Conns Inc.: A Strong Buy - Analyst Blog
A solid year-to-date return of 103.1%, strong second-quarter fiscal 2013 results and rising estimates aided Conns Inc. ( CONN ) to attain a Zacks #1 Rank (Strong Buy) on September 7, 2012. This durable consumer goods retailer has consistently outperformed the Zacks Consensus Estimates in the last three quarters by an average magnitude of 8.7%.
The Rank Drivers
Strong same-store sales momentum, constant share gains, ability to charge higher price points compared to peers, margin improvement and unit remodeling are the rank drivers for this stock.
Conns posted second quarter earnings of 36 cents a share on September 5 that beat the Zacks Consensus Estimate of 35 cents by 2.9% and year-ago earnings of 18 cents by 100%.
Net revenue increased 10.9% year over year to $207.4 million, outperforming the Zacks Consensus Estimate of $203 million. Same-store sales increased 21.5% during the quarter.
Conns raised its diluted earnings per share guidance for fiscal 2013 between $1.40 and $1.50 per share from the range of $1.30 to $1.40 projected earlier. Growth in same stores sales are expected at 10% to 15%, while the company previously guided mid- to high-single digit growth. It also plans to open as many as five new stores for the full year.
Guidance Drives Earnings Estimates
Earnings estimates for fiscal 2013 rose 5% to $1.48 per share in the last 30 days as 5 of 7 estimates were revised higher. This implies a year-over-year growth of 114.1%. The Zacks Consensus Estimate for fiscal 2014 is up 7% to $1.84 per share over the same time frame as 4 of 7 estimates were revised upward. The current estimate suggests a year-over-year growth of 24.3%.
Conns currently trades at a forward P/E of 16.07x, significantly above the peer group average of 7.14x. Also, on a price-to-book basis, the shares trade at 2.01x, reflecting a substantial premium of 87.9% to the peer group average of 1.07x. Given the company's strong fundamentals, the premium valuation is justified, and is well reflected through long-term earnings growth projection of 13%, which is higher than the peer group average of 9.3%.
Founded in 1890 and headquartered in Beaumont, Texas, Conns is a retailer of durable consumer products in the United States. The company deals in home appliances, furniture and mattresses, consumer electronics and home office products. Additionally, the company offers a variety of products on a seasonal basis, including lawn and garden equipment. The company also provides flexible in-house credit options for its customers, in addition to third-party financing programs and third-party rent-to-own payment plans. Conns, which competes with Wal-Mart Stores Inc. ( WMT ) has a market cap of 770.9 million.
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