• Research

May 24, 2018

S3 Analytics: Lowes Shorts Down $98 million on 10% Price Move

Lowe’s Cos Inc (LOW) was up 10.4% yesterday even though they reported first quarter results that missed on both revenues and EPS as a colder and longer winter season depressed quarterly sales. Outweighing this negative news was the appointment of J.C. Penney (JCP) CEO Marvin Ellison, who was also a high ranking executive at Home Depot (HD), as its new CEO effective July 2nd. This follows a Wall Street Journal report that Bill Ackman of Pershing Square Capital has accumulated a $1 billion long position in the home retailer.

Lowes is the second largest short in the Worldwide Retail Home Improvement Sector with $941 million in short interest, but lags behind Home Depot with nearly double its short interest at $1.8 billion.  Short sellers have been covering part of their Lowes position recently with balances as high of $1.23 billion in late April down 25% in less than a month.

Shorts were up $82 million in mark-to-market profits by the end of April and short sellers began covering some of their shorts in order to realize some of their gains. Between April 26th and May 23rd shorts had covered over 3 million shares of their shorts and given back $39 million in mark-to-market losses, they were still up $44 million for the year. Wednesday’s rally not only added $98 million in additional mark-to-market losses to short seller’s P/L but also turned their year negative; they are down $54.5 million in year-to-date mark-to-market losses.

Lowes short interest had been climbing from late February to mid-April, with shares shorted up 87% to 12.84 million shares and $ short interest up 70% to $1.11 billion. Over the past month shorts have covered 1.6 million shares, a decrease of 13%, as the stock began showing some strength and breaking through the $85/share threshold after a steady decline from its year-to-date high of $107.40 in late January.

With a new CEO and a high profile long shareholder beating its drum we may see shorts trimming their positions and realizing some of their mark-to-market profits. Today Wedbush, Citi and RBC Capital raised their price targets to $92, $99 and $104 respectively, providing even more reasons for shorts to re-evaluate their short thesis. If Lowes shorts do begin to cover their positions in size, there is a $1 billion tailwind ready to push Lowes share price higher.

Want deeper insight into the above analysis? Contact:
Ihor.Dusaniwsky@S3Partners.net
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.


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