Market Overview

Short Sellers Retreat from Best Buy and Rite Aid

The short interest moves in troubled retail companies were mixed during the latter two weeks of March.

The number of shares sold short in Bebe Stores (NASDAQ: BEBE), GameStop (NYSE: GME), Office Depot (NYSE: ODP) and Pacific Sunwear (NASDAQ: PSUN) increased somewhat between the March 15 and March 28 settlement dates.

And short interest in Avon Products (NYSE: AVP), Barnes & Noble (NYSE: BKS), Bon-Ton Stores (NASDAQ: BONT), J.C. Penney (NYSE: JCP), OfficeMax (NYSE: OMX), RadioShack (NYSE: RSH) and Sears Holdings (NASDAQ: SHLD) declined somewhat during that time.

However, Best Buy (NYSE: BBY), Rite Aid (NYSE: RAD) and SuperValu (NYSE: SVU) were the standouts, with larger percentage drops in short interest between the March 15 and March 28 settlement dates.

Best Buy

Short interest in this specialty retailer retreated more than 18 percent to 26.92 million shares by the end of March. That was the lowest number of shares sold short since November, and it represents more than 10 percent of the float. Days to cover crept back above two.

Best Buy founder Richard Schulze was named chairman emeritus in late March. The company has a market capitalization of about $7.5 billion. Note that the forward earnings multiple is higher than the industry average price-to-earnings (P/E) ratio, and the return on equity is in negative territory.

The consensus recommendation of the 23 analysts who follow the stock and were surveyed by Thomson/First Call is to hold shares, and it has been for at least three months. The share price has overrun their mean price target, though the most optimistic individual price target suggests there is about 34 percent potential upside.

The share price is up about 104 percent since the beginning of the year, when shares were trading near a multiyear low. Over the past six months, the stock has outperformed competitors Amazon.com (NASDAQ: AMZN) and Walmart (NYSE: WMT), as well as the broader markets.

Rite Aid

Shares sold short in this drugstore operator fell more than 20 percent in late March to 36.24 million, which was the lowest level of short interest so far this year. Shares sold short represents about five percent of the float, and days to cover rose to about five.

Rite Aid has more the 4,600 stores and just reported its first annual profit in six years. The company's market cap is about $2.0 billion. Its long-term earnings per share (EPS) growth forecast is about eight percent, but its forward earnings multiple is higher than the industry average P/E ratio.

Just three of the nine analysts who were polled recommend buying shares, but only one rates them at Underperform. Here too the current share price is higher than the mean price target, or where the analysts expect the share price to go. The street-high target suggests there is about 10 percent potential upside.

Shares surged more than 31 percent this past week to a new multiyear high. The share price is more than 51 percent higher year-to-date. The stock has outperformed competitors CVS Caremark (NYSE: CVS) and Walgreen (NYSE: WAG), as well as the S&P 500, over the past six months.

SuperValu

This operator of retail and wholesale food stores saw short interest drop more than nine percent in the period to about 66.65 million shares. That was the lowest number of shares sold short in the past year. The short interest is still more than 33 percent of the float. Days to cover dropped from 14 to less than seven.

In late March, SuperValu completed its asset sale to Cerberus and it cut about 1,100 corporate jobs. The company's current market cap is a little over $1 billion. Its forward earnings multiple is higher than those of rivals Kroger (NYSE: KR) and Safeway (NYSE: SWY), and SuperValu's return on equity is in negative territory.

Of the 11 analysts surveyed, all but one recommend holding shares. The consensus has been to hold the stock for the past three months. So it is not much of a surprise that the share price has overrun the analysts' mean price target here as well. They do not see any upside potential at this time.

The share price is more than 113 percent higher year-to-date, though still about 19 percent lower than a year ago. The stock has outperformed Kroger and Safeway, as well as the broader markets, over the past six months.

Posted-In: Amazon.com Avon Products Barnes & Noble bebe Stores best buy Bon-Ton Stores cvs caremark gamestop J.C. Penney Kroger Office Depot OfficeMax PACIFIC SUNWEAR radioshack Rite Aid Safeway Sears Holdings SuperValu walgreen WalmartShort Ideas Trading Ideas Best of Benzinga

 

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