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May 1, 2017

S3 Research: April 24th – 28th Best and Worst Short Performers

Every week, S3 tracks short sellers’ equity positions in the US, revealing the trades that delivered positive results or missed the mark.  After tracking $872 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:
• ESRX - Express Script’s stock price declined almost 11% on 4/25 as Anthem Inc. (ANTM US) filed a suit claiming that ESRX overcharged them on drug pricing. ANTM made up nearly one third of ESRX’s 2016 EPS and will not seek to renew their contract after it runs out in 2019.
• STX - Seagate Technology’s stock price was up over 32% in 2017, hitting a year-to-date high of $50.51 on 4/25 before reporting mixed 3rd Qtr. 2016 results where they beat EPS expectations but missed on profits. STX’s 4th Qtr. outlook of $2.5-$2.6 billion was also below street consensus of $2.28 billion. STX’s stock price was down $8.50, or $16.8%, on 4/26.
• X - U.S. Steel reported unexpected weak 1st Qtr. 2017 results, posting a loss of $0.83/share on revenues of $2.73 billion versus Zacks Consensus Estimate of $2.921 billion. X’s stock price fell almost 27% on the news. Although sales grew in the quarter, the company is planning a $ 1 billion maintenance and expansion plan which will make the company more competitive in the future.
• TD CN - Toronto Dominion’s price decline may be attributed to a knock on effect from Home Capital Group’s run on its deposits. The selloff in Canadian bank stocks such as Canadian Western Bank (CWB CN) may be an overreaction to a fear of a mortgage default contagion developing in the Canadian real estate market. HCG’s overall mortgage delinquency rate is still minimal, but the fear of a systemic Canadian bank run hangs in the shadows as more HCG depositors pull their balances and long shareholders sell their positions.
• HMCBF - Home Capital Group’s (HCG CN in Canada) stock price declined by over 66% on 4/26 as more than 70% of its $1.4 billion CAD of high interest deposits were withdrawn in a week. The Canadian mortgage lender has obtained a $2 billion CAD loan from the Ontario Pension Plan to provide short term liquidity carrying a minimum 10% interest rate and a 2-1 mortgage collateral ratio for the loan in anticipation of an increase in HCG’s underlying delinquency rates. HCG has over $12 billion CAD of GIC deposits coming due in the next month which may force mortgage loan sales if depositors ask for their cash back do not roll over the majority of their balances. Several large shareholders have liquidated or reduced their holdings while short sellers continue to grow their positions even as borrow rates climb in to the 70% fee level.

Bottom 5 Shorts:
• NFLX - Netflix’s stock price surged to over $152/share on a new licensing agreement with Baidu, Inc. (BIDU US) to provide streaming content on Baidu’s iQui video platform. Netflix has been stymied in its attempts to enter the Chinese market ever since its failed licensing agreement with LeEco in 2014.
• TSLA - Tesla’s stock price continues to surge ahead of its 1st Qtr. earnings release this week as long shareholders continue to buy on dips and short sellers continue to hold onto their over $9 billion of shorts. Tesla’s stock price declined 6.4% after its 2/22 earnings release, but rebounded in two months to be up over 12.5%. Tesla continues to be a momentum stock where long shareholders have done well over time, but short sellers have been able to find short term dips to trade into. 
• EXAS - Exact Sciences beat on both 1st Qtr. EPS and revenues and its share price rose almost 27% on 4/27. Testing volume for its Cologuard Colon cancer test grew 150% year-over-year and EXAS is raising full year revenue guidance from $170-$180 million to $195-$205 million.
• GRUB - GrubHub Inc. reported better than expected 1st Qtr. EPS and revenues and its stock price soared by almost 23% on 4/27. Short interest had climbed almost 20% to $620 million prior to its earnings release as short sellers did not anticipate the significant growth of “active diners”, or new users, in the quarter.
• CAT - Caterpillar stock rose 7.9% on 4/25 and hit a year-to-date high of $104.66 on 4/26 as it sees flickers of recovery in global mining and construction. CAT reported a 1% increase in 1st Qtr. Global sales and more than doubled Zacks EPS estimate of $0.62/share and expected revenues by $300 million.

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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