Credit Suisse Downgrades Retail, As Hedge Funds Prepare To Profit – ValueWalk Premium

Credit Suisse Downgrades Retail, As Hedge Funds Prepare To Profit

Is the Retailers Apocalypse upon us? Not just Sears (SHLD) is in trouble some on the sell side and hedge fund community believe.

Credit Suisse has downgraded retail (within the consumer discretionary sector), and consumer durables and apparel to market weight, saying several metrics were at their lowest since the 2008 global financial crisis. The sectors had been rated overweight on account of “deep valuation” appeal.

The downgrade comes days after Sears (SHLD) Holdings announced bleak annual results and expressed doubts about its "ability to continue as a going concern".

In a note out this morning,  Evercore ISI opines the following regarding Sears:

2016 was another year of very poor operational results offset by assets sales. While the cash burn rate is improving as the company shrinks, they remain very far from sustainable levels of loss and require external liquidity. Given the very weak store base, continued comp declines, anemic sales productivity, and continued share loss in most major categories, SHLD does not appear well positioned for 2017.

As far back as 2015, Evercore predicted liquidation as a "base case" for Sears

Others have proclaimed a " Retailers Apocalypse " as many brick and mortars such as GameStop being the latest come under increasing pressure from Amazon.

Speculation also raged about mall-related debt likely to be the next big short.

In recent weeks, hedge funds such as Alder Hill Management have ramped up shorts against commercial mortgage-backed securities, while Deutsche Bank and Morgan Stanley have recommended buying credit protection on the BBB- tranche of CMBS, according to Bloomberg .


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