Rent-A-Center (RCII) Hits 52-Week High: What's Driving It?

Rent-A-Center, Inc. (NASDAQ:RCII) hit a 52-week high of $28.91, before closing the session a tad lower at $28.82 on Dec 19. Shares of this Plano, TX-based company have rallied approximately 15% in past six months against the industry’s decline of 4%. Also, this Zacks Rank #3 (Hold) stock has comfortably outperformed the Consumer Discretionary sector and the S&P 500 Index that advanced 3.6% and 9.1%, respectively, in the said time frame. With a VGM Score of A, Rent-A-Center is positioned to attain new highs.



Factors Narrating Rent-A-Center’s Growth Story

Rent-A-Center’s Acceptance Now business model is gaining traction. Notably, revenues at Acceptance Now grew 6.4% to $184.5 million in the third quarter driven by robust comparable sales and acquisition of Merchants Preferred. Also, same-store sales at the segment improved 6.2% during the third quarter. The company now expects Acceptance Now revenues for 2019 to be $735-$750 million, up from the previous guidance of $725-$745 million. By 2022, Rent-A-Center expects to increase Acceptance Now and Merchants Preferred revenues to more than $1.2 billion.

Also, management has undertaken initiatives to strengthen the performance of its Core U.S. segment. In an attempt to augment cash flow generation from Core U.S. business, the company is focusing on rates, terms and purchase options that are much more aligned with customers’ needs. It is also optimizing product mix, increasing the average ticket price, upgrading workforce, and rationalizing existing stores.

The company is taking prudent steps to optimize rental merchandise levels in accordance with sales trends. Notably, its focus on cost-containment initiatives, efforts to draw traffic, targeted value proposition, refranchising program and augmentation of cash flow bodes well. Additionally, the company is rationalizing store base and lowering debt load.

Management now anticipates net debt of $185-$200 million for 2019 with net debt-to-EBITDA ratio of 0.7-0.8. Management had previously projected net debt of $195-$225 million for 2019 with net debt-to-EBITDA ratio of 0.7-1.

For 2019, the company projects consolidated revenues between $2.635 billion and $2.670 billion compared with $2.620-$2.670 billion projected earlier.

We believe that these efforts will continue driving the company’s performance helping it stay in investors’ good books.

Key Picks

SP Plus Corporation (NASDAQ:SP) has a long-term earnings growth rate of 10% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Care.com, Inc. (NYSE:CRCM) has a long-term earnings growth rate of 15% and a Zacks Rank #1.

Target Corporation (NYSE:TGT) has a long-term earnings growth rate of 7.5% and a Zacks Rank #1.

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