Most shorted ahead of earnings

 Simon Colvin | Research Analyst, Markit
Most shorted ahead of earnings

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

  • Untied Natural foods targeted by shorts since the Whole Food acquisition
  • Morrison short sellers head for the door after a series of good results
  • Short sellers double down on Syrah Resources ahead of earnings

North America


The most shorted company announcing earnings is restaurant firm Cracker Barrel which has just under a fifth of its shares out on loan. Cracker Barrel shares disproportionally benefited from the post-election rally, but short sellers stayed the course and demand to borrow its shares climbed in the subsequent months.

This willingness to double down is now starting to reward short sellers – Cracker Barrel shares started to give back much of their recent gains after some disappointing trading updates.

Short sellers will also be keeping a close eye on United Natural Foods which also reports on Wednesday. Demand to short the company’s shares surged in the last few months as short sellers ponder the fallout of Amazon buying Whole Foods.

This strategy was largely vindicated in the last few weeks; Untied Natural shares fell heavily on news that Amazon was aggressively cutting prices in its newly acquired division.

Europe


The high conviction short among firms in Europe is Wm Morrison Supermarkets. Morrison’s current shorting activity represents a large improvement in investor sentiment – demand to borrow its shares was nearly twice that level 12 months ago. Falling short interest can be attributed to Wm Morrison’s string of better than expected earnings, which have propelled its shares to the highest level in more than three years.

Fellow UK firms Next and J D Wetherspoon make up two of the three other European shares with more than 5% of their shares out on loan ahead of earnings this week.

Asia


Graphite miner Syrah sees the most demand to borrow. Short sellers first started to target the firm after a delay in its Balama project sent shares crashing down. Syrah shares rallied in the last few weeks after it announced some progress on the Mozambique-based project – however, short sellers still remain sceptical and demand to borrow its shares increased to a new all-time high.


Simon Colvin | Research Analyst, Markit
 
Tel: +44 207 264 7614

 
simon.colvin@markit.com
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