prev

Cartoon of the Day: A Bearish Bounce?

Cartoon of the Day: A Bearish Bounce? - bounce cartoon 01.12.2016

 

Trouble abounds in global financial markets. Meanwhile...

 

"Odds are high that if they can keep the Dow green, Old Wall media won't even mention the Russell crashing today," Hedgeye CEO Keith McCullough wrote this afternoon before the market closed.


MDRX: Adding Allscripts Healthcare Solutions to Investing Ideas (Short Side)

Takeaway: We are adding Allscripts (MDRX) to Investing Ideas as a short.

Please note that we are adding Allscripts (MDRX) to Investing Ideas on the short side today. Hedgeye Healthcare Analyst Tom Tobin will send subscribers a full research report separately explaining our bearish thesis on the stock.

 

According to Tobin:

 

"While Allscripts reputation has markedly improved since the dark days of 2012-2013, the reality is that the damage is already done. Many Hospital Executives refuse to include Allscripts in RFPs and estimates of mind share vs. market share do not bode well for bookings growth.  Based on industry ratings and anecdotes, the probability of Allscripts unseating the current acute care EMR vendor at any large IDN is low.  We will continue to collect anecdotes from industry participants, including current Allscripts customers."

 

"Way too many investors are currently 'overweight' Healthcare," adds Hedgeye CEO Keith McCullough.

 

MDRX: Adding Allscripts Healthcare Solutions to Investing Ideas (Short Side) - z all

 

 


Nice! Old Wall Now Says 'Sell Everything'

Takeaway: Better late than never, we suppose.

Nice! Old Wall Now Says 'Sell Everything' - Bull SCREAM 01.06.2015

 

So get this, Wall Street is finally coming around to our bearish outlook for U.S. stocks.

 

Old Wall equity strategists are now concerned about weak manufacturing data, commodity-price deflation, and Fed rate hikes further perpetuating an economic slowdown.  

 

Sound familiar? 

 

“Our view is that the risk-reward for equities has worsened materially. In contrast to the past seven years, when we advocated using the dips as buying opportunities, we believe the regime has transitioned to one of selling any rally,” Mislav Matejka, an equity strategist at J.P. Morgan, said in a report.

 

Meanwhile, UBS issued a "significant change" at the turn of the year, and cut equities from overweight to neutral. Goldman Sachs trimmed its S&P earnings forecast after noting that 2015 could be "the worst year for S&P 500 earnings since 2008."

 

A more incendiary warning shot came from RBS credit chief Andrew Roberts. In a note to clients, Roberts warned that it would be a "cataclysmic year" and led by a deflationary crisis. As a result, Roberts said: 

 

“Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small... Equities and credit have become very dangerous, and we have hardly even begun to retrace the 'Goldlocks love-in' of the last two years." 

 

RBS also accused the Fed of "playing with fire" by raising interest rates into a perfect storm of grim economic data. The report added, "There has already been severe monetary tightening in the US from the rising dollar," adding to the economic pain. 

 

After calling the U.S. equity market top in July, Hedgeye has been telling subscribers for a while now that the "U.S. stock market is going to crash." And if our recession call (for Q2 or Q3 of 2016) plays out things could look a lot worse from here.

 

So where should investors park their money?

  

RBS now agrees with us. Credit chief Roberts told clients to buy, of all things, U.S. Treasuries anathema to the many hedge funds who have shorted U.S. bonds as a "reflation trade." That will unwind as the economy slows.

 

Hedgeye CEO Keith McCullough likes to say that he is "the most bullish guy on Wall Street on Long bonds," expressed through TLT.

 

Click below to watch mccullough lay out our long bond call.

 

We're happy to hear that Old Wall is coming around, albeit seven months after we warned about an equity-market downturn. Better late than never. 


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.

HedgeyeRetail (1/12) | KATE Yoga Partnership, HIBB, LULU

Takeaway: KATE rolls out Yoga - Solid setup into 2016. HIBB rides the Tide. LULU beats lowered expectations, still think it's a short.

KATE - Yoga Partnership Out. Like the Setup For 2016

 

KATE rolls out new yoga line in partnership with Beyond Yoga. Just one of two handfuls of licensing deals that will be incremental to 2016. That's just one of the drivers of an accelerating top line we expect to see in 2016. Not only do the reported headwinds roll off in the new year (Jack/Saturday closures, SE Asia JV, quality of sale initiatives, etc.), but KATE has a lot of incremental drivers on the top line. Licensing, international growth through distributors/JV, and a flat promotional posture after working to improve quality of sale through all of 2015.

