S3 Analytics: July 17th – July 21st Best and Worst U.S. Short Performers

Every week, S3 tracks short sellers’ equity positions in the US, revealing the trades that delivered positive results or missed the mark.  After tracking $892 billion worth of short positions, the following is a list of this week’s top five best and worst performing shorts.

• CMG Chipotle earned its spot at the top of this week’s best performing shorts, falling 12.76% to earn short investors $164.2 million. Chipotle’s stock price began to fall when over 100 individuals reported becoming ill from a norovirus after eating at a Chipotle in Virginia between July 13^th and 16^th. The norovirus outbreak differs from Chipotle’s E. Coli, outbreak two years ago in that it is not related to Chipotle’s food supply chain. While analysts have cut their price targets for Chipotle, short sellers have not increased their positions significantly which implies that this might be a short term bump in the road for Chipotle and not a long term downtrend.
• IBM IBM slipped 4.6% and finished the week at a one year low of $147.08 after the company posted disappointing revenue earnings on Tuesday. Revenues were down 4.7% year on year, declining in all five of its major businesses.  However, the company still beat analyst expectations for earnings per share, $2.97 compared to the $2.47 expectations. IBM is in the changing its focus from its legacy I.T. businesses and towards cloud computing, mobile applications, internet security and enterprise cognitive processing (Watson.) Firm wide margins are suffering in the meantime, but will recover if IBM’s makeover succeeds.
• UAL United Continental saw its price tumble by 10.37% last week despite beating Q2 earnings, reporting $2.75 per share compared to a $2.63 forecast. This was also in the aftermath of another passenger/crew related altercation. United’s stock price partially recovered after the incident but a pessimistic change in forward looking guidance that expects 3Q pretax margin at 12.5%-14.5% vs. analysts’ estimates, such as Cowen, of 13%-15% pushed United’s stock price even lower.
• GE General Electric’s stock price dipped 3.2% last week as investors nervously await the transition from outgoing CEO Jeffrey Immelt to incoming CEO John Flannery, who officially takes the reigns starting on August 1^st. GE’s initial target of $2 EPS in 2018 may be a lofty goal as the company transitions into a more digital and industrial conglomerate. Operational efficiencies and net cash flows may suffer before Flannery’s sales growth plan gets up to speed.
• AAL After opening at a two year high of $54.22 last week, American Airlines proceeded to drop 4.3% amid reported customer dissatisfaction and violations of consumer protection rules. From mid-March to early July American Airlines stock has increased over 34% and short interest has increased from $1.4 billion to $1.9 billion – this week long price weakness may just be a breather in a four month long rally.

• NFLX Netflix jumped 17% last week, closing at an all-time high of $188.54 and topping our list for worst performing shorts last week. The stock rose 13.54% post market on Monday after releasing its strong Q2 earnings results, which posted impressive subscriber growth especially internationally. Netflix continues its momentum in subscriber growth by providing access more original content. This quarter faired particularly well in part to new seasons of popular shows “Orange is the New Black” and “House of Cards.”
• SNI Scripps Networks, a television company that operates lifestyle-oriented channels, rose 16.25% after news came out that they were in talks with Discovery Communications (owner of Discovery Channel and Animal Planet) on a possible acquisition. Scripps and Discovery stock prices were up 10.4% and 9.4% post-market after the news broke. Furthermore, it was reported that Scripps was also in conversation with Viacom Inc. about a potential acquisition. Viacom is hoping that the acquisition could boost its subscriber count, which is down 3.9% from a year earlier.
• VRTX Prices of rare-disease drug maker Vertex Pharmaceuticals jumped 24.6% after positive data results came out for three trials testing for three different combinations of drug regiments for hard-to-treat cystic fibrosis. Vertex is the first company to come out with a disease modifying therapy for this particular form of fibrosis, meaning that it could enter the market without any threats from competition. If all goes according to plan, Vertex could start producing and selling this franchise around 2020. The possibility of a large, cash rich pharma company looking to acquire Vertex after these positive test results  has grown significantly.
• RH RH, the home products giant, saw its prices rise 12.26% last week, hitting a one year high of $77.40 on Wednesday after it completed its $700 million share repurchase. With RH’s stock price up almost 140% this year, short interest nearing $1 billion and stock borrow costs on existing shorts nearing 60% there is a real possibility of a short squeeze in the security. Analysts at Deutsche Bank have since raised RH’s price target to $80.
• AMZN Amazon rose 2.38% last week causing short sellers to lose $118.5 million. Shares experienced a gradual increase over the course of the week as analysts and investors alike are anxiously anticipating Q2 earnings results. Additionally, Amazon recently made a deal with Sears to start selling Sears’ popular line of Kenmore appliances on Amazon, boosting Sears share prices by 17%. Amazon prices are up 38% YTD.

Want deeper insight into the above analysis?

Contact:  Ihor.Dusaniwsky@S3Partners.net

Head of Research, S3 Partners

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The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC (“S3 Partners”) to be reliable and accurate.  Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use.  Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decisions.