Short sellers aim for Best Buy and Office Depot

The bears have been prowling around the electronics and office products companies, while leaving some other retailers alone for a while.

By Benzinga Apr 1, 2013 2:52PM
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By Nelson Hem


The short interest in troubled retail companies was mixed but overall quiet during the first two weeks of March.


The number of shares sold short in Bebe Stores (BEBE), Bon-Ton Stores (BONT), OfficeMax (OMX) and RadioShack (RSH) increased somewhat between the Feb. 28 and March 15 settlement dates.


And short interest in Avon Products (AVP) and Pacific Sunwear (PSUN) was essentially flat, relative to the previous period, while in Barnes & Noble (BKS), GameStop (GME), J.C. Penney (JCP), Rite Aid (RAD) and Sears Holdings (SHLD) short interest declined somewhat during that time.


However, Best Buy (BBY), Office Depot (ODP) and SuperValu (SVU) were the standouts, with larger percentage swings in short interest between the Feb. 28 and March 15 settlement dates.


Best Buy

Short interest in this specialty retailer rose more than 13% to 33.07 million shares by mid-March, erasing a similar retreat by short sellers in the previous period.


The number of shares sold short represents more than 12% of the float, and the daily average volume was the heaviest it has been in at least a year.


Best Buy said it narrowed its net loss in the fourth quarter, and founder Richard Schulze's efforts to buy out the company ended in early March.


The company has a market capitalization of about $7.5 billion. The forward earnings multiple is higher than the industry average price-to-earnings (P/E) ratio, and the return on equity is in negative territory.


The consensus recommendation of the 23 analysts who follow the stock that were surveyed by Thomson/First Call is to hold shares, and it has been for at least three months.


The share price has overrun their mean price target, though the most optimistic individual price target suggests there is about 26% potential upside.


The share price is up more than 87% since the beginning of the year, when shares were trading near a multiyear low. Over the past six months, the stock has outperformed competitors Amazon.com (AMZN) and Wal-Mart (WMT), as well as the broader markets.


Office Depot

Shares sold short in this office products purveyor jumped almost 23% in early March to 46.05 million, on top of a 58% rise in the previous period, to the highest level of short interest in at least a year.


The short interest is now more than 16% of the float, and days to cover is about five.

This Boca Raton, Florida-based company is in the midst of merging with rival OfficeMax, and the consensus EPS estimate for the current quarter has slipped in the past 60 days.


Office Depot's market cap is about $1.1 billion. Its return on equity is in the red, and its forward earnings multiple is higher than the industry average P/E ratio.


None of the 16 analysts who were polled recommend buying shares. But the mean price target, or where they expect the share price to go, indicates upside potential of more than 12%. However, that target is less than the recent 52-week high.


Shares spiked to that 52-week high following the merger news. The share price is currenlty more than 12% higher year-to-date.


The stock has outperformed competitors OfficeMax and Staples (SPLS), as well as the S&P 500, over the past six months.


SuperValu

This operator of retail and wholesale food stores saw short interest drop about 6% in early March to 73.44 million shares. That was the lowest number of shares sold short so far this year. But note that the short interest is still about 35% of the float.


In early March, SuperValu announced several management changes as the company restructures, including shedding some of its chains, as announced in January. The company's current market cap is about $1 billion.


Its P/E ratio is greater than those of rivals Kroger (KR) and Safeway (SWY), and its return on equity is in negative territory.


Of the 19 analysts surveyed, just five recommend buying shares. The consensus has been to hold the stock for the past three months. So it is not much of a surprise that the share price has overrun the analysts' mean price target. They do not see any upside potential at this time.


However, the share price is more than 102% higher year-to-date, though still more than 14% lower than a year ago. The stock has outperformed Kroger and Safeway, as well as the broader markets, over the past six months.


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