Even though Target Corp (TGT US) reported quarterly EPS of $1.23/share which beat analysts expectations by $0.10/share same store sales fell by 1.1%. This drop in sales fell out of line with Target’s competitors, Macy’s (M US) and JC Penny Co. (JCP US), whose sales were up for the quarter. With overall retail demand expected to slow in the second half of the year and losing some of their foot traffic with the sale of its pharmacy business to CVS, Target is cutting its annual earnings forecast to $4.80/$5.20 per share versus their earlier estimate of $5.40.
Target short interest in Target hit historical highs in late December 2015 at $3.12 billion and continued to trend upwards, hitting $3.3 billion in mid-April as Target hit its year to date share price high of $83.98. By the end of the second quarter short sellers covered 24% of their positions, with short interest falling to $2.5 billion, as Target’s share price hit a year to date low of $66.74. In mid-June, with Target’s stock price rising, short selling picked up once again. The upward trend has continued and, as of yesterday, short interest is up 22% to $3.14 billion.
The S3 Shorting Velocity Indicator, a measure of relative change in shorting activity, shows us that a reversal in short interest momentum has occurred. The 7 day trend line began trending upward in the beginning of August and has just crossed both the 30 and 90 day trend lines. We are seeing he 30 day trend line reversing its 2 month downward slope and beginning to turn upwards while the 90 day trend line is beginning to flatten out. Any additional negative news on Target’s earnings or sales figures will accelerate and assist the short momentum reversal that is now beginning.
Short sellers are already beginning the process of building their positions today as we are seeing almost $100 million worth of new stock borrows on the street in anticipation of short selling after the open. Target’s stock price is already down 7% in pre-market trading, a surge in short selling may push Target’s price down even further.
For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC Ihor.Dusaniwsky@S3Partners.net
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