A review of how short sellers are positioning themselves ahead of earnings announcements in the coming week, plus names identified as being at risk of experiencing a short squeeze

• Shorts continue to hold the rope in Tidewater as shares continue to crater
• High in demand and short sold Zillow is at high risk of squeezing ahead of earnings
• In Apac short sellers cover in Casio but hold strong in Nikon and Noble

North America

Most shorted in North America ahead of earnings this week is Encore Capital with 38.7% of shares outstanding on loan.

Encore acquires consumer and property debt portfolios providing debt management series. Shares have drifted lower by 7.6% year to date.

Tidewater has traded the top spot with Encore for the quarter and is the second most shorted ahead of earnings in North America with 35.5% of shares outstanding on loan. Over the last three months, short sellers have covered a quarter of positions in the stock, which has shed a further 37%.

Canadian residential mortgage lender Home Capital is the most shorted stock in Canada and the third most shorted ahead of earnings in North America, currently with 31% of shares outstanding on loan.

Short Squeeze

Markit Research Signal's Short Squeeze model* identifies companies highly likely to suffer a squeeze under current trading conditions.

One such company currently identified is online property portal Zillow with 28.3% of shares outstanding on loan. The cost to borrow the stock currently remains above 15%, near all-time highs with more than 80% of available quantity to borrow utilised.

Shares in Zillow have rallied 20% since the beginning of August, putting pressure on shorts.

Europe

Most shorted ahead of earnings in Europe is German based Kloeckner & Co with 18.6% of shares outstanding on loan. The company manufactures and distributes finished steel products around the world and has struggled since the end of 2014, posting consecutive losses for the last three quarters.

Short sellers have increased positions in Kloeckner by more than tenfold in the last 12 months and consensus forecasts expect the firm to break even for the third quarter.

Second most shorted in Europe is French based digital communication agency Solocal with 6.3% of shares outstanding on loan.

Stock in the company has fallen 56% in the last 12 months with a recent 30-to-1 consolidation occurring. Shares in the company have fallen 95% since the beginning of 2011.

Third most shorted in Europe is Rec Silicon, a solar panel maker with 15.7% of shares outstanding on loan. Short sellers have doubled positions in the stock over the last six months as earnings have come under pressure, with the company looking to shut one of its two US based manufacturing plants.

The possible closure is a consequence of Chinese tariffs in retaliation to US anti-dumping duties on Chinese imports.

Apac

Most short sold in Apac is Japanese optics and imaging company Nikon. Well-known for its consumer cameras, short sellers have doubled positions to 21.2% over the last 12 months, but the stock price overall has held steady over that period. Revenue and earnings continue to stagnate at Nikon as consumers rely more and more on mobile devices for photography.

Second most shorted ahead of earnings is Singapore-listed commodities trader Noble Group with 14.6% of shares outstanding on loan. Accusations of accounting irregularities and the global commodities slump saw short interest spike recently and remain at elevated levels. This occurs while the stock price has lost 54% year to date.

Third most shorted ahead of earnings in Apac is Casio with 14% of shares outstanding on loan. Short sellers covered almost a fifth of positions prior to the stock falling by 12%, with some slight additional covering seen in late August. Despite the recent decline, the stock is up over 37% over the last 12 months.

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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.