Shares of Whirlpool Corp (WHR) are down almost 1% today as short sellers continue to close out portions of their outstanding short exposure after short interest hit an historical high of $1.7 billion two weeks ago. Even with almost $600 million of short covering in just over a week, WHR continues to be the most shorted stock in the worldwide Household Appliances sector.
WHR short interest began to climb on May 15th, just as WHR option activity also began to spike. Put/call activity relating to volatility trades and overall daily trading volume in WHR more than doubled in size in mid-May and by the end of the month trading activity had quadrupled. WHR short sellers were also very active, increasing their short exposure by almost $700 million in less than a month.
Most of the additional trading activity was due to a modified Dutch auction which expired on May 23rd resulting in Whirlpool acquiring 6.3 million shares, 8.8% of shares outstanding, at a price of $159.50/share. The tender resulted in a stock buyback worth approximately $1 billion.
With WHR’s stock price trading off its pre-Dutch auction high of $164.95/share and dipping below $145/share, shorts have been selling off part of their exposure and realizing some profits. Of the $128.8 million of year-to-date mark-to-market profits WHR short sellers have earned, $92.3 million, or nearly three-quarters, after the May 15th short sale run-up.
We continue to see more covering by WHR short sellers and coupled with an upgrade to “outperform”, with a price target of $195 by C.S. analyst Susan Maklari, we should continue to see buy to covers nudging WHR’s stock price up over the near term. If WHR short interest reverts back to its pre-Dutch auction levels there will still be 4.5 million shares left to buy.
Want deeper insight into the above analysis? Contact:
Managing Director Predictive Analytics, 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.