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30% Upside: Whole Foods Institutional Call Today at 11am ET $WFM

Takeaway: Join us for a review of our WFM Long thesis today on why we think shares have 30% upside.

***We are hosting a Flash Call at 11:00 AM ET to go through our LONG thesis for WFM.  Contact sales@hedgeye.com for more information and access. 

 

30% Upside: Whole Foods Institutional Call Today at 11am ET $WFM - z founder

 

Whole Foods Founder John Mackey is taking back control of the company and has called for a slowing in store growth, focusing efforts now on costs and cash flow. This pivot for an industry leading growth company doesn’t happen often (think SBUX, MCD, TGT). It requires a period of revaluation and reset expectations. But it is also followed by significant outperformance if done correctly. That’s the road ahead we see for WFM.

 

HEDGEYE OPINION

Whole Foods reported another disappointing quarter last week, but more importantly they laid out a new path forward for the company.  We published a note last week that explained why cutting capex is exactly what they need to do in order to improve the performance of this company. With John Mackey back in charge, he is taking the bull by the horns and returning this company to its roots by focusing on the core Whole Foods consumer.

 

This first cut is deep, but they can go deeper once they work through sites that are already in development, cutting capex to only maintenance and other necessary expenditures. We have seen this story before, and will provide examples of companies that grew too fast into an increasingly competitive environment, getting ahead of their skis and falling on their face. Pulling back on growth capex for a couple of years will allow them to refine their current footprint and accelerate profitability.

 

The core Whole Foods consumer is still alive and well, and by no means do we believe that the Whole Foods brand will die in the face of conventional competition. We will lay out in detail how we anticipate their new way forward to unfold, including conversation on their capital expenditure plan, the focus on the core consumer and how category management will change the way they operate.

 


30% Upside: Exact Sciences Institutional Call Today at 1pm ET $EXAS

Takeaway: Join us for a review of our EXAS Long thesis today on why we think shares have 30% upside.

Please contact sales@hedgeye.com for further information.  An invite with dial-in instructions will be sent to subscribers ahead of the conference call.

estimates too low; short interest to fuel +30% UPSIDE

We are hosting a call today at 1:00PM ET to review our Exact Sciences (EXAS) Long thesis. With short interest still elevated at 30.6% we see significant upside heading into 2017 as consensus sales estimates are too low at $163.2M which implies a massive deceleration in either provider adds, tests per provider or ASP. We have developed a reliable tool to gain visibility into EXAS's provider count and will be watching this tracker closely over the next few months.

 

30% Upside: Exact Sciences Institutional Call Today at 1pm ET $EXAS - Sensitivity Table

 

With a series of clinician and former executive interviews, combined with data from the National Ambulatory Medical Care Survey (NAMCS) we gained new insights into the colon cancer screening market and Cologuard's role in it, which stand in contrast to the short seller narrative.  We'll review our addressable market analysis that estimates Cologuard's potential annual test volume to be 2.7M, or 2.0M for the commercially insured population and 0.7M for Medicare. We will also review EXAS provider adoption model and provide our thoughts on the bigger questions around payor contracts and dormant physician accounts. We see +30% upside in the near term, but also believe we have visibility into an opportunity to pivot short when growth starts to slow.

 

30% Upside: Exact Sciences Institutional Call Today at 1pm ET $EXAS - exas short interest 2 16 17

 

30% Upside: Exact Sciences Institutional Call Today at 1pm ET $EXAS - 11111111111111

key TOPICS

  • Addressable market analysis including state level detail on provider adoption and number of tests
  • Screening vs. Non-Screening colonoscopy market analysis
  • Medicare's past growth and why commercial insurance will drive EXAS future
  • Dormant vs Active Providers
  • Consensus numbers and why they're too low
  • Review of short case and the current short interest level

Thoughts into the (Pre-Announced) print

On January 8th Exact Sciences reported preliminary revenues for 2016 of $99-$99.5M implying 4Q16 revenues of $34.9-$35.4M. EXAS is scheduled to report 4Q16 and full-year 2016 results on Tuesday, February 21st. For 4Q16 and full-year 2016 we are expecting EPS of ($0.38) and ($1.68) compared to consensus of ($0.39) and ($1.69). For the fourth quarter we are modeling COGS at $178 per test and expect to see Sales and Marketing expense of $32.8M due to higher television ad campaign spend.

