Home Depot bid for GMS may be viewed ‘slightly negatively,’ says RBC

RBC Capital keeps a Sector Perform rating on Home Depot (HD) with a $399 price target after the Wall Street Journal reported the company has made an offer for building products distributor GMS (GMS), which received an acquisition bid from QXO (QXO) for $95.20 per share in cash, representing an enterprise value of $5B. The WSJ article did not include an offer price from Home Depot, nor did it state when the supposed offer was made, “which raises question around whether this is a real or current offer,” the analyst tells investors in a research note. However, given Home Depot’s stated desire to grow its complex projects pro share, RBC “would not be shocked” if the company was interested in the asset. Nonetheless, the timing is questionable as Home Depot is still working back toward its target leverage ratio of 2.0 times on the back of the SRS acquisition, adds the firm. RBC says that while the potential deal aligns with Home Depot’s LT objectives, it might be viewed “slightly negatively” in the near term as it would likely create additional gross margin dilution and further prolong the share repurchase pause.