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Rent-A-Center (RCII) Q3 Earnings: Will the Stock Disappoint?

Rent-A-Center, Inc.RCII is slated to report third-quarter 2016 results on Oct 26. The big question facing investors now is, whether this largest U.S. rent-to-own operator will be able to deliver a positive earnings surprise in the quarter to be reported. In the trailing four quarters, Rent-A-Center surpassed the Zacks Consensus Estimate by an average of 2.6%. However, in the preceding quarter, the company underperformed the Zacks Consensus Estimate by an average of 18%. Let's see how things are shaping up for this announcement.

Zacks Model Shows Unlikely Earnings Beat

Our proven model does not conclusively show that Rent-A-Center is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Rent-A-Center has an Earnings ESP of -43.75% as the Most Accurate estimate is 9 cents, while the Zacks Consensus Estimate is pegged at 16 cents. Moreover, the company carries a Zacks Rank #5 (Strong Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

RENT-A-CENTER Price and EPS Surprise

RENT-A-CENTER Price and EPS Surprise | RENT-A-CENTER Quote

Factors Influencing this Quarter

Rent-A-Center has been battling a waning top line for the past four quarters. In the second quarter, total revenue dropped 8.1%. This is attributable to the decline in the Core U.S., Acceptance Now and Mexico segments. Also, accelerated point of sale system rollout, persistent sluggishness across the computers and tablets categories, headwinds across the oil-impacted markets, and continued smartphones recast have impacted the results.

Management recently issued a dismal preliminary guidance for third-quarter 2016. It expects Core U.S. same store sales to be down nearly 12% in the quarter, while Acceptance Now same store sales are estimated to be flat. Core U.S. gross profit is likely to be flat year over year. Also, it anticipates earnings per share both on a GAAP and non-GAAP basis to be in the 5-15 cents per share range. The technical snags and outages after the execution of the new point-of-sale system have negatively impacted Core sales.

Consequently, the Zacks Consensus Estimate of $1.38 and $1.47 for 2016 and 2017 has decreased 36 cents and 27 cents, respectively, over the past 30 days. Moreover, the Zacks Consensus Estimate of 16 cents for third-quarter 2016 has declined 24 cents over the same time frame.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Big 5 Sporting Goods Corp. BGFV has an Earnings ESP of +3.33% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

L Brands, Inc. LB has an Earnings ESP of +2.22% and a Zacks Rank #3 (Hold).

Dollar Tree, Inc. DLTR has an Earnings ESP of +1.28% and a Zacks Rank #3.

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RENT-A-CENTER (RCII): Free Stock Analysis Report

DOLLAR TREE INC (DLTR): Free Stock Analysis Report

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L BRANDS INC (LB): 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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