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Jan 30, 2017

S3 BLACKLIGHT: Negative Bets Against Express Scripts Post-Citron Research Report as Bearish Sentiment Builds

Shares of Express Scripts (ESRX US), the pharmacy benefit manager, declined 2.4% during Friday’s trading session after well-known activist short seller Andrew Left of Citron Research penned a research report with a $45 price target for the company, which is about a third lower than where ESRX shares trade today.  In the report, Citron states that ESRX “deserves to fall to the mighty sword of the new Trump administration.”  Left even went so far as to label the company the “Gotti of Pharma” and tagged @realDonaldTrump on Twitter urging him to “fix drug pricing with one stroke” by investigating the existing PBM rebate (essentially a kickback) model, for which ESRX is a major beneficiary.  
Short sellers in ESRX are beginning to ramp up their negative bets against the company in 2017 following lower short interest trends for most of 2016.  Over the past two weeks of trading, short interest is up 10.7% in ESRX, coinciding with the stock price falling by 5.9%.  Short interest exposure is now estimated to be at roughly $1.26 billion, nowhere near its 2016 peak of $3.97 billion back in February.
Taking a look at real-time activity in the securities lending market today, after a full weekend to digest the Citron report, we are seeing a 6:1 skew to new borrows (new shorts) vs returns (shorts buying-to-cover).  This would put number of shares on loan to shorts closer to the 20 million mark—a level that hasn’t been seen since this past November.
With ESRX’s next earnings announcement scheduled for Feb 14th, expect short sellers to continue to build their bearish bets against the company as they hope for a disappointing forecast based on a potential Trump intervention in the industry.  You can be sure Andrew Left has his fingers crossed.   
For more information on the above analysis, please contact:
Matthew Unterman, Director, S3 Partners, LLC    

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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