Everybody loves a winning streak, but they all have to end eventually. For companies reporting earnings a history of beating expectations implies the market is consistently undervaluing their strength. Investors must decide if such a history, and possibility of new disappointments, are worth trading on. [Related lists: 5 Heavily Shorted Stocks Reporting in The Next Two Weeks – Rebound Ready?]
With this in mind we compiled a list of stocks reporting this month that have a history of beating expectation. We then looked for stocks that are seeing bearish sentiment from short sellers who are increasing their positions on these historic winners.
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If we assume this pessimism is related to earnings, are short sellers not repeating the mistakes of past earnings quarters? Or, are they calling it right by assuming they will not positively surprise us this time?
As a recap, the 3 stocks listed below meet the following criteria:
Reporting in the Second Half of March
Strong History of Positive Earning Surprises – We found companies that posted earnings per share above the expected number for a minimum of four consecutive quarters.
Increase in Shares Shorted Month-over-Month - Because short sellers benefit when share price falls they are signaling pessimism on their near-term performance.
1. Hibbett Sports, Inc. (HIBB): Operate sporting goods stores in small to mid-sized markets primarily in the southeast, southwest, Mid-Atlantic, and the Midwest regions of the United States.
Market cap at $1.33B, most recent closing price at $51.38.
Earnings date: 03/15/13. In Jan 2012: Reported EPS at 0.59 vs. estimate at 0.56 (surprise of 5.4%). In Apr 2012: Reported EPS at 0.98 vs. estimate at 0.92 (surprise of 6.5%). In Jul 2012: Reported EPS at 0.3 vs. estimate at 0.28 (surprise of 7.1%). In Oct 2012: Reported 0.71 vs. estimate at 0.68 (surprise of 4.4%. [Average earnings surprise at 5.85%].
Shares shorted have increased from 3.47M to 3.73M over the last month, an increase which represents about 1.01% of the company's float of 25.67M shares. Days to cover ratio at 11.51 days.
3. Francesca's Holdings Corporation (FRAN): Operates a chain of retail boutiques in the United States.
Market cap at $1.16B, most recent closing price at $26.54.
Earnings date: 03/19/13.
In Jan 2012: Reported EPS at 0.2 vs. estimate at 0.17 (surprise of 17.6%). In Apr 2012: Reported EPS at 0.2 vs. estimate at 0.18 (surprise of 11.1%). In Jul 2012: Reported EPS at 0.28 vs. estimate at 0.24 (surprise of 16.7%). In Oct 2012: Reported 0.24 vs. estimate at 0.22 (surprise of 9.1%. [Average earnings surprise at 13.62%].
Shares shorted have increased from 15.23M to 16.00M over the last month, an increase which represents about 2.21% of the company's float of 34.79M shares. Days to cover ratio at 16.44 days.
3. Williams-Sonoma Inc. (WSM): Operates as a specialty retailer of home products. Market cap at $4.54B, most recent closing price at $46.35.
Earnings date: 03/19/13.
In Jan 2012: Reported EPS at 1.17 vs. estimate at 1.13 (surprise of 3.5%). In Apr 2012: Reported EPS at 0.34 vs. estimate at 0.32 (surprise of 6.3%). In Jul 2012: Reported EPS at 0.43 vs. estimate at 0.41 (surprise of 4.9%). In Oct 2012: Reported 0.49 vs. estimate at 0.45 (surprise of 8.9%. [Average earnings surprise at 5.9%].
Shares shorted have increased from 3.31M to 4.46M over the last month, an increase which represents about 1.34% of the company's float of 85.75M shares. Days to cover ratio at 4.14 days.
*** Of interest, a fourth stock meets the criteria. Zumiez, Inc. (ZUMZ), which is scheduled to report at 5pm today. It is trading up 2.69% today so far.
4. Zumiez, Inc. (ZUMZ): A mall-based specialty retailer providing sports-related apparel, footwear, equipment, and accessories. Market cap at $719.8M
Earnings date: 03/14/13. In Jan 2012: Reported EPS at 0.6 vs. estimate at 0.59 (surprise of 1.7%). In Apr 2012: Reported EPS at 0.14 vs. estimate at 0.11 (surprise of 27.3%). In Jul 2012: Reported EPS at 0.17 vs. estimate at 0.13 (surprise of 30.8%). In Oct 2012: Reported 0.51 vs. estimate at 0.48 (surprise of 6.3%. [Average earnings surprise at 16.53%].
Shares shorted have increased from 4.29M to 4.53M over the last month, an increase which represents about 1.07% of the company's float of 22.35M shares. Days to cover ratio at 9.96 days.
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