 

We think timing here is absolutely critical, and that timing finally favors the long side. Keep in mind that this company has been a serial restructurer, having traded under three different tickers in five years, and the only constant during that time period has been a lot of red at the bottom of the P&L. Even though KATE has been executing extremely well on its plan, the fact is that the stock has looked extremely expensive to the average investor who cared about nothing but current year earnings. This is why the stock got annihilated when the category (Kors) hit a wall. It simply had no valuation support. That’s why we think that the quarter we’re currently in (4Q), will be critical, in that the company should earn 30% more than it did in all of 2014. In fact, we’re a few short months away from people focusing on $1.00 in earnings power for next year – a level it hasn’t seen since 2007. People will be looking at a name trading at 17x an earnings rate that should grow 50%+ for 3-5 years.

HedgeyeRetail (1/12)  |  KATE Yoga Partnership, HIBB, LULU - 1 12 2016 chart1

 

HIBB - Roll Tide

 

This is the only retailer we can think of that actually has a material comp benefit when its local team wins big. Bama winning it's 4th National Championship in 7 years last night could at most add 1.5% in comp for the company's 4th quarter. We saw the same benefit in 4Q10 and 4Q12, and the store weight on Alabama hasn't changed materially since then, with Bama representing 9.1% of the store base at the end of FY15 vs. 10.3% at the end of FY10. But, there are two things to keep in mind…

1) HIBB is up against a 5.4% comp from Holiday of last year, its best comp number in over 3 years.

2) Want to buy your Bama gear on Hibbett.com, well consumers are in luck, except that Bama's website isn't serviced by Hibbett but Fanatics (see image below). Logically it would make sense that the lack of an e-commerce presence wouldn't hurt HIBB materially for merchandise that consumers want now, but it will be interesting to see how consumers vote with their wallets. Either by driving 5miles to a HIBB store, or ordering from dickssportinggoods.com.

HedgeyeRetail (1/12)  |  KATE Yoga Partnership, HIBB, LULU - 1 12 2016 chart2

HedgeyeRetail (1/12)  |  KATE Yoga Partnership, HIBB, LULU - 1 12 2016 chart3

 

LULU - Beat Expectations. Low Earnings Quality

 

The old guide down and beat lowered expectations before the company gets on stage and in front of Investors at ICR. The mid-point of the guide on the top line is just $2mm higher than where consensus stood before the company lowered the bar for 4Q in its 3Q earnings release just one month ago and the mid-point on the earnings guide is $0.07 lighter on a lower share count, which means lower margins. Since then, the stock has appreciated 15% taking the multiples from 23x P/E and 12.5x EBITDA to 28x P/E and 15.5x EBITDA on lowered 2016 numbers.  Maybe investors are looking at the Street's implied 19% earnings growth for FY16 (after 2 years of down earnings) in the context of the broader retail landscape where its tough to find a double digit grower in 2016. But, we'd argue that the expected growth is more than priced in at this point.

 

In the out years, numbers have come in by 10% since the company reported 3Q15 earnings. Still high by $0.50. Ultimately, we think LULU will miss again, and then again - until the ‘new’ CEO is likely to be out of a job. Spin it any way you want, but he's just not right for that job in that culture. Until then, LULU is marching towards $2.50 in EPS with the Street at $3.00. We still think it’s a short.

 

UA - UA signs the mother of all deals. Yale at 10 years/$16mm (vs. Notre Dame at 10 years/$90mm). Maybe we are a bit biased.

HedgeyeRetail (1/12)  |  KATE Yoga Partnership, HIBB, LULU - 1 12 2016 chart4

 

NKE, DIS - Mark G. Parker Elected to The Walt Disney Company Board of Directors

(https://thewaltdisneycompany.com/mark-g-parker-elected-to-the-walt-disney-company-board-of-directors/)

 

WWW - Wolverine Worldwide Names Pat O'Malley as President of Saucony Brand

(http://phx.corporate-ir.net/phoenix.zhtml?c=88408&p=irol-newsArticle&ID=2128332)

 

BKS - Barnes & Noble names Mary Amicucci as its new head merchant

(http://www.retailingtoday.com/article/barnes-noble-names-new-head-merchant)

 

Joyce Leslie, a 47 store women's clothing chain located in the northeast, filed for Chapter 11 and is a likely candidate for liquidation

(http://www.chainstoreage.com/article/young-womens-apparel-retailer-files-chapter-11)

 

NKE - Nike Unveils Cleat For FIFA Women’s Player of the Year Carli Lloyd following U.S. 2015 World Cup win

(http://footwearnews.com/2016/focus/athletic-outdoor/fifa-women-player-of-the-year-carli-lloyd-nike-soccer-cleats-183174/)

 

AMZN - Amazon reportedly scaling down its Echo device to size of a 'beer can'

