx pressure abates early into 1Q16.

 

See the notes below for supporting detail/analysis on our LNKD Long thesis and post-print thoughts.  Let us know if you would like to disucss.  

 

Hesham Shaaban, CFA


@HedgeyeInternet 

 

 

LNKD | Tracker Update (Talent Solutions) - LNKD   ARPA vs. JOLTS 4Q15 1

 

LNKD: Thank You Santa (3Q15)
10/30/15 09:26 AM EDT
[click here]

 

LNKD: New Best Idea (Long)
07/14/15 08:00 AM EDT
[click here]


The Macro Show Replay | December 9, 2015

 

 


December 9, 2015

Hedgeye's Daily Trading Ranges are twenty immediate-term (TRADE) buy and sell levels, with our intermediate-term (TREND) view and the previous day's closing price for each name.  Click HERE for a video from Hedgeye CEO Keith McCullough on how to use these risk ranges.

 

  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
2.31 2.13 2.24
SPX
S&P 500
2,049 2,109 2,063
RUT
Russell 2000
1,152 1,177 1,159
COMPQ
NASDAQ Composite
5,038 5,175 5,098
NIKK
Nikkei 225 Index
19,229 19,848 19,492
DAX
German DAX Composite
10,431 10,901 10,673
VIX
Volatility Index
15.91 19.21 17.60
DXY
U.S. Dollar Index
97.36 99.33 98.47
EURUSD
Euro
1.05 1.09 1.08
USDJPY
Japanese Yen
122.08 123.46 122.96
WTIC
Light Crude Oil Spot Price
37.03 40.84 39.25
NATGAS
Natural Gas Spot Price
2.01 2.21 2.08
GOLD
Gold Spot Price
1,049 1,089 1,074
COPPER
Copper Spot Price
1.99 2.10 2.06
AAPL
Apple Inc.
115 119 118
AMZN
Amazon.com Inc.
653 682 677
PCLN
Priceline.com Inc.
1,229 1,316 1,303
COST
Costco Wholesale Corp.
161 170 168
NFLX
Netflix, Inc.
119 131 127
KMI
Kinder Morgan Inc.
13.03 19.32 15.72

 

 


the macro show

what smart investors watch to win

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.

Correlation Risk

Client Talking Points

EURO

The most important move in macro this morning is the EUR/USD retesting of $1.09 on the upside. It’s not only a Pain Trade in FX but it gives both a bid to bombed out Oil/Commodities and an offer to Japanese/European stocks – correlation risk very high.

CHINA

Both the spot and reference rate for the Yuan are testing 4 year lows making this FX/Correlation Risk all the more relevant. The -$87B draw-down in Chinese FX Reserves was the 3rd largest in 10 years; no bounce for stocks in Shanghai or Hong Kong overnight.

TRANSPORTS

“Ex-Energy”, the S&P 500 was down more than it looked yesterday – Oil & Gas (XOP) was up +0.6% on the day vs. the Transports (IYT) down a big -2.8% - fully loaded with COST inventories +16.5% last night (vs. Sales +1.3%). The U.S. economy is very obviously slowing here in Q4 – the Fed is cutting its GDP forecast as they raise rates.

 

*Tune into The Macro Show with Macro & Housing Analyst Christian Drake at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 70% US EQUITIES 3%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 15% INTL CURRENCIES 6%

Top Long Ideas

Company Ticker Sector Duration
MCD

Restaurants Sector Head Howard Penney had no material update on McDonald's (MCD) this week. However, here is what Penney wrote around when we added MCD to Investing Ideas. It's worth reiterating our high conviction in the stock:

 

"We continue to get more bullish every time we talk to the company, franchisees and/or customers which we have polled via conducting surveys. 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," according to Penney. "This ship is in gear and headed north. 2015 will be the last time this stock is below $100."

RH

A lot has happened in 13 weeks... not the least of which is that Restoration Hardware (RH) is underperforming not only the market by 16%, but Retail as well (by 7%) – despite RH being more insulated from some of the issues that are clipping earnings today for retailers more broadly.

 

Over this time period, however, RH meaningfully accelerated square footage growth, launched two new concepts. Some say it’s bad timing. We disagree. RH is our favorite name in the retail space, and we like it across all three durations. Trade, Trend, and Tail.

TLT

On went the game of slowing last week with a little central planning un-secretive sauce. Despite the ECB’s move to cut the deposit rate to -0.30%, Draghi didn’t ring the cowbell loud enough. Meanwhile, Friday’s jobs report might have been just enough for Janet to hike rates into a late cycle slowdown. The consensus long USD crowd was crushed on the ECB news. The dollar lost over 2% on Thursday and rates were pushed higher.

 

If growth is going to continue to slow, with a rate hike on the horizon, a relative fixed income spread play (long TLT, short JNK) is exactly what you want on.

Three for the Road

TWEET OF THE DAY

$KMI cuts dividend by 74%.  Ahhh this is so bittersweet it hurts

@HedgeyeEnergy

QUOTE OF THE DAY

No man was ever wise by chance.

