Should You Drop HD Supply Holdings Inc. (NASDAQ: HDS) From Your Portfolio?


What HD Supply Holdings Inc (NASDAQ: HDS) said it earned in 2Q2016 didn’t create as much anger as what the company said it expected to earn in F3Q2016. Though the market has not been rewarding in the way many investors and analysts would love to see, you don’t see the management of HDS sounding the alarm over the company’s long-term prospects. Perhaps that is because the management sees the current market pressures as temporary and the efforts currently being made to drive growth will bear fruit in the long run.

Why investors are nervous

The reason investors appeared to be heading for the exit door in HD Supply Holdings Inc (NASDAQ: HDS) in the last session can be linked to the downbeat guidance for F3Q. The company is looking for F3Q EPS in the band of $0.77 to $0.82. Revenue in the quarter is expected to come in the range of $1.99 billion to $2.04 billion. However, analysts on the average were looking for EPS of $0.91 on revenue of $2.06 billion for the quarter, thus dwarfing HDS’s forecast.

HD Supply Holdings Inc (NASDAQ: HDS)’s soft guidance for F3Q was triggered by lackluster sales in during the month of August. Though overall sales in the month rose about 2%, sales in the company’s largest segment, facilities-maintenance, were flat. As such, the management of HDS can be seen taking a conservative approach in guiding for the current quarter.

How HD Supply Holdings Inc. (NASDAQ: HDS) fared in 2Q

For 2Q2016, HD Supply Holdings Inc. (NASDAQ: HDS) posted adjusted EPS of $0.85 on revenue of $2.02 billion. The EPS figure came at the lower end of the internal guidance of $0.85 to $0.91 and revenue also came at the lower end of the forecast and declined 4.1% YoY.

There is room to surprise

Though the recent selloff in HD Supply Holdings Inc. (NASDAQ: HDS) was triggered by weak F3Q guidance, which came as a result of downbeat sales in the month of August, there is still room for the company to surprise before it reports F3Q results. Therefore, it looks unfair to judge HDS solely on the basis of its soft F3Q guidance.


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