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Here's What Makes Rent-A-Center a Promising Investment Bet

Zacks Equity Research

Rent-A-Center, Inc. RCII clearly appears to be a preferred pick, as it seems to have all it takes to catch investors’ attention. Notably, the company is benefiting from initiatives such as cost containment, improving traffic trends, targeted value proposition, refranchising program and enhancing cash flow. Further, it is rationalizing store base and lowering debt load.

All these factors helped the company to deliver robust second-quarter 2019 results, wherein earnings surpassed the Zacks Consensus Estimate and also grew year over year. Notably, this marked the fifth successive quarter of positive earnings surprise. Moreover, management raised its view for fiscal year 2019. (Read: Rent-A-Center Up on Q2 Earnings Beat, Raised View)

In the past six months, shares of this Plano, TX-based company have rallied 26%, outperforming the industry’s growth of 4.1%.

Further, analysts are steadily growing bullish on the stock. This is apparent from the rise in earnings estimates. The Zacks Consensus Estimate for financial year 2019 and 2020 has moved north by 14 cents and 13 cents, respectively, in the past 30 days.

All said, let’s take a closer look at the aspects driving this Zacks Rank #1 (Strong Buy) stock, which also flaunts a VGM score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Narrating Rent-A-Center’s Growth Story

Rent-A-Center focuses on enhancing omni-channel platform so that customers can experience a seamless approach across channels, markets, retailers, products and brands. In sync with this, the company is increasing e-commerce offerings and mobile applications, and leveraging the cloud-based point-of-sale platform to manage orders more efficiently, lower losses and cut operating costs.

Speaking of cost savings, the company reduced costs by $70 million in 2018. For 2019, it expects cost savings of approximately $160 million on account of interest expense savings anticipated between $15 million and $20 million annually.

Apart from these, the company’s Acceptance Now business model is gaining traction as it enhances consumers’ shopping experience. Notably, same-store sales at the Acceptance Now segment improved 6% during the second quarter of 2019. With the buyout of Merchants Preferred, the company now expects Acceptance NOW revenues for 2019 to be $725-$745 million, up from $700-$715 million.

Also, management has undertaken initiatives to strengthen the performance of its Core U.S. segment. The company expects to reap benefits from its Flexible Labor and Sourcing & Distribution endeavors. It is also optimizing product mix, increasing the average ticket price, upgrading workforce, concentrating on lowering delinquency rates and rationalizing existing stores as well as contemplating on new ones. We note that comparable-store sale at the Core U.S. segment rose 5.6% during the second quarter of 2019. Moreover, the company now expects Core U.S. revenues of $1.800-$1.825 billion compared with the prior view of $1.790-$1.815 billion.

We expect all aforementioned factors to continue bolstering its performance, and help it remain in investors’ good books.

3 More Stocks to Watch
Weight Watchers International, Inc. WW has a long-term earnings growth rate of 15% and sports a Zacks Rank #1 at present.

BrightView Holdings, Inc. BV currently has a long-term earnings growth rate of 19% and a Zacks Rank #2 (Buy).

SP Plus Corporation SP presently has a long-term earnings growth rate of 10% and a Zacks Rank #2.

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