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Caution To Trinseo Shorts - Closing The Barn Door After The Horses Are Already Gone

Jun. 10, 2020 10:43 AM ETTrinseo PLC (TSE)DOW36 Comments
Prati Management profile picture
Prati Management


  • Trinseo short interest is up over 60% in the last two months to 5% of shares outstanding and ~8% of the actual float.
  • In simple math, we walk through how EBITDA will quadruple to $510 million in EBITDA from consensus in the current year trough of $125 million.
  • Morgan Stanley's downgrade May 28th, from Neutral to SELL after 6 years at "Neutral" appears years late, as it is based on a contraction in styrene spreads to marginal cost, which has already happened.
  • While having bounced slightly off the bottom, the stock is still down over 71% from the 2018 high and has underperformed the group significantly.
  • Our model and assumptions are already appropriately-conservative given the environment. We remain perplexed that short interest and negativity are increasing and how someone can sleep at night being short a stock with so much upside.

March to May 2020 - The COVID Impact, and a big "V"

What a year 2020 has been so far, and we are not even at the halfway mark. We have witnessed volatility in the markets and economy that certainly makes trading stocks exciting. We have heard many superlatives applied to everything ranging from "greatest economic shock," "shortest bear market" and debate and discussion over when and what the recovery would look like. In retrospect, people are now concluding this was a one-time event that had an overwhelming shock, but that things will return to normal. The only question is when. But the market is discounting a "V" recovery, and just as investors were lamenting that 2020 might be a global disaster of unknown proportions, the indexes are largely almost back to flat and the NASDAQ hitting all-time highs. “The greatest 50 days of the stock market history” has come and gone, and the ubiquitous consensus call for us to “retest the lows” as we entered April, and even into May, has now converted to a fear of missing out (FOMO) with investors chasing cheap, beaten and unloved stocks including (and perhaps especially) airlines, cruise lines, travel and energy stocks. While eradicating nearly the entirety of the losses into March from COVID fears (and in the case of technology – being up on the year), most pundits and analysts are now saying we need some consolidation, time to digest our rapid gains, and even encouraging some profit-taking and trimming positions. Large-cap names such as Dow Chemical (DOW), which we recommended in March has more than doubled off of its March low. And retail names such as Capri (CPRI), PHV (PVH) and Guess (GES) have seen triples and quadruples. We agree some of

This article was written by

Prati Management profile picture
Richard Prati has nearly 40 years of equity analysis and investment experience and spent nearly 20 years on Wall Street in various positions including the co-founding of American Technology Research and ultimately selling the company in 2008. Experience in public and private global equity analysis and investing. BS in Economics from Vanderbilt and MBA from the University of Rochester.

Analyst’s Disclosure: I am/we are long TSE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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