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Jan 30, 2017

S3 BLACKLIGHT: Short Sellers Hope APD’s 2016 Rally Has Run Out of Gas

Air Products & Chemicals Inc. (APD US) was one of the most active new shorts in the past week with short interest increasing by $180 million, or 27%, to $848 million. Short interest has been climbing in APD since December with short interest balances doubling in just two months and the present level is a historical high for the stock.

APD’s short interest averaged $508 million in 2016, but dropped to a yearly low of $320 million in mid-September before increasing to present levels. With APD’s stock price outpacing the S&P and posting a 19.56% positive return for the year, short sellers were down $75.7 million in short financing costs and mark to market P\L, or down 14.88% for the year. APD short sellers have done much better this January. Short interest has averaged $764 million and they are up $20.5 million, or 2.7%, in short financing costs and mark to market P\L. Mark to market P\L does not include intraday trading.

The industrial gases supplier recently cut 2017 guidance on global demand weakness and “currency headwinds.” APD missed 1st quarter 2017 (ending December 31, 2016) earnings expectations of $1.48/share by a penny and net income was down 10% year on year to $252 million.  Worldwide gross revenues were up slightly with sales in the U.S. and Asia improving, but sales in Latin America and the EMEA declining and overall international revenues negatively impacted by adverse currency fluctuations.

APD’s stock price has rebounded strongly after hitting its recent lows in January of 2016, but the last time APD’s stock price approached $150/share was in February 2015 which ended a three year rally and started a one year bear market in the stock. Short sellers may be piling in to see if the stock has the momentum to rally through the $150 level or if it has run out of gas and will drop back down to its mid-$130’s support level.

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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