Most shorted ahead of earnings

We review how short sellers are reacting to the companies due to announce earnings in the week to come.

• Subprime lender Wold Acceptance is the most shorted company announcing results this week
• Logitech sees a resurgence in shorting activity
• Asian semiconductors see covering in the lead up to results

North American earnings

The second quarter earnings season continues in earnest this week with over 819 companies announcing earnings. On the bearish side of earnings, the 20 most shorted companies announcing earnings this week see 14.5% or more of their shares out on loan in the run-up to results.

Topping the list as the most shorted company is World Acceptance Corp which has nearly a third of its shares out on loan. While current demand to borrow is quite a bit off the highs seen in April, when over 40% of WRLD shares were out on loan, aggregate short positions are still up by over 50% in the last 12 months as the firm became the target of a probe by the US Consumer Finance Protection Bureau regarding potential violations of consumer protection laws.

The firm seeing the largest jump in demand to borrow is offshore oil rig leasing firm Hercules Offshore which has seen its short interest more than double in the last four weeks after announcing the loss of two forecasted contracts, which had many investors questioning the strength of the company’s backlog of work.

The firm seeing the second largest surge in demand to borrow is Pacific Ethanol (PEIX) after the proportion of its shares out on loan surged by a third in the last month. That stock was a shining star in the middle of the last decade before slumping when oil prices fell off their all-time lows. Despite nearly a decade in near obscurity, PEIX shares have more than tripled in the last seven months as demand for ethanol saw a revival. Shorts have also been keen to add to their positions as lawmakers look to potentially repel mandates which dictate that American gasoline must contain a certain proportion of ethanol, which is heavily criticised by both poverty activists and environmentalists.

On the reverse side of shorting momentum, we see shorts trimming their positions in Hawaiian Holdings as the airline looks set to post a strong jump in profits from the previous year according to analyst forecasts.

European earnings

Europe also sees heavy earnings activity and as such sees 20 firms with a high 4.5% of shares out on loan in the leadup to results.

The most shorted shares in the region announcing results this week is Finnish construction firm Yit which has 12.1% if its shares out on loan, an all time high for the firm after it announced weaker than expected sales numbers three months ago.

Coming in as the second most shorted firm is Swiss computer periphery firm Logitech which has seen a resurgence in shorting activity since the start of the year. Demand to borrow LOGN shares is three time higher than the January lows as shares retreat from their recent highs. Analysts are expecting a six fold jump in per share profit and any shortfall will no doubt see shorts vindicated.

Also making the most shorted list in that space is Nokia although the firm’s decision to divest its handset activity has seen shorts fall to a new three year low in recent months. The largest surge in demand to borrow was seen in Air France KLM after the company announced a profits warning which a new annual high in shorting activity.

Asian earnings

Asia also sees a pickup in earnings activity with nine firms seeing more than 3% of shares out on loan ahead of earnings.

Semiconductor firms Advantest and ASM make up two of the three most shorted companies although the recent bullish set of results from Intel in the States have seen shorts cover their positions in the sector ahead of results.

This week also sees South Korean firms feature more prominently as their earnings season picks up steam. The most shorted of that is OCI with 8% of shares out on loan, a number that has surged in the last months, most likely linked to the recent appreciation in the Koran Won which looks the make OCI’s export heavy business less competitive against regional peers.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.