I am not sure if what I looked at in the 13 F filings was the right data as I was not certain whether some of it was for 3/31/2012 or 6/30/2012. For what I looked at, I did not see any selling of any consequence from major holders Blum Capital, Wellington, and Providence Equity Partners. Select Equity did sell 10% of their holdings.
The selling has been basically from the much smaller nickel and dime institutions. Regardless of my observations, there has clearly been net selling of ESI through 6/30/12, despite the large share buy back and the shorts covering a significant percentage of their holdings. The current 13 F data does not include the month of July when the significant share price decline happened. The July price decline was on a modest number of shares (a few million shares).
The one factor that I do not think that I have correctly assessed is the extent that the short sellers had flooded the market with additional shares. Institutions own 132% of all shares of ESI outstanding. Even with share buy backs, this distorted ownership structure has stayed in place as shorts have reduced their positions in line with the percentage reduction in total shares outstanding. Under a normal ownership structure, institutions would own 60-75% of ESI as a $1 billion market cap range company. Individuals would own the remaining 25-40%. The large short interest has been reflected in this +130% ownership by institutions. With a July panic affecting the sector, the magnitude of the institutional ownership has worked against the company.
Regarding the declining short interest in ESI all through 2012, I think that the 2 million share short covering through 6/30/2012 was probably a result of stock loan buy-ins forced by margin clerks. ESI shares have been difficult and expensive to borrow for several years. The company' s stock buy back has no doubt has an enormous impact on the number of shares shorted.
It is interesting how 20% of the short interest was covered through 6/30/2012. ESI shares started the year at $56 and closed at $61 on 6/30/12. This is roughly where the shares have traded at for the past two years. In addition, ESI shares spent most of the first half of 2012 well in the $60's and even in the $70's. So these shorts made no money for the past two years and lost money on ESI in 2012 when they covered. why would they cover so much of their positions. They must have gotten squeezed hard in order to fold up on so much of their holdings. The remaining shorts did well with ESI With the 8 day drop from 7/23/2012 to 8/2/2012, which encapsulates the full extent of the down move.
I suspect that we will continue to see significant short covering. With the market having handed the shorts a gift not deserved and with prospects for another 7 million shares in the company announced buy back, the dynamics of a tight stock loan market will continue.
It is too bad that the market is such that the weak longs are selling with the shares down so sharply when the earnings guidance is still up for the year, the p/e is below 4, the balance sheet clean, and the shorts covering their positions.
Shorts covering like crazy! Wow. They are closing up shop on this one. They got lucky as the earnings per share collapse that they have been yelling about for the past 3-4 years did not happen. What happened was a p/e multiple decline from 11-12 times to 3.6 times.
I haven't seen the 13-f filings yet, but what is the big surprise. Do you really think that their hasn't been any selling in the shares that would not appear in the 13 F's? ESI shares are down because there has been net selling.
I find it more interesting that the short interest in ESI was 10.7 million shares as of about November 2011 and it dropped to 8.7 million shares by around 6/30/2012 (before the July price decline). So short sellers bailed out of 20% of their positions before the recent decline.
I also now see that the short position has been reduced to 7.2 million shares, another drop of 1.5 million since the last report. So, the first batch of short covering was a washout for the shorts and the second batch has been for solid gains. The shorts have been able to cover with far less difficulty than I anticipated.
Altogether, the shorts have bought 3.5 million shares in the past 9 months and the company has bought back 3.6 million. That is a total of 7.1 million shares bought with a total current shares count of 23.5 million.
It is quite astonishing to me that earnings now for 2012 are well above the company's projections at the start of the year, the company has bought 3.5 million shares, the shorts have covered 3.6 million and the p/e is now 3.6 on the stock. No way I ever figured that we would see anything like that. Now it would be a different story if the company had not bought back any stock, the shorts had not covered any stock, and ESI lowered its earnings guidance.
Why those long ESI are selling here when the shorts are covering is beyond me.