(http://www.seattletimes.com/business/amazon/amazon-reportedly-developing-a-beer-can-size-echo-device/)

 

Christmas sales in the UK "disappointing", growing just 1% in December

(http://uk.reuters.com/article/us-britain-retail-brc-idUKKCN0UQ0OM20160112)

 

APP - Dov Charney Seeks to Block American Apparel Bid to Extend Exclusivity Period

(http://wwd.com/business-news/legal/dov-charney-block-american-apparel-bid-exclusivity-10311796/)

 


INSTANT INSIGHT | An Ugly Picture: Tallying Up The Performance Of Global Equities

Takeaway: It's been an ugly year for the perma-bulls, even with today's mercy rebound in equities.

Looking beyond terrible year-to-date performance, small caps are down significantly from their 2015 summer highs.

 

INSTANT INSIGHT | An Ugly Picture: Tallying Up The Performance Of Global Equities - rut chart

 

"The Russell 2000 took a peak at crash mode intraday yesterday (down more than 20% from its July 2015 bubble high) and is currently down -19.6% from that 1295 closing price yesterday," Hedgeye CEO Keith McCullough wrote this morning in a note to subscribers. "This is not China – this is a U.S. domestic liquidity trap strangled by USA #Slowing."

 

INSTANT INSIGHT | An Ugly Picture: Tallying Up The Performance Of Global Equities - russell 2000

 

On a related note, the Russell's big-cap brethren, the S&P 500, hasn't fared much better. With the exception of Utilities (XLU), which just so happens to be our lone Long call in U.S. equities right now, everything else is getting absolutely crushed this year (i.e. Energy, Materials, and Financials).  

 

 

For global equities, the year-to-date scorecard (as of yesterday's close) isn't looking good either. Lots of red...

 

INSTANT INSIGHT | An Ugly Picture: Tallying Up The Performance Of Global Equities - global equities

 

... And here are a few highlights of the global equity draw-downs from their 2015 highs:

 

  1. Spain’s stock market (IBEX) is in crash mode -24.2% from its April 2015 peak
  2. Germany’s stock market (DAX) is toying with crash mode -19.1% from its April 2015 peak
  3. Japan’s stock market (Nikkei) dropped another -2.7% overnight and is -17.4% from its July 2015 peak 

 

So before you blindly "buy the dip." Do yourself a favor. Don't believe Old Wall storytelling and take a second to review the hard facts.


Lazard (LAZ) | Value Trap - Best Idea Short Call Invite TODAY

Takeaway: We are hosting a conference call today, Tuesday, January 12th at 11 am to review our ongoing short recommendation on Lazard (LAZ).

watch THE REPLAY below.

 

We are hosting a short black book presentation today, January 12th at 11 am EDT on M&A advisor Lazard (LAZ). Our presentation will outline the still unrecognized risks and complacency in this highly cyclical company:

 

  • M&A Set to Fall: After a new high water mark in global mergers and acquisitions in 2015, the Street is still unrealistic about the opportunity for activity into '16. Estimates are still 20% too high based on "flat to up" activity levels for the New Year which ignore various warnings in the data. Our research shows with corporate funding costs on the rise, that every 100 bps rise in credit costs has historically impacted M&A activity by -20%. Thus the backup in credit spreads that started in 1Q15 all but guarantees a negative comp for mergers in '16. In addition, rising private equity percentages in global announcements and also record highs in consideration values signal an exhausted M&A marketplace.
  • Restructuring Won't Bail Them Out: Complacency is also being sourced by "hopeful" insulation that the firm's restructuring business can plug any gap as the revenue opportunity in M&A slows. Historically, the restructuring business has had a 2 year lag after M&A peaks before contributing to results but restructuring cycles have just half the duration of M&A cycles and never fully cover the lost revenue. At just 15% of total advisory revenues across cycle, restructuring is a mild insulation at best.
  • EM/Non U.S. Asset Mgmt Exposure: The firm's most profitable business, asset management, has unfavorable Emerging Market exposure and total non-US exposure sits at over 50% of AUM. The ongoing elevated levels of the U.S. dollar and investments in petro-oriented economies has historically weighed on demand for institutional exposure to non-developed domiciles. We will flesh out what a reasonable yield on Lazard's AUM business is.

 

CALL DETAILS - Today, Tuesday, January 12th at 11 am EST

  • Toll Free Number:
  • Toll Number:
  • Conference Code: 13627924
  • To Automatically add to your Outlook Calendar Click HERE
  • For Associated Materials Click HERE

 

Private Equity Historically Marks the Peak

LAZ - As Good As It Gets...Modeled For Perfection

 

 

Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA


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