Wednesday, Credit Suisse upgraded Rona Inc. (RON.TO) shares to Outperform from Neutral and increased its price target to C$20 from C$13. The brokerage raised its 2009 EPS estimate to C$1.10 from C$1.06, and its 2010 estimate to C$1.27 from C$1.21. The brokerage introduced its 2011 EPS estimate of C$1.47.
Despite the slow recovery, analyst Lee is taking a more bullish stance on the stock as he likes Rona's odds of profitably growing sales. The analyst upgraded the stock based on: first half of 2010 growth momentum in single-unit housing starts; PEP to drive positive operating leverage; HRTC stimulus abatement not a major concern; financial capacity for business development; and, out of trough earnings comes compelling growth.
The analyst noted that at Rona, 2007 was all about hitting $7 billion in annualized sales by the end of 2007. The "7-07" plan was a license for ill. It drove management to pursue growth through new store builds, acquisitions and recruitments at the expense of same-store sales.
The analyst said that yet, throughout 2008, management battened down the hatch, did what they said they were going to do, reduce inventory, reduce debt, increase recruitments, expand gross margins and maintain an investment grade debt rating.
The analyst added that this year, the company had to migrate through mid-to-high single digit negative comps, negative operating leverage but managed to do a surprising equity issue that fortified its balance sheet. Rona is better equipped to move forward.
Currently, RON.TO is up C$0.32 or 2.03% and trading at C$16.07.
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