Aaron's Up to Strong Buy - Analyst Blog

By Zacks Equity Research,

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On Apr 30, 2014, Zacks Investment Research upgraded Aaron's Inc. ( AAN ), the leading rent-to-own retail operator, to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

The company has been witnessing rising earnings estimates since it released its first-quarter 2014 earnings results on Apr 25, 2014, wherein its earnings of 53 cents per share came within its own guidance range Moreover, an upbeat guidance for 2014 further boosts analyst confidence. The quarterly earnings came in line with the Zacks Consensus Estimate.

Although the bottom line declined 20.9% mainly due to decreased revenues and higher operating expenses, the stock has been gaining momentum owing to the recently announced acquisition of Progressive Finance Holdings LLC.  The stock has gained almost 6% since Apr 25.

Aaron's believes that the acquisition of Progressive Finance Holdings will prove transformational by giving it an opportunity to expand into the large and growing virtual rent-to-own market.

Progressive Finance Holdings, which provides web-based lease-to-own financing programs for retailers, is expected to provide solid investor returns for Aaron's shareholders, given its exceptional growth metrics that registered 77% annual revenue growth from $228 million in 2012 to $403 million in 2013.

Further, the company expects the acquisition to increase cash earnings per share in 2014 in double digits and be significantly accretive in 2015 as well. Further, Aaron's will benefit from Progressive Finance Holdings' tie-ups with the largest U.S. retailers, including Mattress Firm, Big Lots Inc. ( BIG ), Art Van Furniture and Sleepy's which adds about 15,000 new sources of revenues for Aaron's.

Looking ahead, Aaron's has raised its outlook for 2014 after taking the benefits of Progressive Finance Holdings acquisition into account. For full-year 2014, Aaron's now expects revenues and earnings in the range of $2.65-$2.75 billion and $1.95-$2.10 per share, respectively. This is higher than the previous revenue and earnings guidance range of $2.3 billion and $1.80-$2.00 per share, respectively.

This has triggered an uptrend in the Zacks Consensus Estimates, as analysts became more constructive on the stock's future performance. This is evident from the movement witnessed in the Zacks Consensus Estimate that jumped 6.5% to $1.98 for 2014 and 34.2% to $2.63 per share for 2015 in the past 30 days.

Other Stocks Worth Considering

Other stocks worth a look in the retail sector include American Apparel Inc. ( APP ) and Best Buy Co., Inc . ( BBY ), both of which carry a Zacks Rank #2 (Buy).

AARONS INC (AAN): Free Stock Analysis Report

AMER APPAREL (APP): Free Stock Analysis Report

BEST BUY (BBY): Free Stock Analysis Report

BIG LOTS INC (BIG): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: AAN , APP , BBY , BIG

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