S3 Analytics: August 14th – August 18th Best and Worst U.S./Canadian 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 $876 billion worth of short positions, the following is a list of this week’s top five best and worst performing shorts.

TSLA US       Online travel company Priceline Group Inc. hit a year to date high of $2,049 on Tuesday but fell 9.5% by the end of the week as 2^nd quarter results beat analysts’ recommendations  on both revenues and net income but disappointed on 3^rd quarter guidance. Online bookings growth are expected to slow in the 3^rd quarter due to increased competition but margins are still expected to be strong. Priceline is the 12^th largest equity short in the U.S. market even though short interest has fallen by $313 million over the last week.

CTL US         Streaming media service provider Netflix Inc.’s stock price slid almost 6% as content provider Disney decided to terminate its content agreement and launch its own paid-for streaming service in the next two years. There is a fear that this is the first brick to fall and Netflix may lose more established content overtime or be forced to bid up licensing fees in a continually more crowded streaming business sector. Netflix is the fourth largest equity short in the U.S. market.

FL US           Graphics processor manufacturer NVIDIA Corp. hit a year to date high of $172.35 on Monday but traded lower before its 2^nd quarter earnings announcement as the overall market took a breather from its year-long rally. NVIDIA’s stock price continued to fall in aftermarket trading even though it beat expectations for both sales and earnings per share. Investors may be fearing that the company’s multi-year stellar revenue growth will hit some bumps in the road if demand for graphics processing or Bitcoin mining slows. NVIDIA is the third worst performing U.S. short in 2017, down $1.3 billion, behind just Tesla and Apple.

NFLX US       Retailer JC Penney’s (JCP US) stock price began to decline ahead of its earnings release on Thrsday which missed EPS estimates but beat on revenues. JCP is the fourth largest short in the Department Store Retail sector as short interest has remained stable around the $600 million level in the weeks prior to its earnings release. JCP is still experiencing sales weakness, along with most of its competitors, but store liquidations continue to add to their overall expenses and are having a negative impact on its bottom line.  Shorts are holding onto their profitable positions especially with stock borrow costs decreasing from 12% fee in May to 5% fee in August. They are up $385 million in year-to-date mark to market profits in 2017.

T US             Biotech developer Tesaro Inc. hit a year-to-date low on August 10^th as the firm reported a large loss than expected. Tesaro reported a loss of $2.73/share, $0.20 worse than analysts estimate. Tesaro is the 7^th largest short in the Biotech sector but short interest has declined to $1.1 billion from a year-to-date high of $1.6 billion in late February. Shorts have made $216 million in year-to-date mark to market profits in 2017.

SNAP US           Generic pharmaceutical manufacturer Perrigo Co PLC’s stock price jumped 15% to $78.49 by the end of the week as the company reported profits and revenues that beat analysts’ estimates. Perrigo’s performance was better than most of its competitors who are facing pricing issues for their products.  Perrigo did see their overall generic product revenues decline year-on-year in the last quarter but they are replenishing their product mix to offset marginal declines in aged and highly competitive medicines. Perrigo is the fifth largest short in the Pharmaceutical sector and was a profitable trade prior to last week’s price action. Perrigo shorts were up $109 million prior to last week and are now down $50 million in mark to market losses for the year.

MU US              Car rental and leasing company Hertz Global Holdings had a poor 2^nd quarter, declining sales and earnings missed analyst estimates by a wide margin. Hertz reported a loss of $1.90/share which was six times worse than 2^nd quarter 2016. Hertz is in third largest short in the Trucking sector behind Avis Budget (CAR US) and Swift Transport (SWFT US) and short sellers, who were already up $50 million in mark to market profits in 2017, were looking to add to their coffers. Instead, Hertz’s stock price rose by over 30% during the week as analysts downplayed its recent performance and focused on its recent positive turnaround efforts. There has been very little short covering in the stock, less than 3 million shares of the 32.5 million shares shorted so this rally is not due to a short squeeze, but rather long shareholders bidding up the stock price.

AABA US          Auto rental company Avis Budget Group’s stock price fell $3.30 on Tuesday but rebounded by the end of the week, ending up 8%. Avis Budget is the largest short in the Trucking sector and short interest has been climbing steadily in 2017, more than doubling to $1.2 billion. Shorts have been building their position while their performance has been relatively flat, up $1.2 million, or 0.2%, prior to last week. Shorts are now in the red for the year, down $87 million, or -11.8%, for the year.

VMW US          Charter Communications remains a target in the continuing consolidation in the U.S. telecomm market as French telecomm company, Altice U.S.A., is considering a $185 billion bid to acquire Charter Communications. Altice’s bid is eight times its own market cap and a 60% premium to Charter Communication’s market cap. Charter is the largest short in the Cable & Satellite sector and short interest has been significant throughout 2017, ranging between $2.3 and $3.8 billion. Shorts have not done well on their trades, down $1.04 billion, or 37.5%, in mark to market losses in 2017.

V US                 Comcast Corp’s share price rose 3.8% last week as the largest U.S. cable company continued to show strong subscriber base retention with its X1 rollout. Comcast is the second largest short in the Cable & Satellite Sector behind Charter Communications. Comcast shorts are down $117 million, or -6%, in the third quarter.

Want deeper insight into the above analysis?

Contact:  Ihor.Dusaniwsky@S3Partners.net

Managing Director Predictive Analytics, S3 Partners, LLC

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