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Apr 10, 2017

S3 BLACKLIGHT: April 3rd – 7th Best and Worst Short Performers

Every week, S3 tracks short seller’s equity positions in the US, revealing the trades that have performed significantly better or worse. After tracking $733 billion worth of short positions, the following is a list of this week’s top five best and worst performing shorts over the last week.

Top 5 Shorts:
• NVDA NVIDIA was downgraded to “underweight” by Pacific Crest citing a saturated graphic chip market that will stifle future growth opportunities and force the firm reduce margins in an effort to maintain market share. NVIDIA’s stock price fell 7% on the news. Short interest is down over 66% from its historical short interest high of $7.6 billion in December 2016 and short sellers have a long way to go to recoup the $4.6 billion of mark to market losses they incurred in 2016.
• AMD After climbing almost 400% in a year, AMD’s stock price took an 8.8% tumble last week as Goldman Sachs downgraded the stock to “sell” with an $11 price target. The stock is close to be priced being to perfection, but double barreled competition from Intel (INTC US) and NVIDIA may be too much to overcome to reach the bullish expectations that have been priced into this yearlong run up. AMD shorts were only 10% as big as NVDA’s short, but still managed to be down $739 million in 2016, even if AMD hits Goldman’s $11 price target, shorts will be less than halfway to recouping their 2016 losses.
• AYI Acuity Brands posted weaker than expected quarterly earnings across the board on April 4th and shares hit a year to date low of $170.40 by the 5th. President and CEO Vernon Nagel said demand was lower than expected in the North American market and that excess production capacity and fixed expenses put a drag on margins that could quickly reverse if growth picks up during the fiscal year. Short interest is $782 million, up 42% on the year, but down from a year to date high of $948 million in mid-March.
• T Comcast Corp (CMCSA US) has jumped into the deep end of the pool with its Xfinity Mobile service, which it plans to roll out to its existing customer base. Xfinity’s mobile plans will compete with Verizon Comm (VZ US) and AT&T on price and add another formidable competitor into the mobile telecomm sector. AT&T stock was down 2.3% on the news.
• NFLX Netflix short interest has been over $3.3 billion for most of 2017, up 14% from $3.0 billion at the end of 2016 and short interest has remained steady in advance of 1st quarter earnings to be reported on April 17th. Netflix has outperformed the S&P 5000 once again in 2017, but there is fear that although shorter term results may be favorable, longer term earnings expectations may not push NFLX’s stock price beyond the $155-$170 price target range without substantial tinkering.

Bottom 5 Shorts:
• PNRA JAB Holding Co. offered $315/share, or $7.5 billion, for PNRA on April 3rd driving its stock price up over $50, or 19.14%, to $312. Shorts were down $101 million for the week, pushing the 2017 mark to market P/L down to $343 million, or down 48% for the year.
• CAT Goldman Sachs added CAT to their “Conviction Buy” list with a target price of $120/share. Goldman stated that the stock has been hit hard with an IRS accounting dispute and a decline in its main customer base, the agriculture and mining sectors.
• CTL There is still uncertainty regarding CTL’s and Level 3’s impending merger, with some analysts discounting future earnings and cash flows while others see the stock as undervalued relative to its sector with the chance to improve its global capabilities via its Level 3 merger. CTL’s stock price has recently rebounded off its year to date low of $22.24 in early March.
• CHTR Charter Comm.’s stock price hit a year to date high on April 6th of $336.80 and short sellers are down $498 million in mark to market P/L for 2017. CHTR’s revenue growth by acquisition, including getting into the wireless sector, will keep increasing its subscriber base and producing expense synergies, although interim Capex spending will be high.
• TDG Transdigm has rebounded off a recent year to date low of $210.04 and short sellers are still up $159.4 million, or 10.37%, in 2017. Short interest is up 80% this year as short sellers see a high debt load being serviced by high margins that may be unsustainable. If proposed tax reforms negatively affect TDG’s ability to deduct corporate interest, their bottom line may suffer.

Want deeper insight into the above analysis? Contact:
Head of Research, S3 Partners
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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