Seneca

STAT OF THE DAY

China’s FX reserve balance plunged -$87.2B in NOV (the third-largest decline in at least 10 years) to the lowest absolute level since FEB ‘13.


Tonight | Join Hedgeye For Holiday Cocktails & Appetizers

We hope you can join us tonight at La Biblioteca (622 3rd Avenue at 40th Street – located inside Zengo restaurant) from 5-9pm for some holiday cheer!

 

Please RSVP to Kerrie at  if you can join.

 

We look forward to seeing you!

 

-Your Hedgeye Macro Team

 

Tonight | Join Hedgeye For Holiday Cocktails & Appetizers - he client holiday party DEC2015


CMG | NO REMORSE, THE HUBRIS CONTINUES

Chipotle Mexican Grill (CMG) remains on our Hedgeye Restaurants Best Ideas list as a SHORT.

 

HEDGEYE OPINION

Today, Chipotle management spoke at the Bernstein Consumer Summit, in large part about their recent E. coli outbreak and how they plan to reach the other side of it. The hubris that management seemed to display was remarkable, in which they showed little remorse for the victims and turned quickly to how they will build traffic once again. Chipotle is quickly beginning to look just like any other restaurant company. They will no longer be cutting cilantro, tomatoes or lettuce fresh in house as they are labeled high risk items to be infected with E. coli. Additionally, if you didn’t know already, their corn mixture is not fresh; due to a short harvest season they freeze the yearly supply at the end of the summer and thaw it as needed. Management is working to implement changes immediately, no matter what the cost is, which we liked to hear. But this will all come with extra costs, and management openly admitted that although not immediately, they are confident that they have the ability to increase price to offset these costs. CMG would have to take a sizeable price increase to offset added infrastructure investment as well as labor pressure. We don’t think it is possible, the days of CMG’s far above industry average margins will be in the past.

 

In CMG’s recent release on food safety (click HERE to view), CMG made an interesting comment, it reads, “there are about 48 million cases of food-related illness in the U.S. annually, including 265,000 cases of E. coli.” We read this as, “sorry, but we aren’t the only ones causing people to get sick.” This is just a continuation of the hubris from management in which they believe they are not at fault and somehow better than their competitors who use a similar supply chain as them.

 

We remain firmly SHORT, as we see downside to the $350-$400 range.

 

FOOD SAFETY PLAN

CMG has hired Dr. Mansour Samadpour of IEH Laboratories and Consulting Group to revamp their supply chain and ensure the safety of all the food. He was asked to “design a more robust food safety program to ensure the highest level of safety and the best quality of all meals served at Chipotle.” He has set out to add more washing and testing technology at distribution centers as well as shelf life testing to be used in restaurants. Management has also embarked on enhancing internal training to ensure all employees understand the importance of food safety.

 

On the supplier front, CMG is in the process of working with them to implement more stringent testing so any bad crops are stopped at the source. Additionally, management does not believe there will be any shortages of naturally raised, sustainably sourced or organic products needed for them to operate.

 

Improving food safety will be a significant investment, food safety is going to be a greater focus for the organization going forward. They are implementing this at such a fast pace they openly admitted they were doing it inefficiently, but they will refine the process after it is executed.  

 

Management believes that they have pricing power in order to cover these additional costs. They will begin to look at this dynamic closer to 2017, as it would be disingenuous to raise prices immediately following this outbreak.   

 

WHAT IS THE PLAN FOR TRAFFIC RECOVERY?

Management has spoken with the CDC and the FDA and they said at some point in the future they would declare the restaurants clear of E coli. At that time management plans to market through traditional media, direct mail (BOGO’s), and perform “critically placed interviews,” to say this is over and invite people back in. CMG has conducted research studies specifically regarding this outbreak and they learned that just 57% of CMG customers are aware of this outbreak. They also learned about some lost regular customers due to lack of trust and some new adopters drifting away because they have other options.  No matter how you slice it, the road to recovery for CMG is going to be a long one.

 

TECHNOLOGY AND THE 2ND LINE

CMG is working to make mobile ordering a bigger part of their business, while they improve the efficiency of their second make line. They are going to be standardizing the process and creating tools to control portions. Online and mobile order customers will no longer be able to provide text commentary, although they will still be able to customize to some degree. Part of the enjoyment of eating at Chipotle is being in line and watching your meal being put together, getting to customize everything as you go down the line. That goes away when you order online. Some customers may not care about that, but as lines become shorter because people realize Chipotle is just as healthy as any other fast food, what will happen then?

 

RECENT NOTES

12/6/15 CMG | STARTING TO COME CLEAN

11/23/15 CMG | SHORT THE FUNDAMENTALS

11/17/15 CMG FLASH CALL | SHORT HYPOCRISY THEORY GAINING MOMENTUM

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director


 

Shayne Laidlaw

Analyst

 


GET THE HEDGEYE MARKET BRIEF FREE

Enter your email address to receive our newsletter of 5 trending market topics. VIEW SAMPLE

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

next