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Apr 25, 2017

S3 Research: April 17th – 21st Best and Worst Short Performers

Every week, S3 tracks short seller’s equity positions in the US, revealing the trades that delivered positive results or missed the mark.  After tracking $856 billion worth of short positions, the following is a list of this week’s top five best and worst performing shorts over the week.

Top 5 Shorts:
• IBM IBM reported 1st Quarter earnings, which disappointed investors. Earnings per share, revenues and gross margins were below expectations, but within expected ranges. IBM assuaged some investor fears by stating that margins should increase in the second half of 2017.
• GWW WW Grainger reported 1st Quarter earnings, which missed expectations by a wide margin with EPS missing by $0.11 and sales growth at only 1% - 4% as the firm began implementation of more competitive market pricing to keep their existing customer base and acquire new customers. Continued expansion of this aggressive pricing policy will negatively affect full year revenues, but will build long term customer loyalty and minimize customer acquisition costs in the long run.
• NFLX Netflix reported mixed 1st Quarter results with revenues up 6% quarter on quarter, but slightly below estimates with EPS of $0.40 vs. estimates of $0.37. Most importantly domestic and international subscriber growth missed estimates by almost half a million new viewers. Netflix stated that the new subscriber shortfall was due to content shuffling and should not be a factor going forward.
• ASPS While long Alitsource shareholders were trying to limit short sellers access to stock borrows by locking up lendable securities, Altisource stock was rocked by Customer Financial Protection Bureau (CFPB) allegations that Ocwen Financial (OCN US) performed customer reporting, payments and services in a manner that cost some of their borrowers their homes. Ocwen is Altisource’s largest client, and was spun off from Ocwen in 2009, and is also being investigated by the CFPB. With state mortgage regulators beginning to block Ocwen from participating as a mortgage servicer in their states, a loarge portion of Alitsource’s revenues are at risk.
• ABC AmerisourceBregan’s stock price fell over 3% early last week as the pharmaceutical sector fell en masse following Cardinal Health’s (CAH US) expectation that its full year EPS will be at the low end of their forecasted range due to pressure on generic drug pricing. Branded drugs will also see gross margins tighten as future price increases will be more moderate in order to avoid public and political scrutiny.

Bottom 5 Shorts:
• BABA Alibaba Group (ADR) shares continued to hit year-to-date highs last week as Benchmark analysts initiated coverage with a $140 price target. Alibaba’s affiliate, Ant Financial, raised its bid for Moneygram to $18/share, or $1.2 billion. Alibaba is looking to diversify its revenue streams, and through Ant Financial, it is expanding its online payment presence in India, via e-wallet Pay/Tm, and internationally via Moneygram, the second largest money transfer company behind Western Union.
• LRCX Lam Research reported 3rd Quarter earnings, which handily beat analysts’ estimates. Following the beat, price targets were raised across the street from $144-$163 to $160-180. By the end of the week, Lam Research had hit year-to-date highs. Short sellers have maintained their conviction and short interest has remained relatively flat during this rally.
• TSLA Even with a 53,000 car recall due to faulty electric parking brakes and a lawsuit calling its autopilot system “demonstrably dangerous”, Tesla’s stock price ended the week up 0.53% on the unveiling of a Tesla semi-truck with battery swap-out capabilities and nearing GM’s market cap. Tesla’s short interest is now $9.2 billion up from $7.2 at the beginning of the year.
• ISRG Intuitive Surgical’s short interest increased 187% this year, rising from $795 million to $2.3 billion. Although short sellers were active, they were not profitable with year-to-date mark to market losses of $441 million, or -22.3%. Intuitive Surgical crushed their 1st Quarter earnings announcement, reporting EPS of $5.09 vs. estimates of $4.95 and revenues up 13%.
• BBY Best Buy shares were up almost 5% on not much news. Online sales have been a driving force for their revenues, but Amazon is a constant threat to steal a significant chunk of those sales. Short interest is up 28% for the year, but short sellers P\L is down $277, or 17.5%, year-to-date.

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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