 

 

CLICK HERE FOR OUR 4Q16 PRE-ANNOUNCEMENT NOTE


Growth Accelerating + Inflation Accelerating = Bullish for Stocks

Growth Accelerating + Inflation Accelerating = Bullish for Stocks - growth

 

Key economic data (U.S. retail sales and inflation) reported yesterday confirms what we've been saying here at Hedgeye for some time now... U.S. growth and inflation are accelerating. Year-over-year growth in both data sets are near or above 5-year highs. 

 

Okay. Obvious statement of the day: Growth and inflation accelerating is bullish for the U.S. stock market.

 

The epic Trump trade -- one which has propelled U.S. stocks to record highs across all three major indices -- continues. 

1. Retail Sales 

The year-over-year growth rate in retail sales hit 5.6% yesterday, a level not seen since March 2012. Digging deeper into the report, the retail sales “control group” (a good proxy for the input into the consumption component of US GDP) accelerated to +4.0% year-over-year growth for the month of January versus +3.4% growth in December.

 

Growth Accelerating + Inflation Accelerating = Bullish for Stocks - retail sales 2 15 17

2. Consumer Price Inflation 

Core inflation just hit the highest level in 5 years. CPI accelerated to +2.5% year-over-year in January versus +2.1% in December. Inflation has now accelerated for the 6th consecutive month.

 

Growth Accelerating + Inflation Accelerating = Bullish for Stocks - 02.16.17 EL Chart

the Fed Is Falling Behind

Fed head Janet Yellen said yesterday that the U.S. economy was "very close to achieving" objectives of maximizing employment and maintaining a stable inflation rate of 2% (the Fed's inflation target). 

 

For some time now, we've been arguing that the Fed risks falling behind the curve if they don't raise rates (and soon). Our proprietary leading indicator on inflation suggests year-over-year CPI readings could hit three, even four, percent in the first quarter of 2017, as previously beleaguered commodity prices contribute to inflation growth in the coming months. 

 

This would shock Yellen & Co. An inflation rate at or above 4% hasn't been seen since September of 2008. In other words, we may need more rate hikes than the two or three currently expected by the market in 2017.

 

To recap...

Both retail sales and inflation suggest the U.S. economy is heating up. That's bullish for the stock market. And watch the Fed. They're already falling behind the curve on this growth and inflation data.


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Don’t Sell This ‘Heart Attack Stock,’ Buy It

 

Don’t freak out.

 

Micron Technology (MU) shares were down -3% yesterday, as a Wall Street analyst warned of softness in PC pricing. But hang on a sec.

 

“While it’s always tempting to sell Micron and run away because it’s a heart attack stock, the data actually shows very stable, seasonal orders for smart phones and PCs,” says Hedgeye Technology analyst Ami Joseph in the video above.

 

Bottom Line? Joseph says:

 

“The bear case is still a theory while the current data is real, and we are still about 50% above Street EPS for the next 4 quarters due to the lagging impact of pricing on MU model and implied May-Aug quarterly revenue and incremental gross margins.”

 

Stay long.

 


Cartoon of the Day: Janet Yellen's Shadow

Cartoon of the Day: Janet Yellen's Shadow - Janet Yellen 02.15.2017

 

Is Fed head Janet Yellen a Dead Dove Walking or did she finally turn hawkish? 

 

 

Click here to receive our daily cartoon for free.


