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Home and garden centre Lowe's has put in a bid for ownership of its currently Canadian-owned competitor, Rona, July 31, 2012. (Galit Rodan/The Globe and Mail)
Home and garden centre Lowe's has put in a bid for ownership of its currently Canadian-owned competitor, Rona, July 31, 2012. (Galit Rodan/The Globe and Mail)

Eye on Equities

Analyst lowers target on Lowe’s Add to ...

RBC Dominion Securities analyst Scot Ciccarelli cut his target price on Lowe’s Cos. Inc., saying he questions the U.S. home improvement retailer’s unsolicted $1.8-billion offer for Rona Inc. when that it should be repairing its American business first.

Like its U.S.-based rival Home Depot Inc., Lowe’s should benefit from improving trends in the housing market, but “we have less confidence in its near-term performance,” Mr. Ciccarelli said Tuesday in a report. “Home Depot has consistently generated better same- store sales growth than Lowe’s over the past year and a half.”

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Last week, Rona, Canada’s largest home improvement retailer, revealed that it received a $14.50 per share unsolicited offer from Lowe’s. The overture has caught the attention of the Quebec government, which opposes the company falling into foreign hands, and it has may lead a coalition to counter Lowe’s bid. The U.S. retailer has yet to make a formal offer.

“While Rona could give Lowe’s the size and scale in Canada in a single move, we question the timing and strategy behind a Lowe’s bid for Rona at this time,” he said.

In the U.S. market, Lowe’s has been underperforming Home Depot in recent years, but has initiatives to close the gap, including closing unproductive stores and shifting to an every-day-low-pricing strategy, the analyst said.

“An acquisition of Rona, which is a complex company that has both big-box and smaller sized stores, as well as a distribution business, and has been underperforming (its same-store sales declined 7.3 per cent in fiscal 2011) could prove to be a distraction for Lowe’s in its efforts to improve its U.S. operations,” he said. “We believe investors would likely view the strategic timing of such an acquisition as a negative for Lowe’s.”

Downside: The analyst, who maintains an “outperform” rating, lowered his one-year target by $2 (U.S.) a share to $31.

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Telus Corp.
The telecommunications company continued to post strong wireless results in the second quarter, said Desjardins Securities analyst Maher Yaghi. Telus should continue to attract dividend-seeking investors as long as interest rates stay, but “we see low potential for capital gains at this time,” he said.

Upside: He raised his one-year target to $64 a share from $58.60, but maintained a “hold” rating.

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Canadian REIT
The real estate investment trust, which has retail, industrial and office properties, has posted solid results over the past year, and increased acquisition and development activities offer future growth potential, said TD Securities analyst Sam Damiani.

Upside: The analyst upgraded his rating to a “buy,” and raised his one-year target by $7 a share to $48.

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Stantec Inc.
The engineering and consulting firm, which posted strong second-quarter results, has proved it is “managing the prevailing economic challenges very well,” said Raymond James analyst Ben Cherniavsky.

Upside: The analyst upgraded Stantec to an “outperform” rating, and raised his one-year target by $4 to $36 a share.

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Coach Inc.
Shares of the luxury leather goods maker have fallen 10 per cent this year. Investors “overreacted” to weakness at its North American factory outlet stores, but offering coupons again will help the factory channel rebound, said Canaccord Genuity analyst Laura Champine.

Upside: She upgraded her rating to a “buy,” but maintained her one-year target of $71 (U.S.) a share.

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