Market Overview

Short Interest In J.C. Penney And Sears Still On The Rise (GME, JCP, SHLD)

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

GameStop (NYSE: GME), J.C. Penney (NYSE: JCP) and Sears Holdings (NASDAQ: SHLD) saw significant percentage swings in the number of their shares sold short.

The short interest in Avon Products (NYSE: AVP), Bebe Stores (NASDAQ: BEBE), Bon-Ton Stores (NASDAQ: BONT) and Office Depot (NYSE: ODP) increased somewhat between the July 31 and August 15 settlement dates.

The number of shares sold short in Pacific Sunwear (NASDAQ: PSUN) and RadioShack (NYSE: RSH) was pretty much the same as in the previous period.

However, short sellers shied away from Barnes & Noble (NYSE: BKS), Best Buy (NYSE: BBY), OfficeMax (NYSE: OMX), Rite Aid (NYSE: RAD) and SUPERVALU (NYSE: SVU) in early August.

Below is a quick look at how GameStop, J.C. Penney and Sears Holdings have fared and what analysts expect from them.

See also: eBay, Angie's List Buck Short Interest Trend In Social Media

GameStop

Short interest in this Grapevine, Texas-based specialty retailer dropped about 20 percent to more than 19.77 million shares, the lowest number of shares sold short in the past year. It represented more than 17 percent of the float. Days to cover declined from more than 10 to less than eight.

Analysts expect that GameStop will see strong year-over-year earnings growth in the current quarter. The video game retailer has a market capitalization of about $6 billion and a dividend yield near 2.2 percent. The long-term earnings per share (EPS) growth forecast is more than 13 percent, but the return on equity is in the red.

The consensus recommendation of the analysts surveyed is to buy 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 more than 11 percent higher than the current share price. The share price has not seen that level since 2008.

The share price is up about 10 percent from a month ago, after reaching a multiyear high last week. Over the past six months, the stock has outperformed the likes of Amazon.com (NASDAQ: AMZN) and Walmart (NYSE: WMT), as well as the broader markets.

J.C. Penney

This Plano, Texas-based department store operator saw short interest swell more than 40 percent in the first weeks of the month to around 65.54 million shares. That was the third straight period of rising short interest. The number of shares sold short was about 30 percent of the float.

J.C. Penney now has a market cap of less than $3 billion. It does not offer a dividend. The return on equity and the operating margin are both in negative territory. Activist investor Bill Ackman, who had been pushing to oust the CEO and chairman, resigned from the board during the period.

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

The share price is up marginally from a recent multiyear low, but it 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.

Sears Holdings

The number of shares sold short in this once-venerable retailer grew more than 11 percent to around 15.79 million, the highest level of short interest in at least a year, and more than 20 percent of the float. The days to cover was almost 17. Note that short interest has been rising since mid-May.

This company operates more than 2,000 Sears and Kmart stores in the United States, and it has posted deeper-than-expected net losses in the past two quarters. Its market cap is more than $4 billion, but Sears does not offer a dividend. Here too, the operating margin and return on equity are in the red.

None of the three analysts polled recommends buying shares, and that has been the case for at least three months. It is perhaps no surprise that consensus price target is well below the current share price, and that seems unlikely to change any time soon.

The share price has fallen more than seven percent in the past month and saw a year-to-date low earlier this week. The stock has not only underperformed the broader markets over the past six months, but competitors Target (NYSE: TGT) and Wal-Mart as well.

See also: Short Sellers Increase Stakes in Toll Bros., M/I Homes

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 caremarkShort Ideas Trading Ideas Best of Benzinga

 

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