On Friday, TD Cowen initiated coverage on shares of Aaron's (NYSE:AAN), a lease-to-own (LTO) retailer, with a Market Perform rating and a price target of $7.00. The firm's analysis pointed to several challenges faced by the company, including its primary business, Aaron's, operating a store-based model which, according to the firm, has slower long-term growth potential compared to virtual LTO models.
Aaron's has reportedly been lagging behind its peers during the pandemic, underperforming in all relevant metrics. The analyst at TD Cowen expressed skepticism about the company's store consolidation and remodeling efforts and their potential to improve Aaron's competitive standing.
Furthermore, the company's hardline retail segment, BrandsMart, was noted to be unprofitable with a double-digit decline in comparable sales. The firm also highlighted Aaron's significantly lower return on equity (ROE) compared to its peers, with figures only in the low single digits.
The price target of $7.00 reflects the firm's neutral stance on the stock, suggesting that the analyst sees limited potential for Aaron's stock price to grow in the near term based on the current business model and market performance. The Market Perform rating indicates that the stock is expected to perform in line with the broader market or its sector average.
InvestingPro Insights
Amidst the challenges highlighted by TD Cowen, Aaron's (NYSE:AAN) has shown resilience in certain financial aspects. According to InvestingPro data, Aaron's has a notably low Price / Book multiple of 0.32 as of the last twelve months ending Q4 2023, which might attract investors looking for undervalued stocks. Additionally, the company has a PEG Ratio of 0.51, suggesting that the stock could be undervalued relative to its earnings growth potential.
InvestingPro Tips reveal that Aaron's has raised its dividend for 3 consecutive years, with a current dividend yield of 6.96%, significantly rewarding its shareholders. Moreover, despite recent performance concerns, analysts predict the company will be profitable this year, as Aaron's has been profitable over the last twelve months.
Investors seeking further insights can find additional InvestingPro Tips for Aaron's at https://www.investing.com/pro/AAN. There are currently 14 more tips available, which could provide a deeper understanding of the company's financial health and stock performance. For those interested in a subscription, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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