Shorts Load-Up on Walgreens Boots (WBA) and Rite Aid (RAD) Despite Deal - S3

S3 Partners Director Brett Weiss notes a massive spike in short-interest positioning over the last three months in Walgreens Boots Alliance (NASDAQ: WBA) and Rite Aid (NYSE: RAD), as Walgreens was recently granted U.S. approval to complete the purchase of 1,932 stores from Rite Aid for $4.4 billion.

The deal follows two years of negotiating with regulators and term amendments changes to appease antitrust concerns from the U.S. government. However, the Drug Sector landscape has changed in 2017 highlighted by emerging challenges from Amazon (NASDAQ: AMZN) and Walmart (NYSE: WMT), while headwinds regarding pharmacy reimbursement rate concerns persist.

Short speculators have latched on to these shifting industry dynamics, with Rite Aid bears increasing mark-to-market notional short interest by 156.7% since June 30th, while Walgreens bears have boosted mark-to-market notional short interest by 99.2% over the same period. The spike in bearish bets points to growing conviction level in this short story, although still at the early stages, as access to shorts of Walgreens and Rite Aid remains high according to Weiss, saying "there is plenty of stock available to borrow should they want to increase these bets. S3 estimates that only 2% and 13% of the float is being utilized. Both stocks continue to trade at general collateral levels, the cheapest fee or the easiest to borrow stocks."

Source: www.S3Partners.net

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