The short perspective: Forthcoming consumer focused earnings

We have identified the following companies announcing earnings next week, which are interesting from a short perspective: Dollar General Corp (NYSE:DG), Autozone Inc (NYSE:AZO), Stagecoach Group (LON:SGC) and Smithfield Foods (NYSE:SFD).

Dollar General Corp is due to report financial results for its third quarter today. It has been subject to increasing short interest which reached an annual high of 4.6% last week, matched by the share price. Discount retailers have expanded during the global recession but some commentators have observed that there is a danger of over-expansion and question whether stocks offer fair value. Competitors Family Dollar Stores and Fred’s Inc also see high short interest at 5.3% and 7.5% respectively. However, Dollar Tree has only 1.6% of total shares outstanding on loan.

Auto-parts and accessories retailer Autozone Inc reports first quarter 2011 earnings on Tuesday. The company also saw its shares rally to a new 52-week high last week. Short sellers have been consistently covering their positions since July, where short interest fell from an annual high of 7% to 1.8% of total shares outstanding on loan. Investor sentiment towards future profitability of Autozone can also be observed by how much is in the hands of large, long term investors and whether this is changing. We are able to view a proxy for such daily institutional ownership by looking at the holdings of funds who lend their shares. Over the past year we see that these long term investors have increased their net holdings from 9.1 to 9.5 million shares.

UK listed Stagecoach Group will announce interim 2010 earnings on Wednesday. Recent securities lending data shows contrasting sentiment between the short and long sides of the market. Institutional ownership has fallen to 130 million since early November, following a high in the third quarter of 152 million. Yet, while institutional investors have expressed negative sentiment, short interest has decreased from 6.7% to 5%.

Ciena Corp is to report fourth quarter 2010 earnings on Thursday and the shares rallied last week, ahead of the results. It is difficult to ascertain short interest in the stock due to various convertible bonds in issue. The percentage of shares outstanding on loan currently stands at 26%. Institutional ownership continues its upward trend rising from 27 million to 31 million shares since October.

The exponential price rises in commodities such as grain does not seem to have impacted the performance of fresh meat producer and distributor, Smithfield Foods. Its share price continues to trade comfortably at the upper-quartile range ahead of second quarter 2011 financial results this week. Short interest had reduced from 12% earlier this year and has been relatively static at 4% of total shares outstanding on loan since July. Institutional ownership has surged from 36 million to 42 million since September. It is key to note that there is a convertible bond in issue for this stock.
 
For users of the Bloomberg terminal, we have attached a brief User Guide which illustrates how to conduct analysis on one of the stocks featured above. Click here to read.