Market Overview

Short Interest in SUPERVALU and Rite Aid Falls (JCP, RAD, SVU)

Overall, the short interest moves in troubled retail companies were mixed again during the final weeks of July.

J.C. Penney (NYSE: JCP), Rite Aid (NYSE: RAD) and SUPERVALU (NYSE: SVU) saw significant percentage swings in the number of their shares sold short.

Short sellers shied away from Barnes & Noble (NYSE: BKS), Best Buy (NYSE: BBY), Bon-Ton Stores (NASDAQ: BONT), GameStop (NYSE: GME), Office Depot (NYSE: ODP) and Pacific Sunwear (NASDAQ: PSUN) between the July 15 and July 31 settlement dates.

The number of shares sold short in Avon Products (NYSE: AVP), Bebe Stores (NASDAQ: BEBE), OfficeMax (NYSE: OMX), RadioShack (NYSE: RSH) and Sears Holdings (NASDAQ: SHLD) increased somewhat in that time.

Here is a quick look at how J.C. Penney, Rite Aid and SUPERVALU have fared and what analysts expect from them.

J.C. Penney

This Plano, Texas-based department store operator saw short interest swell more than 15 percent in the latter weeks of the month to around 44.51 million shares. The number of shares sold short was more than 23 percent of the total float, but days to cover fell from nine to about five in the period.

J.C. Penney now has a market capitalization of less than $3 billion. The struggle between management and activist investor Bill Ackman was very public this past week. In late July, the company denied reports of credit problems, and a top buyer in its new Home department left the company.

See also: J.C. Penney Board Responds Quickly To Bill Ackman

Only six of the 23 analysts who follow J.C. Penney and were surveyed by Thomson/First Call recommend buying shares, though that is twice as many as three months ago. Their mean price target suggests more than 22 percent potential upside, which likely is due more to the falling share price than to analyst optimism.

The share price hit a new multiyear low on Friday on unusually high volume. The share price is down more than 38 percent year-to-date. Not surprisingly, the stock has underperformed competitors such as Kohl's (NYSE: KSS) and Macy's (NYSE: M) over the past six months.

Rite Aid

Shares sold short in this drugstore operator fell almost 28 percent in the period to around 27.21 million. That represented about three percent of the float and was the lowest level of short interest in at least a year. The days to cover fell from more than two to about one in the period.

Rite Aid is the nation's third-largest drugstore chain, and it reported growth in same-store sales in July. The company's market cap is about $2.8 billion. Its long-term EPS growth forecast is about eight percent, and its price-to-earnings (P/E) ratio is less than the industry average.

Half of the eight analysts polled recommend buying shares, and the other four recommend holding them. The share price has overrun their mean price, meaning the analysts see no upside potential at this time. A positive earnings surprise or rosy guidance may prompt price target hikes; Rite Aid reports in September.

The share price has pulled back more than three percent from a recent multiyear high, but it is still about 125 percent higher than at the beginning of the year. The stock has outperformed larger competitors CVS Caremark (NYSE: CVS) and Walgreen (NYSE: WAG), as well as the S&P 500, over the past six months.

SUPERVALU

Short interest in this operator of various supermarket chains decreased about 17 percent to 36.09 million shares by the end of July. That was the smallest number of shares sold short in a year, but note that it still represents about 18 percent of the float. The days to cover was about five.

SUPERVALU beat earnings expectations in the most recent quarterly report, and it appointed a new chief financial officer in late July. The company has a market cap of about $2 billion. The long-term EPS growth forecast is more than 10 percent, and the forward earnings multiple is 12.9.

Just one analyst of the 13 surveyed recommends buying shares. All the rest recommend holding them. Here too, the share price has overrun the analysts' consensus price target. The street-high price target suggests there may be more than 12 percent upside potential, though.

The share price is up more than 214 percent year to date, despite pulling back about three percent in the past week. Over the past six months, the stock has outperformed competitors Kroger (NYSE: KR), Safeway (NYSE: SWY) and Walmart (NYSE: WMT).

See also: Short Sellers Return to United Continental

At the time of this writing, the author had no position in the mentioned equities.

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

 

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