Market Overview

Short Sellers Move into Avon and Bebe Stores

The short interest moves in troubled retail companies were mixed again during in early April.

The number of shares sold short in Avon Products (NYSE: AVP), Bebe Stores (NASDAQ: BEBE), Best Buy (NYSE: BBY), GameStop (NYSE: GME), RadioShack (NYSE: RSH) and SuperValu (NYSE: SVU) increased between the March 28 and April 15 settlement dates.

And short interest in Barnes & Noble (NYSE: BKS), Bon-Ton Stores (NASDAQ: BONT), J.C. Penney (NYSE: JCP), Office Depot (NYSE: ODP), OfficeMax (NYSE: OMX), Pacific Sunwear (NASDAQ: PSUN), Rite Aid (NYSE: RAD) and Sears Holdings (NASDAQ: SHLD) declined during that time.

The biggest swings in short interest in the stocks of struggling retailers between the March 28 and April 15 settlement dates happened to Avon Products, Bebe Stores and Rite Aid.

Avon Products

This beauty and personal care products purveyor saw short interest rise more than 19 percent in the first weeks of April to 7.49 million shares, ending a three-period streak of dwindling short interest. The number of shares sold short was less than two percent of the float, and days to cover was a bit more than two.

During the period, Avon announced the elimination of 400 jobs and said that it would no longer do business in Ireland. The company now has a market capitalization of more than $9 billion and a dividend yield near 1.1 percent. The long-term earnings per share (EPS) growth forecast is about 21 percent, but the return on equity is in negative territory.

Of the 15 analysts who follow the stock that were surveyed by Thomson/First Call, just six recommend buying shares; the rest recommend holding them. Their mean price target, or where they expect the share price to go, is only marginally higher than the current share price. And that target is just shy of the 52-week high reached last week.

The share price is more than 46 percent higher year-to-date, much of that gain coming after the better-than-expected earnings report in February. The stock has outperformed competitors Procter & Gamble (NYSE: PG) and Revlon (NYSE: REV), as well as the S&P 500, over the past six months.

Bebe Stores

Shares sold short in this women's fashion retailer rose more than 10 percent in the first weeks of April to 4.13 million. That was the highest level of short interest in at least a year, and it came to a little more than 11 percent of the float. The days to cover was about eight.

This California-based company operates more than 240 stores in North America and Japan, and its revenue fell more than analysts had expected in the most recent quarter. The company also named a new chief merchandising officer in early April. The market cap is approximately $430 million and the dividend yield is near 2.2 percent. The long-term EPS growth forecast is about 15 percent.

The consensus recommendation of the three analysts polled is to hold shares, and that has been the case for the past three months. But they believe the stock has some headroom, as their mean price target indicates upside potential of more than five percent. However, that target is well less than the 52-week high from last spring.

Shares are more than 29 percent higher year-to-date, including a pop of more than 14 percent last week. The stock has outperformed larger competitors Guess (NYSE: GES) and Nordstrom (NYSE: JWN), as well as the S&P 500, over the past six-months.

Rite Aid

Shares sold short in this drugstore operator fell more than six percent in early April to 33.83 million, or more than four percent of the company's float. Short interest has been declining since the end of February. The days to cover dropped from about five in the previous period to a little more than three.

Rite Aid has more the 4,600 stores, and in mid-April the company reported its second surprise quarterly profit in a row. The retailer's market cap currently is about $2.2 billion. Its long-term earnings per share (EPS) growth forecast is about eight percent, but its price-to-earnings (P/E) ratio is in line with that of larger competitor Walgreen (NYSE: WAG).

Half of the 10 analysts who were polled recommend buying shares, while only one rated the stock at Underperform. The current share price is about the same as the mean price target, indicating that the analysts on average see no upside potential at this time. But the street-high target suggests there is more than 15 percent potential upside.

Shares surged more than 33 percent this past month and hit a new multiyear high last week. The share price is more than 81 percent higher year-to-date. The stock has outperformed competitors CVS Caremark (NYSE: CVS), Walgreen and Walmart (NYSE: WMT), as well as the S&P 500, over the past six months.

Posted-In: Avon Products Barnes & Noble bebe Stores best buy Bon-Ton Stores cvs caremarkShort Ideas Trading Ideas Best of Benzinga

 

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