Most shorted stocks reporting earnings

As the earnings season gains momentum, we have created a screen to highlight which US stocks reporting this week see the greatest short interest and highlight names including: Veeco Instruments, Netflix Inc, First Solar Inc, Meredith Corp and Moody’s Corp. In the UK, we use securities lending flow to flag movements in short interest in stocks announcing earnings this week, including Autonomy Corp, Arm Holdings Plc, Easyjet Plc and ITV Plc.

The average short interest across the Russell 3000 (in stocks with a market cap’ above USD 300 million) is 3% of the total shares. The Bloomberg screen below was taken from a universe of all the companies announcing earnings next week with more than 3% of the total shares on loan. The average short interest across this group is 8% of the total shares.

Veeco Instruments (NASDAQ:VECO) is the most shorted stock in our screen and sees short interest at an astounding 40% of total shares. The semiconductor stock has suffered a collapse in its share price since May. Although the stock does have convertible bonds in issue, the increase in stock on loan appears to be directional short selling activity. Almost all of the supply available to be borrowed is already out on loan, which implies a difficult and expensive to borrow stock. On the long side of the market, institutional investors who put their shares into lending programmes have increased their holdings by 30% since the end of March.

The media reported that Netflix Inc (NASDAQ:NFLX) upset customers last week after it increased prices by up to 60% for its unlimited streaming and “DVD by mail” business. The much loved company has seen its share price treble over the past year. However, short sellers have long been active in this stock but have been closing out their positions after the share price took off in 2010. Short interest is now at an annual low of 8.9% of the total shares, but this is still pretty high. Institutional ownership has decreased recently from 13 million to 11.7 million shares.

We have highlighted how solar sector polarizes investor sentiment. The shares of First Solar Inc (NASDAQ:FSLR) tumbled after reaching new annual highs in February and shorts covered positions from an annual high of 22% to 18% of total share outstanding on loan over the past quarter.

Media and marketing firm, Meredith Corp (NYSE:MDP) has seen its shares trading at an annual low and although this stock also has a convertible bond in issue, it has been subject to directional short selling. As the share price has fallen, short sellers built their positions and short interest recently reached an annual high of 28% of total shares. With three quarters of the lendable supply of stock out on loan, it would be difficult to short more of this company. The stock has seen some positive sentiment on the long side of the market, as institutional owners have increased their holdings by a quarter in 2011.

As we revealed earlier this month, Moody’s Corp (NYSE:MCO) has been under the spotlight once again as market participants and sovereign nations await the reaction of the top three ratings agency to the latest euro-zone bail-out. Short interest has almost halved over the year to 8% of total shares outstanding but large funds who lend have displayed bearish sentiment and reduced holdings by almost a quarter over the three months.

In the UK, the earnings season kicks off and we highlight changes in short interest in the following:

• Autonomy Corp (LON:AU) – Shorts have covered over the past quarter, reducing positions from an annual high of 11% to 4% of the total shares outstanding on loan.
• Arm Holdings Plc (LON:ARM) – Short interest has remained unchanged at 2% of total shares outstanding
• Easyjet Plc (LON:EZJ) – Short interest has declined to 2% of total shares after reaching a six month high of 2.5% in April.
• ITV Plc (LON:ITV) – Short interest has doubled to 2% of total shares over the past quarter.