Restoration Hardware Holdings Inc (RH) Pops on Williams-Sonoma, Inc. (WSM) Buyout Chatter

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If you were to look at one stock chart today and it was Restoration Hardware Holdings Inc (NYSE:RH), you’d be forgiven if you thought the Federal Reserve took rate hikes off the table completely and OPEC agreed to totally shut down production. But nope, that lunch-time pop is RH riding the M&A train.

Restoration Hardware Holdings Inc (RH) Pops on Williams-Sonoma, Inc. (WSM) Buyout Chatter

Nothing concrete has materialized on this front, but murmurs on the Street suggest Williams-Sonoma, Inc. (NYSE:WSM) may snap up RH stock.

With WSM stock off 13% for 2016 and 33% over the past year, it would definitely need something to spur growth, but is RH the answer?

Why Buy Restoration Hardware?

RH stock is no winner, either. Shares of Restoration Hardware are down 64% over the past year, a ways away from its high of $106.49. Today, you can get RH stock for $33.30.

The question is, just how much of a price tag would Restoration Hardware command with a potential suitor? That depends on just how much WSM needs RH, and what Restoration Hardware can offer Williams-Sonoma.

First, looking at the analyst price targets, the high watermark for RH stock is $60 per share. That means it could double from here. But is that how much WSM, or some other buyer, would pay?

It’s in the ballpark. The last time this rumor materialized in June, BB&T Capital pegged Williams-Sonoma as willing to shell out $50 per share.

Why such a premium? Well, it appears that WSM is preparing to open a chain of boutique hotels, which is well out of the company’s wheelhouse. That’s because it’s simply out of options for growth. Earnings are predicted flat year over year, and the full year is only growing at a 2.7% clip. After all, there’s only so much you can do to ramp up sales in the current business model. WSM knows this:

“To continue to lead in retail, we are changing our approach. We are making technology investments to improve our cross channel experience. Our new strategic sales platform will lead to a more inspiring and effortless customer experience. We are also defining the ‘store of the future’ for each of our brands.”

That store of the future could very well be a boutique hotel, which Restoration Hardware is pursuing as well. In fact, RH has some experience in chasing revenue outside of its comfort zone, opening art galleries and clothing stores to supplement its bread-and-butter home decor biz.

Shares have cooled a bit since the initial 6% pop, but considering that 45% of RH shares are sold short, it’ll be interesting to see what happens if a buyout is confirmed.

As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/09/restoration-hardwarewilliams-sonoma-rh-wsm/.

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