Market Overview

Merging Office Retailers See Short Interest Surge (AVP, ODP, OMX)

The back-to-school shopping season was underwhelming, and the government shutdown shook economic confidence ahead of the holiday shopping season.

Among struggling retailers, Avon Products (NYSE: AVP), Office Depot (NYSE: ODP) and OfficeMax (NYSE: OMX) saw significant upswings in short interest in early October.

Short sellers moved into Best Buy (NYSE: BBY), Bon-Ton Stores (NASDAQ: BONT), GameStop (NYSE: GME), Pacific Sunwear (NASDAQ: PSUN) and Rite Aid (NYSE: RAD) more modestly between the September 30 and October 15 settlement dates.

However, the number of their shares sold short in Barnes & Noble (NYSE: BKS), Bebe Stores (NASDAQ: BEBE), J.C. Penney (NYSE: JCP), RadioShack (NYSE: RSH), Sears Holdings (NASDAQ: SHLD) and SUPERVALU (NYSE: SVU) declined during the period.

See also: Short Interest In Harmony Gold Resumes Rise

Below is a quick look at how Avon Products, Office Depot and OfficeMax have fared and what analysts expect from them.

Avon Products

This beauty and personal care products purveyor saw short interest rise about 20 percent in early October to 12.41 million shares. That was the greatest number of shares sold short since early in the year, and it was about three percent of the float. The days to cover remained at more than four.

A Wells Fargo analyst upgraded Avon during the period on the prospects for its recovery. The company has a market capitalization of more than $9 billion and a dividend yield near 1.1 percent. Though the long-term earnings per share (EPS) growth forecast is more than 21 percent, the return on equity is in the red.

Of the 13 analysts who follow the stock that were surveyed by Thomson/First Call, four rate Avon at Strong Buy, and another six also recommend buying shares. Their mean price target, or where they expect the share price to go, is more than 12 percent higher than the current share price. That target is would be a new 52-week high.

The share price is about six percent higher than a month ago, and it is up more than 46 percent year-to-date. The stock has underperformed the likes of Procter & Gamble (NYSE: PG) and Revlon (NYSE: REV) over the past six months, as well as the broader markets.

Office Depot

The number of shares sold short in this office products purveyor increased more than 11 percent in the first weeks of the month to more than 72.78 million, or more than 25 percent of the float. Short interest has risen for five straight periods to its highest level in at least a year. The days to cover was almost seven.

This Boca Raton, Florida-based company is in the midst of merging with rival OfficeMax. Office Depot's market cap is less than $2 billion. Its forward earnings multiple is higher than the industry average price-to-earnings (P/E) ratio. EPS for the most recent quarter are forecast to be the same as a year ago.

For the past three months, the consensus recommendation of analysts has been to hold shares. Their mean price target suggests no upside potential at this time. However, the most optimistic analyst believes there may be more than 29 percent upside, a level shares have not seen since 2010.

The share price has increased more than 19 percent in the past month and reached a nine-month high on Friday. The stock has outperformed not only competitors OfficeMax and Staples (NASDAQ: SPLS) over the past six months, but the S&P 500 as well.

See also: Short Sellers Pile On Applied Materials and STMicroelectronics

OfficeMax

Short interest in this specialty retailer grew about 17 percent to around 14.12 million shares, or more than 16 percent of the float, by the middle of October. That was on top of a 24 percent rise in the previous period. The days to cover rose from around five to more than six in the most recent period.

The 11th largest online retailer launched in-store service centers nationwide during the period. The company has a market cap of more than $1 billion and a dividend yield near 0.5 percent. The P/E ratio is much less than the industry average, and the return on equity is more than 44 percent.

Just five analysts of the 12 surveyed recommend buying shares, though none recommends selling. The share price has overrun the mean price target, indicating a lack of upside potential at this time. The most optimistic individual price target suggests there is almost 30 percent potential upside.

The share price has increased more than 20 percent in the past month and reached a new 52-week high on Friday. Over the past six months, the stock has outperformed competitors Staples and Walmart (NYSE: WMT), as well as the broader markets.

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

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

 

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