Tuesday, June 6

This morning HDS missed their earnings projections, and announced the sale of their Waterworks division to a holding group for $2.5 Billion in cash. Unfortunately that slashes the value of our call options, but fortunately it was a very small position. The current value of the call options is a literal $0.00 – there is no reasonable way for their stock price to exceed the strike price by expiration. While that is unfortunate, the total value of the position when we opened it was less than $250, so we’re really not that upset.

On analysis of the situation with HDS, we’re mildly disappointed by the market response to the HDS earnings call. EPS were at a healthy $0.63/share, and while this is the lower end of the projected range of $0.69 to $0.63, it is still within the range. HDS stock price dropped 15.99%, which is a response you’d expect from a posted loss, or at least a more significant EPS cut. Gross margins fell slightly but sales still grew in line with previous months and years. Simply put – HDS is doing fine, and that incoming $2.5 Billion will allow them to better leverage their traditionally profitable in-store sales (at retail locations like Home Depot and Lowes).

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