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Hedgeye Validated on Prediction of Macquarie Unit’s Plunge

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Timing is everything -- especially for a short thesis. 

A little more than a year after Hedgeye Risk Management’s Kevin Kaiser put out a short call on Macquarie Infrastructure Corp., the company slashed its dividend guidance Thursday and issued a disappointing 2018 Ebitda forecast, sending shares plunging a record 41 percent to their lowest level in more than five years.

And that level just happens to be right in line with Kaiser’s thesis from January of last year.

Was Thursday’s dividend cut enough? Kaiser doesn’t think so. "They were running with scissors," he told Bloomberg in discussing the high leverage and dividend obligations. Macquarie "couldn’t afford any slip-up," adding that the company’s investment grade may be at risk.

Kaiser now sees the shares trading into the low- to mid-$30s versus the closing price of $37.41. Two other analysts are also exercising caution: JPMorgan Chase & Co.’s Jeremy Tonet and SunTrust Robinson Humphrey’s Tristan Richardson each downgraded the stock to the equivalent of a "hold."

In a note to clients, Tonet wrote that the Ebitda guidance was “surprisingly low” and said the rapid decline in utilization rate in its International-Matex Tank Terminals segment was unexpected given management’s prior “steadfast commentary on the strength of the business.” Tonet added that the dividend cut “will likely lead to some rotation by income investors.”

Short interest as a percent of free float on Macquarie was at the highest level since 2010 as of Wednesday, according to the most recent data from IHS Markit Ltd.

SemGroup Corp., another former target of Kaiser, closed down 9.9 percent Thursday. It was the second-worst performer in the Alerian Energy Infrastructure Index, with only Macquarie Infrastructure having a worse day.

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