Rent-A-Center, Inc. RCII looks quite appealing on the back of strength in its resilient model, continuous expansion of technology and focus on innovation. Immense strength in its Preferred Lease wing further acts as a catalyst. These factors aided the company to deliver a stellar second-quarter 2020, which is further boosting the stock. Moreover, management has raised free-cash flow projection for 2020 and reaffirmed sales and earnings view, which was originally issued on Feb 24.
Notably, the Plano, TX-based company has seen its shares surge as much as 92.4% over the past six months, crushing the broader S&P 500 Index’s 38.6% growth and the industry’s 28.4% rally.
Let’s Closely Analyze
Rent-A-Center has been enhancing its omni-channel platform to offer customers a seamless experience across channels, markets, products and brands. It has been increasing e-commerce offerings and mobile applications, and leveraging cloud-based point-of-sale platforms to manage orders more efficiently. Apparently, e-commerce revenues surged 60% in the second quarter of 2020 and accounted for nearly 19% of the overall Rent-A-Center business revenues. Management anticipates e-commerce business to account for more than 25% of the company’s revenues by this year.
Meanwhile, the company’s Acceptance Now business model is gaining traction. Revenues at Acceptance Now, which is now known as the Preferred Lease segment, grew 8.4% during second-quarter 2020 driven by implementation of the Preferred Lease virtual solution and contributions from the Merchants Preferred buyout. The segment is expected to keep driving the company’s overall performance ahead on gains from credit tightening in the competitive environment. Apparently, management expects revenues at the Preferred Lease unit to improve 10-12% each quarter during second-half 2020. The Preferred Lease portfolio is anticipated to grow over 15% by the end of 2020, and invoice volume is estimated to be up about 25% year over year.
In the most recent quarter, the Preferred Lease segment contributed around 28% to the company’s overall revenues. A disciplined operating expense, gains from a pullback in traditional lending, and impressive e-commerce and digital payments have also aided the results. Same-store sales were positive in every month of the reported quarter, with furniture and appliance sales reverting to pre-pandemic trends. However, the Mexico segment, which encompasses the company-owned lease-to-own stores in the region that lease household durable goods, was soft in the quarter. The segment’s revenues were down 4.6% on a constant-currency basis with its same-store sales declining 2.6%.
Nonetheless, revenues are projected in the band of $2.755-$2.875 billion for 2020, indicating growth from $2.670 billion recorded in 2019. Moreover, adjusted EBITDA is anticipated between $255 million and $285 million, compared with $254.2 million in 2019. Further, adjusted earnings per share are envisioned to be between $2.45 and $2.85. This guidance suggests year-over-year growth of 9-27% from $2.24 earned in 2019. It now projects free-cash flow in the range of $135-$165 million, up from the guided range of $105-$135 million provided earlier.
All in all, Rent-A-Center appears to be a prudent investment option now, given the aforementioned robust endeavors. The VGM Score of A for this Zacks Rank #2 (Buy) stock further speaks of inherent potentials.
More Solid Consumer Discretionary Bets
Cimpress CMPR has a long-term earnings-growth rate of 20% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Crocs CROX, also a Zacks Rank #1 stock with a long-term earnings-growth rate of 15%.
BJ’s Wholesale Club BJ has a long-term earnings-growth rate of 15.8% and a Zacks Rank #2.
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Last year, it generated $24 billion in global revenues. By 2020, it’s predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce “the world’s first trillionaires,” but that should still leave plenty of money for regular investors who make the right trades early.
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