Lighting manufacturer Acuity Brands Inc. (AYI US) rose 10.5% yesterday to $179.73, a three month high, as they reported strong 3rd quarter results, which handily beat analysts’ expectations. Adjusted EPS increased by 4.4% year-over-year to $2.15, which beat Factset’s analysts’ expectations of $2.03. Quarterly revenues came in at $892 million and Net Income at $82.2 million, a 5% and 11% increase year-over-year respectively. Both of which were second best historical results for the company.
CEO Vernon Nagel admitted that demand in the North American lighting market is sluggish, but is hopeful for a return to solid growth by 2018 as technological driven usage grows and opens up new sales channels. In addition to solid quarterly revenue news, Acuity’s board also authorized the buyback of two million shares of stock, or 4.8% of the float.
Short interest in AYI has been increasing significantly in 2017 with short sellers expecting a prolonged slump as they built up their positions as AYI’s stock price declined. AYI short interest increased by $665 million, or 121%, to $1.2 billion and shorts were up $166 million, or 20%, before this recent price spike. AYI’s stock price increased $18.79 yesterday and $4.64 in today’s early trading. This 13% two-day rally has taken a $140 million bite out of short sellers’ 2017 profits. Shorts are still up $26 million for the year, but if the rally continues and AYI’s stock price climbs another $4.36 shorts will be in negative territory for the year.
There is $50.1 billion of short interest in the overall Capital Goods industrial sector. Short selling increased in the industry by $1.5 billion, with short interest increasing in every sub-industry except for Aerospace and Defense.
Short interest in the Electrical Components and Equipment sub-sector is $4.15 billion, up $328 million, or 8.6%, as short sellers increased their exposure to Acuity Brands and Emerson Electric (EMR US).
AYI short sellers have been steadily building their position throughout the year, showing that their short conviction has not wavered in the last six months. With AYI’s stock price spiking so severely in just two days, the worst for them may be over and shorts might not be in a rush to cover their positions in hopes of a lull in buying demand resulting in a temporary price reversal. We are seeing some buy-to-covers, but not a stampede for the door. Shorts are still up over 6% for the year, so unless AYI continues its price rally, the opportunity for a short squeeze has come and gone.
For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC
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