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Yeah the hold percentage was a touch higher than last year and some of October’s slot revenue were included in November, but this was a pretty good month for the Strip.



The state of Nevada released a shocker today.  Strip gaming revenues increased 8.3%.  Digging deeper into the numbers, it is clear that the quality of the numbers was less than the headline would indicate.  Nevertheless, November was a pretty good month for the Strip considering the environment and recent trends. 


The Baccarat business continues to shine.  Despite a huge Macau market in their backyard, the Asians keep coming to Las Vegas.  Strip Baccarat revenue increased 136% y-o-y in November.  A higher hold percentage certainly contributed but Baccarat drop still increased 84%.  The following chart shows the fairly consistent outperformance of the Baccarat segment.




Pardon the pessimism – this was a good month after all – but there is still plenty of evidence of softness.  The following chart shows year-over-year growth a few different ways.  As we indicated, total Strip revenue increased 8.3%.  However, the casinos played a little luckier so if you use a constant hold percentage, Strip revenues would’ve only increased 2.5%.  Since Baccarat was so strong and can be very volatile month to month, we show revenue excluding that segment which actually declined 4.3%.  Finally, excluding Baccarat and adjusting the hold percentage yields a revenue decline of 10.7%. 




The Baccarat performance is encouraging but we’d feel better if the improving trend was more broad based.


We are below the Street for Q4 and now also for 2010.  The offsetting variable in our LV Locals Macro Model had been population growth and now that variable looks like a non-factor at best.



Q4 Preview

Q4 looks like it was tough one for a lot of the regionals, including BYD.  BYD’s exposure to the difficult Las Vegas Locals, Atlantic City and Louisiana (lately) markets probably positions the company to miss near and intermediate term estimates.  For Q4, we are projecting net adjusted EBITDA of $92.5 million which includes half of Borgata’s EBITDA.  On a consolidated EBITDA basis, EBITDA is estimated to be $82.6 million versus the Street at $88.0 million.  Our EPS estimate is $0.01, lower than the Street at $0.04.




The ace in the hole of our Las Vegas Locals Macro Model was always population growth.  With continued population growth, the model spat out positive gaming revenue growth for 2010.  Now however, population and the labor force are flat at best and may even be declining.  Combine flattish population growth with stagnant unemployment and housing prices, the locals LV gaming market may struggle to expand in 2010, better than expected November numbers notwithstanding.


With the macro backdrop in place, we are now projecting adjusted EBITDA of $432 million and consolidated EBITDA of $392 million, essentially flat with 2009.  Our EPS estimate is $0.45 versus the Street at $0.49.


The Long-Term

Beyond 2010, the locals LV outlook is bright.  Given Nevada's low tax structure, the favorable climate, and cheap housing, we believe the market has significant long-term growth potential.  We may be one of the few in the investment community to view a potential acquisition of some or all of the Station Casinos assets favorably.  2010 should be the trough and could be the right time to double down on the LV locals market. 

Inflation Chart of The Day

Please don’t submit this chart to He Who Sees No Inflation (Bernanke). He’s about to be re-confirmed by the Senate, and he doesn’t want these 1970’s style y/y price charts messing with this 1930’s gig. Gotta keep your politics local Ben. No need for this global macro stuff.


The chart below outlines the recent run-up in India’s weekly Wholesale Food Inflation to +18.2% y/y.


This morning we also saw India’s industrial production growth rate hit +11.7% y/y. That was up +140 basis points from October and also a 25 month high. While Bernanke pretends this country is some form of a depressed 1990’s Japan, the rest of the world’s economic leaders seemed poised to continue raising rates.


China has raised rates twice in the last 2 weeks. Altogether, Chinese + Indian growth combined with these recent inflation reports provide plenty of support for those who aren’t being paid to be willfully blind to real-time data.



Keith R. McCullough
Chief Executive Officer


Inflation Chart of The Day - india

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Red Alert Redo: Greece On Watch

Greece continues to make headlines this morning—the European Commission said in a report today that “severe irregularities” exist in the nation’s statistical data, which put into question the reliability of the previously released government deficit figure of 12.7% of GDP.


As the credibility in Prime Minister George Papandreou’s government continues to crumble, we’re seeing (and as expected) CDS run up, and the equity market tick down, while Greek bonds fall as investor demand increased yield. The spread between the Greek 10-year Bond and the German Bund blew out another 17bps today to 233bps (see charts below).


