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Conn's Upgraded to Strong Buy on Robust Q1 Earnings

Zacks Equity Research

Zacks Investment Research upgraded Conn’s Inc. (CONN) to a Zacks Rank #1 (Strong Buy) on Jul 3 based on strong first quarter earnings due to which analyst estimates have been on the rise.

Why the Upgrade?

The current optimism surrounding the stock is mainly attributable to better-than-expected first quarter results and impressive fiscal 2015 outlook. Consequently, the Zacks Consensus Estimate for fiscal 2015 has increased 2.2% to $3.65 per share in the past 30 days.

Conn’s first quarter adjusted earnings of 80 cents per share were significantly higher than the year-ago quarter earnings of 61 cents and it also exceeded the Zacks Consensus Estimate of 73 cents per share. In fact, in the last ten quarters, the company beat the consensus estimates seven times, missed it on two occasions and reported in line results in one quarter. The strong earnings growth was driven by higher top-line growth boosted by strong consumer demand for home appliances, furniture and mattresses as well as consumer electronics.

Conn’s net sales of $335.4 million beat the Zacks Consensus Estimate of $325 million by 3.2% and climbed 33.6% year over year. Sales were driven by a gain of 32.6% in the Retail segment and a 38.9% increase in the Credit segment. Same store sales increased 15.6% primarily benefiting from the company’s focus on expanding product offerings and store base.

Further, the company remains optimistic about achieving its profit target for fiscal 2015 and therefore, during earnings call, reiterated its earnings guidance range. It continues to expect earnings in the range of $3.40–$3.70 per share in the fiscal while diluted share outstanding will be approximately 37.4 million.

We believe that Conn’s will continue to perform well, given its growth initiatives, which include expansion of its store base and incorporation of technological advancements to better serve its patrons. The company leverages a wide network of stores to effectively penetrate into its target markets, which consequently enable it to generate healthy sales and gain market share.

Other Stocks to Consider

Other better-ranked stocks in the retail sector include Kirkland’s Inc. (KIRK), Aaron’s Inc. (AAN) and Restoration Hardware Holdings, Inc. (RH). All these stocks carry a Zacks Rank #2 (Buy).

Read the Full Research Report on AAN
Read the Full Research Report on KIRK
Read the Full Research Report on RH
Read the Full Research Report on CONN

Zacks Investment Research