Post Holdings (POST) – Closing Short Position – up 21% vs. S&P up 30%

We put Post Holdings (POST: $82/share) in the Danger Zone on February 15, 2016. At the time, POST received an Unattractive rating. Our short thesis noted the firm’s falling and negative economic earnings, lagging profitability vs. competitors, poor corporate governance, and overvalued stock price.  

This Danger Zone report, along with all of our research, utilizes our “novel dataset”[1] of footnotes disclosures to get the truth about core earnings, as shown in the Harvard Business School and MIT Sloan paper, “Core Earnings: New Data and Evidence.”

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During about a four-year holding period, POST outperformed as a short position, rising 21% compared to a 30% gain for the S&P 500.

POST’s fundamentals have improved since our original report. Its return on invested capital (ROIC) improved from 4% at the time of our report to 5% over the trailing-twelve months (TTM) and economic earnings increased from -$276 million to $76 million over the same time. However, POST is down 25% year-to-date. This drop in valuation, along with improved fundamentals, means POST now earns an Attractive rating and no longer presents the same risk/reward. We believe it is time to take the gains and close this short position. 

Figure 1: POST vs. S&P 500 – Price Return – Successful Short Call

Sources: New Constructs, LLC and company filings

Note: Gain/Decline performance analysis excludes transaction costs and dividends.

This article originally published on April 1, 2020.

Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.

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[1] In Core Earnings: New Data & Evidence, professors at Harvard Business School (HBS) & MIT Sloan empirically show that data is superior to IBES “Street Earnings”, owned by Blackstone (BX) and Thomson Reuters (TRI), and “Income Before Special Items” from Compustat, owned by S&P Global (SPGI).

Click here to download a PDF of this report.

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