Market Overview

3 Retailers The Shorts Are Selling

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Among the struggling U.S.-based retailers, Avon Products (NYSE: AVP), Barnes & Noble (NYSE: BKS) and Sears Holdings (NASDAQ: SHLD) saw significant upswings in short interest between the May 15 and May 30 settlement dates.

The number of shares sold short in Best Buy and J.C. Penney swelled more modestly during the period, but the short interest in GameStop, Pacific Sunwear, Rite Aid and Tuesday Morning was essentially unchanged from the previous period.

Short sellers shied away from Aeropostale, Bebe Stores, HHGregg, Office Depot, RadioShack and SUPERVALU in late May.

Below is a quick look at how Avon Products, Barnes & Noble and Sears have fared and what analysts expect from them.

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Avon Products

This beauty and personal care products purveyor saw short interest rise more than six percent in late May to more than 24.57 million shares. That took back some of the decline in the previous period and was less than six percent of the float. The average daily volume plunged, pushing the days to cover to about seven.

Avon has a market capitalization of more than $6 billion and a dividend yield near 1.7 percent. Barron's talked up Avon's turnaround during the period. However, the long-term earnings per share (EPS) growth forecast is less than seven percent, and the return on equity is in the red.

The consensus recommendation of the analysts who follow the stock and were surveyed by Thomson/First Call is to hold Avon shares, as it has been for at least three months. Their mean price target, or where analysts expect the share price to go, is more than nine percent higher than the current share price.

The share price fell to a 52-week low at the beginning of May, and it edged up less than three percent during the two-week period. The stock has underperformed not only competitors Procter & Gamble, Estee Lauder and Revlon over the past six months, but the broader markets as well.

Barnes & Noble

Shares sold short in this book and NOOK seller increased about seven percent in the period to nearly 8.68 million. That represents around 21 percent of the float and was the second highest level of short interest so far this year. It would take more than seven days to close out all of the short positions.

The retailer's market cap is more than $1 billion. Its operating margin and its return on equity are both in negative territory. The consensus forecast calls for net losses this year and next. Of the five analysts polled, three recommend holding shares, and just one analyst rates the stock at Buy.

The current share price has overrun the analysts' mean price target, suggesting that no further upside is indicated at this time. Note that individual price targets are all over the place, ranging from $12 to $32. Barron's suggested in May that a corporate breakup, dividend, or large buyback could double the share price and put as high as $36.

Short sellers watched the share price surge more than 11 percent during the two-week period, and it has climbed more than three percent more in the past week. The stock has not only outperformed the broader markets over the past six months, but online powerhouse Amazon as well.

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Sears Holdings

The number of shares sold short in this once-venerable retailer rose about five percent in the period to more than 15.87 million. That reclaimed some of the decline in the previous period, and it came to about 20 percent of the float. The days to cover dropped from more than 14 in the previous period to about 10.

This company operates more than 2,000 Sears and Kmart stores in the United States, and it reported a wider net loss for the most recent quarter and announced further store closures. The market cap is more than $4 billion, but Sears does not offer a dividend. The operating margin and return on equity are in the red.

None of the four analysts polled recommends buying shares. It is probably no surprise that the current share price has overrun the mean price target. So no upside potential is indicated at this time.

The share price climbed about seven percent in late May, but it is now about 15 percent lower year-to-date and is below the 50-day moving average. The stock has underperformed competitors Target and Wal-Mart, as well as the broader markets, over the past six-months.

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

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Posted-In: Aeropostale Amazon.com Avon Products Barnes & Noble bebe Stores best buyShort Ideas Trading Ideas Best of Benzinga

 

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