Deutsche Bank Says Williams-Sonoma (WSM)/Restoration Hardware (RH) Deal Could Lead to Substantial Earnings Accretion

September 29, 2016 2:22 PM EDT
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Deutsche Bank analyst Adam Sindler commented on Restoration Hardware (NYSE: RH) following earlier unconfirmed speculation that Williams-Sonoma (NYSE: WSM) is bidding on company. The chatter briefly sent shares higher by 4%. In his view the acquisition could drive substantial earnings accretion, though supply chain issues could create a volatile integration scenario.

Sindler said, "We had written about this over the summer, stating that while we believe the math behind a WSM / RH combination would be favorable, we believe each company’s stand alone supply chain issues could create a volatile integration scenario. And as we have seen in the past, including recently, just because a deal works on paper does not always make it a sure bet."

The analyst added, "Our takeout analysis shows that if properly executed an RH acquisition could drive substantial earnings accretion for WSM – this would be the prevailing catalyst in our view. We also believe that WSM would be acquiring a still strong brand, perhaps the leader in the upscale home furnishings market. This is a segment WSM has tried to address in the past, but unsuccessfully. We also believe WSM remains in growth mode and we believe there would be very little customer overlap here, so it would open a new market for WSM."

Deutsche Bank has a Hold rating on Restoration Hardware.

For an analyst ratings summary and ratings history on Restoration Hardware click here. For more ratings news on Restoration Hardware click here.

Shares of Restoration Hardware closed at $31.74 yesterday.

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