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Nov 9, 2016

S3 BLACKLIGHT: Short Interest up 159% in Berry Plastic

Berry Plastics Group Inc. (BERY US) short interest is up $153 million, or 159%, to $251 million this year even as its stock price is up 25% on the year. Berry plastic’s stock price has been rallying since its inception in 2012 and has increased 97% from 2012 to 2015. Short interest had been minimal from 2012-2015, averaging only $44 million of short position over those 3+ years.

Berry Plastic’s short interest climbed from $97 million in the beginning of 2016 to $222 million by mid-April and then reversed course, dropping down to $57 million by the end of July. Short interest then grew steadily and hit a historical high of $251 million today. Short interest is up $116 million or 85% since the 3rd quarter.

This recent surge in short interest is not value or fundamentals based but rather more technical in nature. After falling over 21% in the first six weeks of 2016 Berry Plastic’s stock price rallied 60% from February to August, rising from $28.42 to $45.39. From September to the present Berry Plastic traded in a $43 to $46 range and short sellers are now looking for a reversal after this extended period of consolidation.

There is still plenty of stock available to borrow to support new short sales. Less than 15% of stock that is available to borrow is on loan at the moment. Stock borrow cost is still at general collateral levels, the cheapest cost for the easiest to borrow stocks, and should remain at G.C. levels for the foreseeable future as it would take a four-fold increase in shorts to reach the level where lack of supply affects borrow rates.

Berry Plastic’s near term stock price movement will determine whether short interest will continue to increase. If Berry Plastic’s stock price drops below its $43 floor we would expect short sellers to increase their exposure as the stock gives back more of this year’s gains but if its stock price jumps above the top Berry Plastic’s recent trading range, $46, we can see a rush of buy to covers as short sellers try to avoid a continuation of this year’s early rally.

For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC     Ihor.Dusaniwsky@S3Partners.net

The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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