Here's Why Rent-A-Center (RCII) is up More Than 60% in 3 Months
Rent-A-Center, Inc.’s RCII stock has been tracking up the charts, thanks to robust business strategies and sound fundamentals. The company has been making digital investments and is on track to widen its target-customer demographic. Additionally, management is keen on enhancing the omni-channel platform to offer customers a seamless experience across channels, markets, products and brands.
Immense strength in its Preferred Lease wing is further acting as a catalyst. This segment is benefiting from the virtual retail-partner growth and increased invoice volumes as well as higher credit tightening despite a competitive landscape. The Preferred Lease unit is expected to keep driving the company’s overall performance ahead. Going forward, we expect the segment to benefit from the company’s pending buyout of Acima Holdings LLC. Management agreed to buy Acima in a cash-and-stock transaction worth $1.65 billion and the deal is anticipated to conclude in the first half of 2021. Markedly, Acima is a growing and profitable lease-to-own (LTO) fintech company. Notably, this buyout will enhance the company’s virtual LTO offerings.
Buoyed by these strengths, the Plano, TX-based company’s shares have surged 62.7% in the past three months, crushing the industry’s 17.2% increase. This Zacks Rank #2 (Buy) stock further got a boost following the company’s recently-released preliminary results for 2020.
Preliminary Results for 2020
Rent-A-Center announced preliminary results for 2020 with relation to the financing for its pending acquisition of Acima Holdings, LLC. Management cited that it concluded year 2020 on a solid note, with estimated revenue growth of 5.4% for the year. This is buoyed by an expected rise of 13.7% in same-store sales at the Rent-A-Center Business division and about 25% higher invoice volume for Preferred Lease unit, both for the fourth quarter. We note that the Preferred Lease wing witnessed gains in spite of the supply chain limitations in the same quarter. Moreover, the company’s Rent-A-Center Business division performed well in the fourth quarter and aided robust adjusted EBITDA margin for 2020.
Depending on the preliminary estimates, management expects total revenues for 2020 of nearly $2,814 million. This shows an improvement from the midpoint of the previous estimate of $2,810 million. Total revenues were earlier guided in the bracket of $2,795-$2,825 million for 2020. Currently, the Zacks Consensus Estimate for the metric stands at $2.80 billion for the same period. We note that Rent-A-Center generated $667.9 million in revenues in 2019.
Moreover, the company now forecasts adjusted EBITDA in the band of $329-$333 million. Previously, it guided the metric in the range $308-$323 million. The current view suggests an improvement from $254 million recorded in the year-earlier period.
Considering all factors, adjusted earnings per share are envisioned in the range of $3.51-$3.56. The company had earlier forecasted adjusted earnings per share of $3.35-$3.50. The latest earnings view suggests an improvement from $2.24 earned last year. The Zacks Consensus Estimate for 2020 earnings is pegged at $3.47. We note that Rent-A-Center ended 2020 with cash and cash equivalents of nearly $159 million and outstanding indebtedness of $197.5 million.
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