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Here's Why You Should Add Rent-A-Center to Your Portfolio

Zacks Equity Research

Rent-A-Center, Inc. RCII appears to be a solid bet, given its sturdy efforts to remain on the growth trajectory. Notably, the company is investing in enhancing the omni-channel platform as well as boosting the Acceptance Now business model and its Core U.S. segment. It is also striving to reduce costs.

We note that such endeavors drove fourth-quarter 2018 results, wherein both the top and the bottom line beat the Zacks Consensus Estimate for the third consecutive quarter. Also, earnings and sales improved year over year.

Driven by these upsides, shares of this Plano, TX-based company have increased approximately 20% in the past three months, against the industry’s growth of 2.7%. That said, let’s delve deeper into the major factors, which have been driving this Zacks Rank #1 (Strong Buy) stock.

Factors Narrating Rent-A-Center’s Growth Story

Rent-A-Center focuses on strengthening digital offerings 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 to lower costs by approximately $50 million. Backed by such prudent strategies, the company is moving exceedingly well toward solidifying its financial status. During 2018, the company lowered its net debt by more than $220 million. Management anticipates net debt of $270-$235 million for 2019 with a leverage ratio of 1.25 to 0.90.

Apart from this, the company’s Acceptance Now business model is gaining traction as it enhances consumers’ shopping experience. Notably, comparable store sales at the Acceptance Now segment improved 9.6% in the fourth quarter of 2018. For 2019, it expects Acceptance NOW revenues of $725-$740 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 the store base. We note that comparable store sale at the Core U.S. segment rose 8.8% during the fourth quarter of 2018. Moreover, it anticipates revenues at the Core U.S. segment to range within $1.765-$1.790 billion in 2019.

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

3 Other Stocks to Watch

SP Plus Corporation SP delivered average positive earnings surprise of 9.7% in the trailing four quarters. It has a long-term earnings growth rate of 10% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Monro, Inc. MNRO has a long-term earnings growth rate of 12.5% and Zacks Rank #2 (Buy).

Target Corporation TGT has a long-term earnings growth rate of 6.3% and Zacks Rank #2.

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