Most shorted ahead of earnings

A review of how short sellers are positioning themselves ahead of earnings announcements in the coming week.

• Short sellers benefit from sudden fall in Nektar Therapeutics after a presidential tweet storm
• Shorts hold onto Tesco even as positive earnings from Sainsbury's lifts sector's shares
• Earnings guidance at Europe's largest sugar refiner lifts shares ahead of earnings

North America

Lindsay Corp is the most shorted ahead of earnings this week in North America with 28% of shares outstanding on loan. Short sellers have continued to target the maker of irrigation equipment that's primarily used in agricultural markets.

Shares in Lindsay have fallen 25% in the last three months with consensus forecasts indicating a 25% decline in earnings for the full year. Lower soft commodities prices have dampened sales growth for the firm and a stronger dollar has diluted foreign based earnings.

Another agriculturally focused firm in the US attracting short sellers is Advanced Drainage Systems, whose shares have rallied 36% in the last 12 months. This rise has seen a fourfold increase in short interest, increasing to 6.6% of shares outstanding on loan.

Short interest in Nektar Therapeutics plateaued prior to shares staging a rally in September.

However, shares subsequently fell 20% after a tweet by presidential candidate Hillary Clinton was released and cited for sending biotech stocks plunging.

The third most shorted ahead of earnings with 13% of shares outstanding on loan is Aerojet Rocketdyne. Aerojet stock plummeted by a third over the past two weeks after a key contract was lost to competitor Orbital ATK.

The lost contract supplied United Launch Alliance (a joint venture between Boeing and Lockheed) with solid rocket motors for Atlas V rockets. The joint venture was previously an acquisition target for Aerojet, but a $2bn cash offer was rejected in early September.

Performance Sports, the owner of prominent hockey and baseball equipment brands Bauer and Easton, has seen short interest surge in the last 12 months to 9.2%.

Disagreement about the firm's retail strategy and incentives led to a recent attempt by former chairmen of Bauer to gain a board seat in a bid to control the company through a proxy war. However these efforts have been abandoned.

Europe

Most shorted ahead of earnings in Europe is UK retailer Tesco with 5.1% of shares outstanding on loan.

UK retailers have continued to struggle but shares across the major chains bounced higher this past week as Sainsbury's reported stronger than expected earnings to the market.

Despite shorts covering positions by two-thirds since the beginning of the year, Suedzucker is still the second most shorted in Europe ahead of earnings this week.

The company's share performance is in stark contrast to that at the beginning of the year, when it was removed from the MSCI Germany index and lowered its dividend payments as sugar markets globally suffered from falling prices.

Suedzucker shares have risen 46% in the past nine months as prospects for Europe's largest sugar refiner begin to improve. Shares jumped 13% on guidance released in September that indicated better than anticipated earnings.

The third most shorted in Europe ahead of earnings is elevator manufacturer and installer Zardoya Otis. The company has seen short sellers increase positions with shares outstanding on loan rising to 3.2%. Revenue and earnings have declined since 2012 for the largest maker of people-moving products.

Apac

The top two most shorted companies in Apac ahead of earnings this week are Japan's Sankyo Tateyama and Keyio with 6.6% and 6.5% of shares outstanding on loan, respectively.

Sankyo Tateyama develops and sells commercial and residential building materials, including rolled aluminium products. Shares in Keiyo, a manufacturer of electronic components, have fallen 10% in the last three months but are flat year to date.

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Relte Stephen Schutte, Analyst, Markit
Tel: +44 207 064 6447
relte.schutte@markit.com

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.