Caesarstone Extends Drop as Short Sellers Seize on Board Changes

  • Countertop maker announced departure of two board members
  • Caesarstone lost $1 billion in market capitalization in 2015

Caesarstone Sdot-Yam Ltd. fell for a fourth day after bearish investors seized on changes to its board of directors as evidence of deeper problems at the company.

Shares of Caesarstone, which makes quartz kitchen countertops, plunged 17 percent to $31.05 in New York on Monday, pushing its drop to 57 percent from a record high in July. The rout has wiped out $1 billion of the Israeli company’s market value this year. The stock fell 3 percent to $30.05 at 10:46 a.m. in New York Tuesday.

Caesarstone extended stock losses amid a broader selloff in global equity markets yesterday as short-seller Spruce Point Capital Management, which issued a negative report on the company in August, took to Twitter to highlight the board changes as indications it is “hiding something.” Caesarstone is being targeted by bearish investors after posting the weakest revenue growth on record in the second quarter. The slowdown occurred in part because its focus on affluent homeowners meant the company missed out on U.S. growth in more affordable buildings like apartments and condominiums, the company said earlier this year.

“Board resignations are not inherently negative, but the timing couldn’t be worse,” Bruce Schoenfeld, research director at New York-based BlueStar Global Investors, said in an e-mailed response to questions. “While it does not validate short-seller claims, it does suggest discord on the board at a time when the company can least afford it.”

Caesarstone cut its sales forecast to as low as $495 million on Aug. 5, compared with a previous estimate of as much as $525 million, sparking a rout in the stock. Revenue is forecast to rise 12 percent this year, less than half the 25 percent jump in 2014, according to the average estimate of five analysts surveyed by Bloomberg.

Bearish bets against Caesarstone have risen to 4.1 percent of shares outstanding from 2.1 percent on Sept. 15, according to data compiled by Markit, a London-based research firm. Short interest peaked at 8 percent on Aug. 24.

Short-seller Spruce Point Capital Management said Aug. 19 that Caesarstone was downplaying pricing pressures and overstating its margins. The report prompted a 7.1 drop in the stock that day.

Ben Axler, managing partner at Spruce Point and author of the report, said Caesarstone has yet to address the claims in his report and that the board resignations created “uncertainty” that has rattled investors.

Board Resignations

“We are not hiding anything,” James Palczynski, a spokesman for Sdot Yam, Israel-based Caesarstone, said in a telephone interview Monday. “We have made what we consider to be appropriate disclosures and there’s nothing further to disclose.”

Caesarstone, a 28-year-old company founded on a kibbutz, said Sept. 25 that two board members, Ram Belinkov and Avner Naveh, had resigned. Belinkov’s resignation was related to a disagreement over stock options issued to Chief Executive Officer Yos Shiran, Palczynski said. Naveh resigned due to “a difference of opinion over matters related to the board’s work and material resolutions,” the company said in a Sept. 25 filing.

Analysts at JPMorgan Chase & Co. and UBS AG, which both rate Caesarstone a buy, issued reports on Monday defending the stock. Six of the eight analysts covering the company recommend buying the shares, which are expected to double in value over the next 12 months, according to price estimates compiled by Bloomberg.

“We continue to believe these changes are not related to issues around the company’s strategy, corporate governance, or disclosure practices,” UBS analyst Susan Maklari wrote in a note to clients yesterday. “The correction in the stock is unwarranted.”

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