Wild Short Interest Swings In Barnes & Noble and Rite Aid (BKS, OMX, RAD)

By Benzinga | September 12, 2013 AAA

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

However, Barnes & Noble (NYSE: RAD) saw upswings of more than 30 percent in the number of their shares sold short.

The short interest in Avon Products (NYSE: PSUN) rose nearly 10 percent between the August 15 and August 30 settlement dates.

Short sellers also moved into Best Buy (NYSE: JCP), Office Depot (NYSE: ODP), Sears Holdings (NASDAQ: SHLD) and SUPERVALU (NYSE: SVU) more modestly.

However, OfficeMax (NYSE: OMX) saw the biggest retreat by short sellers during the period. Short interest in Bebe Stores (NASDAQ: BEBE), Bon-Ton Stores (NASDAQ: BONT), GameStop (NYSE: GME) and RadioShack (NYSE: RSH) also declined somewhat in late August.

Below is a quick look at how Barnes & Noble, OfficeMax and Rite Aid have fared and what analysts expect from them.

See also: Short Interest Surges in Real Goods Solar and SunEdison

Barnes & Noble

After falling in the previous two periods, short interest in this New York-based specialty retailer jumped about 34 percent to more than 8.30 million shares, the highest number of shares sold short since April. That represented more than 23 percent of the float. Days to cover declined from about nine to less than four.

The company said its net loss widened in the first quarter, and it abandoned plans to separate its Nook and retail operations. Barnes & Noble has a market capitalization near $800 million. Note that the operating margin and the return on equity are both in negative territory.

The consensus recommendation of the analysts surveyed is to hold 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 25 percent higher than the current share price. Yet that target is less than the 52-week high.

The share price is almost 25 percent lower than a month ago, as well as down almost five percent relative to the beginning of the year. Over the past six months, the stock has underperformed Amazon.com (NASDAQ: AMZN) and the broader markets.

OfficeMax

This Illinois-based office products retailer saw short interest retreat about 12 percent in the final weeks of the month to more than 8.76 million shares, which was more than 10 percent of the float. That followed a decline of about 19 percent in the previous period. Days to cover fell to more than five.

Disappointing second-quarter results from rival Staples (NYSE: SPLS) dragged down Office Max and Office Depot (NYSE: ODP) as well during the period. OfficeMax has a dividend yield near 0.7 percent. Its price-to-earnings (P/E) ratio is less than the industry average, and the return on equity is more than 44 percent.

Only four of the 12 analysts who follow OfficeMax recommend buying shares, while the rest recommend holding them. The mean price target indicates that the analysts see more than 13 percent potential upside. Here too, that target is less than the 52-week high.

Shares have traded mostly between $10.50 and $11.50 since June, but the share price is up almost 19 percent year-to-date. Over the past six months, the stock has underperformed the S&P 500 and the competitors mentioned above, as well as Walmart (NYSE: WMT).

Rite Aid

After two consecutive periods of declining short interest, shares sold short in this drugstore operator surged about 32 percent in late August to around 33.54 million. That represented more than three percent of the float. The days to cover rose to more than two in the period.

Rite Aid is the nation's third-largest drugstore chain, and Jim Cramer and David Einhorn both supported the stock during the period. The company's market cap is more than $3 billion. Its long-term EPS growth forecast is about eight percent, and its price-to-earnings (P/E) ratio is less than the industry average.

Three of the seven analysts polled recommend buying shares, and the other four recommend holding them. The share price has overrun their mean price, meaning the analysts see no upside potential at this time. The street-high price target is less than 10 percent higher than the current share price.

After rising more than 161 percent since the beginning of the year, the share price reached a new multiyear high Wednesday. The stock has outperformed larger competitors CVS Caremark (NYSE: CVS) and Walgreen (NYSE: WAG), as well as the S&P 500, over the past six months.

See also: Short Sellers Load Up On Applied Materials And Other Chip Stocks

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

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