A Couple More Cents: Week of June 8, 2020

June Fed Open Market Committee (FOMC) Meeting

• Provided guidance on its asset purchases, committing to increase its Treasury and MBS holdings “at least at the current pace over the coming months”
• The Fed is not even “thinking about thinking about raising rates” until at least 2023
• Powell emphasized the outlook remains historically uncertain and the Fed’s actions will be dictated by the economy, which is linked to the evolution of the pandemic

COVID Impact Tracker

• US daily new Covid-19 cases are still trending downwards, but there’s early evidence of rising infections in some states, raising concerns of a second wave
  • Over the past week, the growth rate of cases has picked up in about 40% of states, including Texas
  • Rising mortality growth rates in nearly 25% of states suggest the spike in cases is not solely due to more testing
• Continuing jobless claims were steady at 19 million for the week of May 23rd, suggesting that labor market progress has slowed after the blockbuster May employment report
  • Both claims and official unemployment data indicate that newly unemployed workers are not transitioning into work quickly and unemployment spells are lengthening
• High frequency data is showing signs consistent with an estimated ~9% contraction in GDP
• Mobility has risen over the past weeks as state economies begin to reopen, but the increase varies quite a bit by state
  • Increased demand for motor gasoline and some improvement in other travel-related gauges
  • Some indicators such as retail sales, jet fuel demand, and railroad traffic are essentially bumping along the bottom
  • Pickup in small business activity stalling

Company Research Reports

Lululemon ($LULU) – Price target of ~$240, HOLD recommendation

Dollar General ($DG) – Price target of ~$190, HOLD recommendation

Dave & Busters ($PLAY) – Price target of ~$18, HOLD recommendation

Large gaming operators ($MGM, $WYNN, $LVS, $CZR) are trading at ~15x 2021 EBITDA and ~11.5x 2022 EBITDA.

Gaming REITs ($GLPI, $MGP, $VICI) are trading at a ~9% Free Cash Flow Yield.

Lodging companies ($HLT, $MAR, $H, $CHH, $STAY, $PLYA) are trading at an average of ~15.5x 2021 EBITDA and ~12.5x 2022 EBITDA, but $STAY is trading at <10x on both those metrics. Either they’re doing extra poorly or they may be a good relative value.