Most shorted ahead of earnings

We reveal how short sellers are positioning themselves in companies announcing earnings in the coming week

• Healthcare firms make up nearly half of heavily shorted North American stocks
• Carillion is most shorted European firm announcing earnings
• Australian small caps are the most shorted group announcing earnings

North America

Frontier communication is the most shorted firm announcing earnings next week as the company, which provides telephone services to rural and remote areas, has more than 27% of its shares now out on loan. Frontier has been a favorite short target for quite some time as demand to borrow its shares has stood north of 10% of all issued shares for 12 months. The already lofty bearish sentiment in the firm has climbed to a new all-time high after the firm reported a widening loss back in November as it struggled to add new subscribers and monetize its existing customer base.

Fellow telecommunication firms Windstream Holdings also makes the list of the firms seeing high short interest in the lead-up to earnings as it now has a fifth of its shares now out on loan.

The healthcare sector, particularly biotech firms, continues to create plenty of short targets and this week sees nearly half of the highest conviction shorts coming from the sector. The sector's high conviction bearish plays announcing earnings this week are led by air ambulance operator Air Methods. Air Method's shares have been heavily shorted for much of the last year and over a third of its shares were out on loan at one point. The heavy short interest has abated somewhat in the post-election market which has seen Air Method's shares rally by more than 50%. The rally continued in the last few weeks as reports surfaced that the firm was considering strategic alternatives including a potential sale. This rally prompted some short sellers to cover however sceptics still abound as there are still over a quarter of Air Method shares now out on loan.

The other healthcare short targets leading making this week's list of heavily shorted names include Kite and Eagle Pharmaceutical and Amicus Therapeutics.

Short sellers have also been keen to short household names such as Weight Watchers International which has just over 20% of its shares out on loan. Weight Watchers holds plenty of painful memories for short sellers which got squeezed out back in 2015 when US television personality Oprah announced that she had taken a large stake in the company. Weight Watcher shares have since given back most of the ground gained in the post Oprah rally and short sellers are lining up to profit for a further slide in its shares as demand to borrow the stock has climbed by over a third in the last couple of months.

Europe

UK service firm Carillion is the main high conviction short target in Europe this week as it has 24% of its shares out on loan. Carillion generates over three quarters of its revenues from the UK and short sellers are betting that its heavy reliance on the country will hurt profits as the government's ongoing cost cutting efforts have seen squeezed budgets for the type of services Carillion offers

Fellow service provider Capita also finds itself on the list of high conviction shorts as it has over 6% of its shares out on loan, an all-time high for the firm. Capita short sellers were vindicated back in September of last year when is shares sank by a third after the company released a profits warning announced owing to weak trading conditions after the Brexit vote.

Asia

Australian firms make up the vast majority of heavily shorted Asian names announcing earnings this week. The shorting is led by sandalwood farm TFS Corporation which has 13% of its shares out on loan to short sellers. This represents an all-time high for the firm.

Almond farmer Select Harvest has registered the largest rise in shorting activity out of any Asian firms leading up to earnings with a 48% rise in demand to borrow its shares in the month leading up to earnings.

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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.