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A Rona store is pictured in Ottawa February 24, 2011. (CHRIS WATTIE/REUTERS)
A Rona store is pictured in Ottawa February 24, 2011. (CHRIS WATTIE/REUTERS)

Eye on Equities

Has Rona become a target for value investors? Add to ...

A lousy winter, not to mention a number of other retail misfortunes, translated into an ugly first quarter for Rona Inc. , with a net loss per share of 13 cents, much worse than the Street was expecting, as same-store sales plunged 12.6 per cent.

But with the stock trading near $12, a level not seen since the economically frightening days of early 2009, is it too cheap to ignore?

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Many analysts tend to think so. Even as several cut their 12-month price targets on the stock today, they retained their "buy" ratings, with some suggesting that Rona offers a possible value play.

They're not short of pointing out risks. Consumer spending on big-ticket items remains in the doldrums, the home improvement market is much softer after last year's boost from the Home Renovation Tax Credit, and - as pointed out by Canaccord Genuity's Candice Williams - the company has an increasingly convoluted store base.

Going forward, management is cautious, noting that unfavourable weather conditions have spilled over into the second quarter.

"Unfortunately, the same-store sales growth recovery, which we had been anticipating for the second quarter, appears to have been pushed over to the third quarter, at the earliest," commented TD Newcrest analyst Jessy Jayem. "Until then, and barring a significant rebound in consumer confidence, few catalysts are in sight for Rona until the latter part of fiscal 2011."

CIBC World Markets analyst Mark Petrie said that while the macro environment should improve later this year, "Rona's room for error is shrinking."

"Investors holding on here require significant patience, or a view to some type of shakeup," he said.

Upside: CIBC cut its price target by $1 to $14 and retained a "sector performer" rating. TD Newcrest cut its price target by $1.50 to $15 and maintained a "buy" rating. Canaccord dropped its price target by $2.50 to $14.50 and kept its "buy" recommendation.

Tim Hortons Inc.'s first-quarter earnings Thursday should show solid underlying results, but the disruption of winter storms will take a bite out of same-store sales growth, said RBC Dominion Securities Inc. analyst Irene Nattel. She expects earnings per share of 50 cents, 2 cents below the consensus, with a lower tax rate and benefits of a share buyback helping performance.

Upside: Ms. Nattel raised her price target by $4 to $50.

Shareholders of Gluskin Sheff + Associates Inc. will likely receive another hefty special dividend this year as the wealth manager realizes higher performance fees, said CIBC World Markets Inc. analyst Paul Holden. He also expects a rise in the company's regular dividend when fiscal fourth-quarter earnings are released after the summer. But net outflows and lower base earnings could put a damper on the company's shares.

Downside: Mr. Holden lowered his price target to $21.50 from $22.75 and affirmed his "sector performer" rating.

PetroBakken Energy Ltd.'s first-quarter results showed more evidence that the company has to review its business model and choose between providing growth or yield, said TD Newcrest analyst Roger Serin. "Issues relating to high decline rates, a rising cost structure and a balance sheet that in our analysis provides limited future flexibility past 2011, causes us to take a more cautious approach in our investment thesis," he said.

Downside: Mr. Serin downgraded PetroBakken to "hold" from "buy" and cut his price target by $2 to $21.

Don't be fooled by Trican Well Service Ltd.'s first-quarter results, which only modestly beat expectations, advises Canaccord Genuity analyst John Tasdemir. The company's fracturing business is looking strong in the U.S. and Canada and it continues to execute impressively on its pressure pumping capacity additions, he said. "We have likely been too conservative in our job count and margin assumptions," Mr. Tasdemir conceded.

Upside: Canaccord upgraded the stock to a "buy" and raised his price target to $28.50.



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Follow Darcy Keith on Twitter for more of the latest analyst actions from the Street and exclusive investing news from The Globe and Mail.

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