Market Overview

Short Sellers Favor Raytheon, Shun Other Defense Stocks (ATK, FLIR, RTN)

Between the July 31 and August 15 settlement dates, after the effects of the federal budget sequester were well established but before the recent rise in tensions over the Syrian situation, defense stocks Raytheon (NYSE: RTN) and Alliant Techsystems (NYSE: ATK) saw the largest upswings in short interest.

It grew more modestly in HEICO (NYSE: HEI), Hexel (NYSE: HXL), Textron (NYSE: TXT) and TransDigm (NYSE: TDG).

However, the number of shares sold short in FLIR Systems (NASDAQ: FLIR) tumbled more than 30 percent during the period.

Short interest in Boeing (NYSE: BA), Esterline Technologies (NYSE: ESL), General Dynamics (NYSE: GD) and United Technologies (NYSE: UTX) also decreased by double-digit percentages.

The decline was more modest in Huntington Ingalls Industries (NYSE: HII), L-3 Communications (NYSE: LLL) and Rockwell Collins (NYSE: COL).

Short interest in Northrop Grumman (NYSE: NOC) was essentially flat, compared to the previous period.

Below we take a quick look at how Alliant Techsystems, FLIR Systems and Raytheon have fared and what analysts expect from them.

See also: Short Sellers Pull Back From Delta, Republic Airways

Alliant Techsystems

This maker of ammunition, rocket motors and other products saw short interest rise more than 12 percent in early August to more than 1.17 million shares, the greatest number of shares sold short in at least a year. Short interest is more than three percent of the float, and the days to cover was about two.

Alliant Techsystems reported better-than-expected earnings for its second quarter. The company now has a market capitalization near $3 billion and a dividend yield near of about one percent. The return on equity is more than 32 percent and the price-to-earnings (P/E) ratio is less than the industry average.

The consensus recommendation of the 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. Their mean price target, or where the analysts expect the share price to go, is less than four percent higher than the current share price. That is, they currently see little upside potential in Alliant Techsystems.

The share price is up more than seven percent in the past month and recently reached a new multiyear high. The stock has outperformed competitors General Dynamics and Raytheon over the past six months, as well as the S&P 500 and the Dow Jones Industrial Average.

FLIR Systems

Shares sold short in this manufacturer of thermal imaging systems dropped about 35 percent to about 2.79 million, which was the lowest level of short interest since February. Days to cover slipped a bit but was still more than two. The short interest was about two percent of the total float.

This Oregon-based company has a market capitalization of more than $4 billion and a dividend yield near 1.1 percent. It acquired assets from DigitalOptics during the period. Its long-term EPS growth forecast is about 15 percent. The price-to-earnings (P/E) ratio is greater than the industry average, but so is its operating margin.

Out of 10 analysts polled, five recommend holding shares and four of them recommend buying them. The analysts feel there is some headroom for the stock, as their mean price target signals upside of about six percent. However, that target is less than the recent multiyear high.

The share price is down about four percent since the beginning of the month, but it is still up more than 34 percent year-to-date. Over the past six months, the stock has not only outperformed the broader markets, but competitor L-3 Communications as well.

Raytheon

Short interest in this Waltham, Massachusetts-based company surged more than 60 percent in the period to 7.03 million shares. That was the highest number of shares sold short so far this year, and it represents more than two percent of the total float. The days to cover was less than three.

The world's largest producer of guided missiles won big contracts from NASA and the Pentagon during the period. The company has a market cap of more than $24 billion and a dividend yield of about 2.8 percent. The long-term EPS growth forecast is about seven percent, and the return on equity is almost 23 percent.

The consensus recommendation of surveyed analysts is to hold the shares, and it has been for at least three months. The current share price has outrun the mean price target, meaning that on average the analysts see no upside potential at this time.

The share price has pulled back less than three percent from a recent multiyear high, but it is still up more than six percent in the past month and almost 29 percent year-to-date. The stock has outperformed Boeing and the Down Jones Industrial Average over the past six months.

See also: Short Interest Swings in Gold Stocks

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

Posted-In: alliant techsystems Boeing esterline technologies FLIR Systems general dynamics HEICO Hexel huntington ingalls l-3 communications Northrop Grumman raytheon rockwell collins Textron transdigm united technologiesShort Ideas Trading Ideas Best of Benzinga

 

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