Rent-A-Center In Red Zone: What's Wrong With The Stock?

Investors want their portfolio to comprise of stocks with surging share price and a favorable recommendation. However, Rent-A-Center, Inc. (NASDAQ:RCII) has failed to meet any of these criteria and no longer features in investors’ good books. The company remains deeply entrenched in the bearish territory as the stock has lost its value by nearly 14% year to date.

This rent-to-own operator has been witnessing a downtrend in the Zacks Consensus Estimate. Moreover, the company currently carries a Zacks Rank #5 (Strong Sell). This implies that analysts covering the stock are not very optimistic about Rent-A-Center’s performance in the near future. So, what led this Plano, TX-based company to fall out of favor? Let’s find out.

Why is it a Touch-Me-Not Stock?

After registering an earnings beat in five straight quarters, Rent-A-Center succumbed to a negative earnings surprise in the second quarter of 2016. Notably, this also marked the fourth consecutive quarter of sales miss for the company. Further, both top and bottom lines declined year over year. The decrease in the top line is attributable to a decline witnessed across the Core U.S., Acceptance Now and Mexico segments.

Accelerated point of sale system rollout, persistent sluggishness across the computers and tablets categories, headwinds across the oil-impacted markets and continued smartphones recast impacted results.

Subdued Outlook Triggered a Downtrend in Estimates

Following the dreary performance, management lowered its outlook for 2016. The company now anticipates Core U.S. revenue to decrease in the band of 8.5–11.5%, with comparable sales decline expected in a range of 5–8%. Management had earlier projected Core U.S. revenue to fall 4–6% in 2016, impacted by a comps decline of 1–3%.

Rent-A-Center now projects Acceptance Now revenue between $805 million and $835 million for the full year, down from the previous guidance range of $850–$900 million. Based on these expectations, management envisions 2016 earnings per share to range from $1.65–$1.85.

Analysts polled by Zacks are less constructive on the stock. Over the past 60 days, the Zacks Consensus Estimate of $1.74 for 2016 and 2017 has declined 31 cents and 37 cents, respectively. Moreover, the Zacks Consensus Estimate for the third quarter has dropped 12 cents to 40 cents over the same time frame.

Stocks that Warrant a Look

It would be prudent for investors to look beyond Rent-A-Center, at least for the time being. Investors may consider better-ranked stocks such as Outerwall Inc. (NASDAQ:OUTR) , The Children's Place, Inc. (NASDAQ:PLCE) and Urban Outfitters Inc. (NASDAQ:URBN) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Outerwall Inc. delivered an average positive earnings surprise of 75.5% over the trailing four quarters and has a long-term earnings growth rate of 10%.

The Children's Place, Inc. delivered an average positive earnings surprise of 33.1% over the trailing four quarters and has a long-term earnings growth rate of 10.3%.

Urban Outfitters Inc. delivered an average positive earnings surprise of 6.7% over the trailing four quarters and has a long-term earnings growth rate of 15%.

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