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Myriad (MYGN): The Day After, big +12.9% alpha move!

Our new head of Healthcare at Research Edge, Tom Tobin, issued the following note before the open yesterday to his exclusive network. Big alpha day for Tom. I'm psyched to be partnered with him again!

If you're interested in our Healthcare research, please email Tom at

Here's his MYGN note from the morning of 6/30/08:

MYGN!!
"The exclamation points are probably not necessary given the near universal dismissal of the compound. What's left is a fast growing, profitable, bankers dream of a diagnostics company.

I am sure there are pitch books on the desks of company management discussing the merits of splitting the Pharmaceutical and Molecular Diagnostics companies. I agree with the move. Management is killing the Flurizan development program after $68M in costs and they should probably kill drug development altogether and get on with the business of genetic testing.

Molecular Diagnostics revenue growth is running above 50% with EBITDA margins at 51%, and EBITDA of $29M for the March quarter. MYGN shares look like they will open around 42, or 12X EV/EBITDA on just the Molecular Diagnostics business. With the short interest at 30% of the float, I'd bet the shares are higher from here.

Tom Tobin
Managing Director
Healthcare

(Chart courtesy of stockcharts.com)

LEH +4.9% on the day... See, I Can Buy Things!

I fielded my fair share of questions as to how I could be so bearish as to think Lehman was going to $20, but received zero emails after I bought it there. Such is life in the fishbowl!

Oh, and by the way, there was no "take under" today.
KM

*Full Disclosure: I am long LEH

(chart courtesy of stockcharts.com)

Eye On Populism...

The State employees of Utah are moving to a 4 day work week, allegedly...

This just in from USA Today.com of all places: "Utah this summer will become what experts say is the first state to institute a mandatory four-day work week for most state employees, joining local governments across the nation that are altering schedules to save money, energy and resources"...

http://www.usatoday.com/news/nation/2008-06-30-four-day_N.htm?se=yahoorefer

KM

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KKD - You can't make this stuff up!

The opportunity to take KKD private has come and gone. Daryl Brewster, the Ex CEO, had one shot and he did not get it done. At current prices, KKD is trading at 13x LTM TEV/EBITDA and the EBITDA is not growing, but declining. It's hard to find another restaurant company that is more expensive than KKD. So why would some unknown asset management firm try to buy the company at $7.50? This has to be a joke. If this bid is real, I wish I could short the company buying it.

The best part of the whole story is what is being reported by the Winston-Salem Journal. The article questions the legitimacy of Dee Guess, the managing director of MGL Asset Management. Apparently, Mr. Guess has had multiple lawsuits filed against him and has used known aliases including Mario Guess, J.D. Guess and Jerry D. Guess. The paper also said, "There is no listing of principals in the company, no companies under MGL's management or ownership, and no track record of the principals managing and owning businesses." MGL was listed as incorporating in January on the N.C. Secretary of State's Web site.

There is nothing better than a warm glazed Krispy Kreme doughnut. Unfortunately, stiff competition, razor thin margins and rising commodity costs put significant pressure on the business model. The international opportunity is real, but not enough to offset the pending pressure on the domestic business.

Eye on "Meme Machines"...

There is a great article in "WIRED" today, recapping how natural selection accounts for evolution, titled "July 1, 1858: Darwin and Wallace Shift the Paradigm." I think it's very appropriate material for investors to noodle over as they try to figure out what to do next.

http://www.wired.com/science/discoveries/news/2008/06/dayintech_0701

Wallace said, "It suddenly flashed upon me ... in every generation the inferior would inevitably be killed off and the superior would remain -- that is, the fittest would survive."

In a market oversupplied with hedge funds who are replicating one another's investment styles, the power of the "Meme Machine" is going to have inevitable fallout effects.

We are in the midst of a paradigm shift in global stock markets. Patience will pay. Those who have a risk managed process will survive, and new financial industry leaders will be the result.
KM
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Photo: Bettmann/Corbis

CBRL - Needs to Reevaluate its Value Propositiion

CBRL posted June same-store sales results today of down 1.2% and based on current trends lowered its FY08 EPS guidance to $2.77-$2.87 (down from its prior range of $3.02-$3.12 per share). Additionally, the company is now guiding to 60 bps of operating margin contraction from FY07's reported 7.0%.
  • This increased margin pressure is most likely the driving force behind the company's decision to continue to increase its menu prices. Although the company maintains that its average check of $8.70 continues to offer great value in an environment that caters to the entire family, its declining traffic trends would indicate otherwise. CRBL, however, continues to increase its prices further (average check up 3.8% in June), leading to a 5% decline in traffic.
  • CBRL is obviously not alone in terms of weakened traffic trends as the casual dining sector overall has experienced negative traffic every month since February 2006, but CBRL's customers may be more sensitive to rising menu prices as 87% of the company's restaurants are located along interstate highways making the increase in gas prices more relevant to them.
  • SONC recently highlighted that its overly aggressive price increases caused a fall off in traffic, forcing the company to be more conservative with its pricing strategies going forward. We have not heard any such acknowledgement out of CBRL yet and in the meantime, traffic trends continue to fall. During CBRL's recent 3Q08 conference call, management defended its pricing strategy, saying, Our thinking on pricing continues to be geared toward providing a great value to our guest, while covering the dollar cost inflation pressures. We believe this strategy is working for us and although guest traffic declined 3.3% in the quarter, our traffic continues to run ahead of the industry as measured by the Knapp-Track index. I would just add that Knapp-Track is running negative as well.

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.61%
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