RBC Sees JANA Partners' Filing as Modest Positive for HD Supply (HDS); Affirms at 'Sector Perform'
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RBC Capital affirms HD Supply (NYSE: HDS) at Sector Perform with a price target of $38 after JANA Partners filed a 13D on the company this morning.
The firm commented today:
Investment management firm Jana Partners disclosed an 8.1% stake in HD Supply on Oct-27 making it the second largest shareholder (with options that could increase its position up to ~9.1%). Jana disclosed that it has met with HD Supply management. We don’t see any clear path to unlocking value at HDS beyond its current task of proving to investors that the company’s self-inflicted execution problems have been addressed. Our SOP analysis implies essentially no upside to any break-up scenario, and recapitalization options are limited given that net leverage is already 4.5x times. There is a possibility that Jana could cajole the company to address its unusual management situation where Joe DeAngelo is currently holding dual roles of CEO and segment head of Facilities Maintenance (where the company has recently had execution challenges). Nonetheless, we are not surprised by the modest positive stock reception to this new shareholder stake as the stock had been modestly “dislocated”, trading ~3pp below its support level on its three-year relative P/E range vs. Multi-Industry peers.
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Related EntitiesJANA Partners LLC, Barry Rosenstein, RBC Capital, 13D
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