We have maintained our Neutral recommendation on
), the largest rent-to-own operator in the U.S, with a target
price of $38.00. The stock currently carries a Zacks Rank #3
Rent-A-Center leverages an extensive network of stores to
effectively penetrate into its target markets, which in turn
facilitates it to generate healthy sales and gain a competitive
advantage over its rivals,
) and Advance America.
Moreover, the company has been taking prudent steps to
optimize rental merchandise levels in accordance with sales
trends. Rent-A-Center implemented a centralized inventory
management system, including automated merchandise replenishment.
In addition, a new centralized purchasing system allows better
management of rental merchandise.
In order to enhance consumers' shopping experience, the
company has developed a new business model called RAC Acceptance.
When the consumer is denied credit financing for a particular
product from the retailer, Rent-A-Center under its RAC Acceptance
program acquires that product from the retailer and offers it to
the consumer under a rental-purchase transaction.
Rent-A-Center's well knitted operational measures and growth
initiatives facilitated it to attain top and bottom-line growth
of 2.7% and 1.4%, respectively, during the second quarter of
2013. Consequently, management provided an upbeat earnings
outlook for 2013.
Due to continued tightening of the credit market, customers
see rent-to-own as a more flexible and viable option compared to
credit. However, the sluggish recovery and a fragile job market
may make customers reluctant to enter new rental-purchase deals.
Moreover, with margins remaining under pressure we prefer to
maintain our unbiased view on the stock. Management forecasted a
25 basis points contraction in gross profit, operating profit and
EBITDA margins for 2013.
The pros and cons embedded in the stock supports our unbiased
Other Stocks to Consider
Until any further upward revision in Rent-A-Center's Zacks
Rank, other stocks in the finance-leasing universe worth
Apollo Investment Corp.
Gladstone Capital Corp.
), both of which hold a Zacks Rank #1 (Strong Buy).
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APOLLO INV CP (AINV): Free Stock Analysis
GLADSTONE CAPTL (GLAD): Free Stock Analysis
RENT-A-CENTER (RCII): Free Stock Analysis
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