Most shorted ahead of earnings

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

• Shorts hold onto Outerwall and Lumber Liquidators, despite prices moving against them
• Logitech sees record short interest ahead of earnings post acquisition of Jaybird
• Dividend expected to be slashed in half at Japanese shipper K-line, most shorted in Apac

North America

For a consecutive quarter the most shorted ahead of earnings this week in North America, is Outerwall with 37.3% of its shares currently out on loan. Short sellers have however, lost substantial ground, holding on to costly positions as shares have surged 58% since late February. The stock has been spurred on by the company announcing a doubling of its dividend and exploring "strategic and financial alternatives to maximise shareholder value".

Despite the move eroding short sellers' profits, only 15% of short positions have been trimmed with short sellers still prepared to pay above 15% to borrow, indicating high conviction levels remain.

Attracting high levels of short interest for a consecutive quarter is Bofi Holdings with a third of its shares which remain outstanding on loan despite the stock rising by some 7.8%.

Lumber Liquidators first appeared on short sellers' radars in 2015, with shares falling over 70%. Appearing once again among the most shorted stocks ahead of earnings this week, with 31.9% of shares outstanding on loan. Shares have rallied by a third since February 26^th 2015.

Synthetic proppants supplier (small sand-like particles) Carbo Ceramics continues to be heavily shorted with 28.4% of shares currently outstanding on loan. Since short interest levels broke through 20% in 2014, shares in the company have plummeted over 80%.

A recent 53% rally in Carbo Ceramic shares actually saw short sellers add to positions with the stock subsequently erasing gains and falling back to trading near a three year low.

Europe

With a fifth of its shares currently sold short, Aixtron leads stocks ahead of earnings in Europe this week.

The German based equipment manufacturer of semiconductor equipment has seen shares surge 39% since February 12^th 2016. Resilient short sellers have however, held onto positions and additionally they have also been prepared to pay a high cost to borrow stock.

Short interest in Swiss listed Logitech International has doubled in the last 12 months with 14.6% of the company's shares currently outstanding on loan. The firm just announced the $50m acquisition of Jaybird, growing the companies audio and music portfolio.

Short sellers have targeted Logitech's lacklustre sales growth in recent years. However, Logitech shares have moved 9% higher in the last 12 months.

Outotec, a Finnish based provider of minerals and metals based processing technology is third most shorted ahead of earnings in Europe. 11.3% of shares are currently outstanding on loan and the company's stock has slid 38% in the past 12 months.

Bolsas y Mercados Espa"oles (BME) -the Spanish stock market operator has 10% of its shares sold short and sees significant demand to borrow in Europe ahead of earnings. The cost to borrow stock has surged since the start of the year (approaching 10%) and short sellers have held tight as the stock participated in the February rally, rising some 20%.

Apac

Markit's Dividend Forecasting is expecting a 58.3% dividend cut at Kawasaki Kisen Kaisha (K-Line which leads the most shorted companies ahead of earnings in Apac this week.

Currently with 14.9% of shares outstanding on loan, the company recently cut forecasts for operating income and earnings per share, swinging violently from "5.3 to "-53.3 and guiding for a "50bn loss for the year.

K-Line cited a slowdown in the Chinese economy and emerging markets as declining demand remained sluggish. Additionally the firm expects further costs arising from implementation of structural reform in its dry bulk business.

A surge in short interest has been seen in recent weeks at Samsung heavy Industries. Currently the third most shorted stock in Apac with 11% of shares sold short. Similarly to K-line, Samsung's shipbuilding is struggling with weak demand and a glut in supply - the stock is down 38% in the past 12 months.

Second most shorted in Apac is Advantest with 13.5% of shares are outstanding on loan. The firm manufactures semiconductor and component test equipment and has seen shares fall by 20% in the past year.

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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.