Capital Brief: Inside The Trump Administration's Growing Pains

Capital Brief: Inside The Trump Administration's Growing Pains  - Washington D Usa White House C America 1641327

Source: Max Pixel

 

As President Donald Trump blasts the mainstream media for peddling fake news, here's a quick look at the key issues all investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

BLUNT TALK

#Russia #FlynnResignation

 

Capital Brief: Inside The Trump Administration's Growing Pains  - roy blunt wiki
Source: Flickr 

 

Democrats have called for investigations into the ties between Russia and the Trump Administration, and now following Flynn’s resignation Republicans are starting to hop on board. Republican Senator and Senate Select Committee on Intelligence member Roy Blunt has joined them in their calls for an investigation and Majority Leader McConnell has now said it is highly likely the committee will probe Flynn’s Russia ties.

 

Blunt believes that every president can reexamine their relationship with any country, but wants to find out if their is a larger problem in the Administration's relationship with Russia.

 

POLARIZING EXPRESS

#GOP #Trump

 

Capital Brief: Inside The Trump Administration's Growing Pains  - trump 2 15

 

 

Although the Trump Presidency has experienced some growing pains early on, one thing he has been able to count on is support from Republicans in the House and most of the Republicans in the Senate. On the other hand, what Trump has not been able to rely on so far is crossing the aisle to get votes from Democrats - particularly in the House.  

 

Again, it’s still early, but if trends and the hyper-partisanship continue, Trump and his Republican allies will likely go it alone in the House and focus their energies on winning over a handful of Dems in the Senate.

FREEDOM FIGHTERS FOIL

#FreedomCaucus #Obamacare

 

Capital Brief: Inside The Trump Administration's Growing Pains  - dont tread

Source: Flickr 

 

Even though Republicans have control of the House, Senate, and White House, the Freedom Caucus is still not satisfied with the way things are, well, progressing. The conservative caucus voted to oppose an ACA repeal bill if it does not go as far as the repeal measure that President Obama vetoed in 2015.  

 

This bill killed the core elements of the law including subsidies, taxes, mandates, and Medicaid expansion. The Freedom Caucus isn’t just focused on repeal though, they will support adding elements of replacement to a quick repeal as long as it meets their stringent demands.

DON’T BANK ON IT

Three years ago former House Ways and Means Chairman Dave Camp proposed a tax on banks and other financial institutions as part of a tax reform proposal. The tax received major push back from the industry, but tax reform didn’t move forward with Obama in office.

 

Now the Republicans are in control of Washington, banks are looking to make sure the tax doesn’t re-enter the picture. As we get closer to the start of the tax reform process, expect banks to push much harder to avoid any sort of bank tax that would allow Republicans to pay for lowering tax rates.

DIVIDED ON DEFENSE

The Pentagon will forward its supplemental request for the FY 2017 budget to OMB on March 1 and an expanded FY 2018 budget on May 1.  Both items are splitting Republican members on the Hill. The The FY 2017 supplemental request will be for at least the $15B approved by the House last fall and could be for as much as $40B as discussed by Senator John McCain and others.

 

While the urgent need to improve near term readiness is universally accepted, how to pay for it is not. An increase in Pentagon spending in 2017 could be done passing a baseline budget that conforms to the Budget Control Act and then plussing up the OCO by the $15-$40B being discussed. Not improbable.

 

Any expansion to the FY 2018 budget, however, will require changes to the Budget Control Act and a budget resolution that lays out a broader and longer term discussion of government finances. That can wait until this summer/fall but will expose the rifts among Republican fiscal conservatives, Republican hawks and Democrats.

CALL REPLAY: GENERAL EMO GARDNER ON NATIONAL SECURITY

Our Senior Defense Policy Analyst Emo Gardner spoke about the Flynn resignation, its impact and what’s next. You can listen to the replay here.

AT&T LIKELY WINNER OF PUBLIC SAFETY NETWORK CONTRACT

Our Senior Telecom & Media Policy Analyst Paul Glenchur writes the AT&T is likely to win the public safety network contract. Rules discouraging state opt-outs should boost network and contract value. You can read the full analysis here.

 

 

*Email sales@hedgeye.com for more access to and information on our institutional research.


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