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Conns Slides to Strong Sell Due to High Delinquency Rates

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On Oct 15, 2015, Zacks Investment Research downgraded Texas-based consumer durable goods retailer, Conns Inc.CONN , to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Conns recently posted its sales and delinquency data for September, wherein its 60-plus day delinquency rate as of Sep 30, 2015, widened 20 basis points year over year and sequentially, to 9.9%.

Though comparable store sales and total retail sales for September witnessed year-over-year improvement, results continued to be affected by Conns' recent decision to discontinue video game products, digital cameras, and certain tablets. We note that shares of the company have plunged 15.8% since the sales and delinquency data announcement.

Apart from impacting September sales, higher delinquency rates also weighed on Conns' second-quarter fiscal 2016 earnings. The figure declined 7.8% year over year to 47 cents per share despite an outstanding performance from both the company's retail and credit divisions. Earnings came in line with the Zacks Consensus Estimate.

Consolidated revenues increased 12.2% year over year to $396.1 million, but fell short of the Zacks Consensus Estimate of $396.3 million.

The benefits from strong revenue growth were somewhat offset by a considerable jump in provision for bad debts, accountable to an increase in average receivable portfolio balance, a rise in balances originated in the quarter, an increase in delinquencies as well as the number of new customers of the total customer portfolio balance.

We believe that all the aforementioned factors led to the downgrade in Conns' earnings estimate revisions as analysts have become less constructive on the stock's future performance.

The Zacks Consensus Estimate has slumped 16.2% to $1.97 for fiscal 2016 and 7.8% to $2.72 for fiscal 2017 in the past 60 days. Further, the company's shares have nosedived 26.3% since its second-quarter earnings announcement.

Stocks to Consider

Some better-ranked stocks in the same industry include Aaron's, Inc. AAN , Best Buy Co., Inc. BBY and hhgregg, Inc. HGG . While Aaron's sports a Zacks Rank #1 (Strong Buy), both Best Buy and hhgregg hold a Zacks Rank #2 (Buy).

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CONNS INC (CONN): Free Stock Analysis Report

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


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

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