While the large sites required for such an expansion are nowhere near as plentiful as they were a decade age, analysts have been skeptical about a Rona takeover by Lowe’s because of the former’s multifaceted network (four store formats and sizes as opposed to Lowe’s sole big-box model), corporate structure (Lowe’s stores are corporate-owned and many of Rona’s are owned by store dealers), and the fact that Rona is based in Quebec, a market which some U.S. retailers have been wary to enter due to language and culture barriers.
But analyst Keith Howlett of Desjardins Securities has changed his outlook, given “recent explicit recognition by leading industry executives that the long-term secular growth of home improvement retailing is slowing to good from spectacular,” he wrote in a note to clients.
He upgraded his rating on Rona shares to “speculative buy” from “hold” and increased his target price to C$26.50 from C$24.
“While many impediments to a deal between Lowe’s and Rona remain, we have increased the probability to 40%,” from a prior probability of “less than 15%” he wrote. “If a deal is to occur, it would most likely be within the next six months.”
