An analyst day hosted by home improvement giant Rona Inc. has paved the way for a slew of consolidations in the market, setting its market share target to 20% by 2011 from a current level of 17.5%.
“We interpret management’s tone as cautiously optimistic,” analyst Vishal Shreedhar UBS Investment Research wrote in a note to clients, maintaining his neutral rating on the shares and raising his price target to $18 from $17.
“Rona’s valuation is adequate. It currently trades at 12.9 times forward per share earnings, in line with its historical average,” and trades at a 21.6% forward price to earnings discount to rival Home Depot, he added.
Keith Howlett of Desjardins Securities maintained his buy rating and $17.50 price target on the shares, but reduced his 2010 estimate to $1.23 from $1.34.
“Based on management’s projections of sales and margin growth excluding acquisitions, operating leverage to sales growth will be more muted in 2010 than we had previously projected,” he said.
With an aggressive phase of market consolidation projected to begin, “we would stay on board as the story unfolds.”