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Sydnee Gatewood
Sydnee Gatewood
Articles (3176) 

Jana Partners Continues to Whittle Down HD Supply Position

Activist firm further reduces holding in industrial distributor

Investment firm Jana Partners (Trades, Portfolio) revealed last week it trimmed its position in HD Supply Holdings Inc. (NASDAQ:HDS) by 38.01%.

With a value-oriented, event-driven approach to picking stocks, the New York-based firm founded in 2001 by Barry Rosenstein often enters activist positions in order to help unlock value for shareholders.

Having already curbed the holding by 25.23% in the second quarter, GuruFocus Real-Time Picks, a Premium feature, showed the activist firm divested of another 517,064 shares of the Atlanta-based company on Oct. 2, impacting the equity portfolio by -2.03%. The stock traded for an average price of $41.74 per share on the day of the transaction.

GuruFocus estimates the firm has gained 19.92% on the investment since establishing it in the first quarter of 2016. Now holding a total of 843,295 shares, HD Supply represents about 3.37% of Jana's equity portfolio and was its seventh-largest holding as of the three months ended June 30.

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The industrial distributor, which provides a range of products and services to professional customers in the maintenance, repair and operations, infrastructure and power and specialty construction sectors, has a $6.93 billion market cap; its shares were trading around $42.44 on Monday with a price-earnings ratio of 16.83, a price-book ratio of 4.47 and a price-sales ratio of 1.16.

While the Peter Lynch chart shows the stock is slightly overvalued, the GF Value Line suggests it is more fairly valued.

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On Sept. 9, the company reported its financial results for the second quarter, which ended Aug. 2. HD Supply posted adjusted earnings of 83 cents per share on $1.6 billion in revenue, which declined 4.4% from the prior-year quarter. Earnings per share topped analysts' estimates of 73 cents, while revenue beat expectations of $1.54 billion.

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In a statement, Chairman and CEO Joe DeAngelo commented on the company's operations amid the ongoing Covid-19 pandemic.

"Our highest priority remains the health and safety of our associates and our customers as we continue to support the operations and re-opening of living spaces, job-sites and work places," he said. "Our financial strength and steadily improving results reflect the strength of our team and their dedication to safely delivering best-in-class service."

GuruFocus rated HD Supply's financial strength 5 out of 10. Although the company has adequate interest coverage, the Altman Z-Score of 2.93 indicates it is under some pressure.

The company's profitability scored a 6 out of 10 rating, driven by an expanding operating margin, strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 5, which indicates business conditions are stable. HD Supply also has a predictability rank of one out of five stars. According to GuruFocus, companies with this rank return, on average, 1.1% annually over a 10-year period.

Of the gurus invested in HD Supply, Seth Klarman (Trades, Portfolio) has the largest stake with 4.09% of its outstanding shares. Mario Cibelli (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies, Chris Davis (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Ray Dalio (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) are also shareholders.

Portfolio composition

As of the three months ended June 30, Jana had 35.84% of its $1.07 billion equity portfolio, which consisted of nine stocks, invested in the consumer defensive sector. Technology had the second-largest representation at 20.42%, followed by the consumer cyclical space at 16.66%.

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The firm's top five holdings as of the end of the second quarter were Conagra Brands Inc. (NYSE:CAG), Perspecta Inc. (NYSE:PRSP), the SPDR S&P 500 exchange-traded fund (SPY), Callaway Golf Co. (NYSE:ELY) and Hillenbrand Inc. (NYSE:HI).

Disclosure: No positions.

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About the author:

Sydnee Gatewood
I am the editorial director at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg

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