As Keith noted in his Early Look “Roll On” this morning, we’re seeing massive amounts of sovereign debt being rolled out globally. As countries refinance their debt, we’ll have our EYE on those that are simply finding near-term solutions rather than practical longer-term ones to repair their financing cracks and, in some cases, craters. Certainly, the inability of governments to pay off debt obligations is a credible threat, one we could see in the near term if supply outstrips demand despite compelling yields.


Matthew Hedrick



Red Alert Redo: Greece On Watch - gr1


Red Alert Redo: Greece On Watch - gr2

PFCB – 2010 NOT AS DIRE AS 2009

I would not be surprised to see this name move higher



Like last year, Bert Vivian, PFCB’s Co-CEO gave one of the more interesting presentations at the Cowen and Company Consumer Conference (at least so far).   Based on the more optimistic tone of his presentation this year relative to last year, PFCB likely had a strong 4Q09 (or at least a marginally better quarter than 3Q09).  PFCB has outperformed the casual dining group on average over the last 3 months (up 5% relative to the group’s roughly flat performance).  Considering that PFCB is trading at 6.1x on a NTM EV/EBITDA basis relative to the group’s average of 6.4x and has a current short interest of 33.4%, which is the highest percentage among its peers, I would not be surprised to see this stock continue to move higher.


Mr. Vivian provided the following commentary about his outlook for PFCB based on his own opinion about how the industry will fare in 2010.  He stated that most of PFCB’s customers are made up of social diners and business folks.  He does not anticipate the social side of the business will get much better in 2010 (maybe marginally), but it is his opinion that the business side of traffic will improve.  He did sort of hedge that comment by saying that he does not think it could be any more dire than 2009.  At the Bistro, business people make up about 30% of tickets.  Based on his outlook for slightly improved demand, Mr. Vivian provided the following rough estimates for 2010 and 2011:

  • Development: 5 units each for Bistro and Pei Wei, modest growth.  There are currently 196 Bistros and the company thinks the concept has the potential for 250 units over time.  We could expect increased development in 2011 with closer to 8-10 new Bistro restaurants and 15-20 Pei Wei units.  And, we could see a few more in 2012. 
  • Same-Store Sales Growth: Even with the expected modest pick-up in sales trends out of its business customers, the company is not expecting positive comps for the full year in 2010 (maybe turning positive near the end of the year).  Specifically, modestly negative comps at the Bistro and positive comps at Pei Wei seem reasonable.  The company has no plans to raise prices in 2010, but Mr. Vivian stated that “If the world gets better, we might take advantage and take a little pricing.” 
  • Revenues:  Translates into roughly flat revenues in 2010. 
  • Restaurant level margins:  roughly flat with 2009.  This assumption is based on the company’s current outlook for slightly favorable food costs offset by slightly unfavorable labor costs. Based on contracts in place, protein costs should be favorable over 2009. Produce is not contracted and has the same weight as chicken or beef, but assuming no plague, produce should be slightly favorable as well. 
  • Non-operating expenses: Preopening expense, interest expense and G&A are all expected to come down in 2010. 
  • Free cash flow: Free cash flow should be of similar magnitude as 2009.  Debt will be paid down by mid-year, which leaves about $40-$50 million available for share buybacks.  In general, he plans to clean up the balance sheet and take the share count down, which should put the company in good shape by year-end. 


Additional geographic-specific commentary:


PFCB is seeing a pick-up in trends in Arizona while California appears to be stable.  And, Mr. Vivian confirmed the recent noise about weakness in Texas.  This is not a small matter for PFCB as Texas represents about 20% of the company’s restaurant base.



Risk Management: SP500 Levels, Refreshed...

A lot of people seem to be waiting for a pullback that just won’t come. After seeing the SP500 trade up 6 out of the first 6 trading days of 2010, today’s -0.6% is hardly a pullback that inspires my bearish instincts.


The good news is that we don’t use instincts in managing risk anyway. We use fractal math.


Here are the refreshed lines of support that my macro model has as of 11AM EST today:


1.       Daily TRADE resistance at a higher-high = 1154

2.       Daily TRADE support at a lower-high = 1135

3.       Immediate term TRADE support = 1118


The way to read that is:


A) if 1135 holds, then there is a higher probability that this market tests making higher-highs (the YTD closing high is 1146).


B) if 1135 breaks, then there is a higher probability that this market tests 1118 (that would = -2.4% pullback).


Altogether, the immediate term TRADE line (1118) and the intermediate term TREND (1089) are bullish factors underpinning the SP500’s current price momentum.


As prices change, we will. For now, we are buying longs and covering shorts.



Keith R. McCullough
Chief Executive Officer


Risk Management: SP500 Levels, Refreshed...  - cha

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