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Solar Merger Brings Out The Short Sellers

Nelson Hem

By and large, the number of shares short among the leading U.S. solar-related stocks increased between the July31 and August 14 settlement dates.

The trend was most obvious in SolarCity Corp (NASDAQ: SCTY), Sunedison Inc (NYSE: SUNE) and Vivint Solar Inc (NYSE: VSLR), two of which announced a merger agreement in July.

Here is a quick look at how these three stocks have fared recently and what analysts expect from them. That is followed by a glance at short interest moves in other leading solar stocks during the period.

See also: Biogen And Gilead Sciences Catch The Eye Of Short Sellers

SolarCity

Short interest in this provider of solar energy systems to residential and commercial customers saw a gain of nearly 10 percent to more than 25.98 million shares. That was the highest number of shares short in the past year and more than 43 percent of the float. The days to cover was more than seven.

This San Mateo, California-based solar power systems provider made its first international acquisition during the period, a Mexican solar company. SolarCity has a market capitalization of more than $4 billion. Note that both the return on equity and the operating margin remain in negative territory.

All but two of the 13 analysts surveyed by Thomson/First Call recommended buying shares, with four of them rating the stock at Strong Buy. A move to the analysts' mean price target would be a more than 38 percent gain for the shares. That consensus target would be a new 52-week high.

Short sellers watched the share price tumble about 16 percent during the two-week short interest period, while the Nasdaq was down less than 2 percent. Over the past six months, the stock underperformed the broader markets but outperformed competitors SunPower and RGS Energy.

SunEdison

The number of shares sold short reached a year-to-date high of around 88.16 million by the end of two-week period. That is more than 28 percent of the total float. As the average daily volume surged to a year-to-date high too, the days to cover dropped from more than four to less than two.

One of the world's largest solar installers and developers, SunEdison announced in July that it would acquire Vivint Solar for $2.2 billion. SunEdison currently has a market cap of more than $3 billion. Here too both the operating margin and the return on equity are in the red.

All but two of the 11 surveyed analysts recommend buying SunEdison shares, with two of them rating the stock at Strong Buy. The analysts' mean price target suggests more than 65 percent upside potential, but note that the share price has dropped about 60 percent in the past month.

The share price ended the two-week period more than 38 percent lower. It hit a 52-week low last week and is now down more than 47 percent year to date. Over the past six months, it underperformed the likes of Advanced Energy Industries and Analog Devices, as well as the broader markets.

Vivint Solar

The number of shares short in this company jumped more than 27 percent in the period to almost 6.43 million, or more than 29 percent of the float. However, that was still lower than the year-to-date peak short interest of 8.36 million back in July. It would take about eight days to close out all the short positions.

As mentioned, this Provo, Utah-based provider of residential solar energy systems is being acquired by SunEdison, with much of its rooftop solar portfolio going to TerraForm Power. Vivint has a market cap near $1.3 billion. Again, the return on equity and operating margin are in negative territory.

Since the buyout announcement in July, the consensus recommendation from those four analysts still covering the stock has shifted to holding shares. Their mean price target suggests they see more than 30 percent potential upside. Shares have not traded in that neighborhood since the IPO last October.

Short sellers watched the share price plunge more than 25 percent but then regain much of that loss during the period. It has declined further since the settlement date. Over the past six months, though, Vivint has outperformed the likes of First Solar and SolarCity, as well as the S&P 500 and the Nasdaq.

See also: 3 Semiconductor Stocks With Big Swings In Short Interest

And Others

Gains in the number of Advanced Energy Industries, 8point3 Energy Partners, SolarEdge Technologies, SunPower and TerraForm Power shares sold short during the period were more modest.

However, First Solar and RGSE Energy and bucked the trend. Short sellers retreated marginally from these two in the first two weeks of the month.

Among foreign-based solar companies, the number of U.S.-listed shares (or ADSs) sold short in Canadian Solar, JA Solar Holdings, JinkoSolar, Trina Solar and Yingli Green Energy increased during the period. But short interest in China Sunergy, Hanwha Q CELLS and ReneSola shrank.

At the time of this writing, the author had no position in the mentioned equities.

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