2 Sell-Side Takes On The New Aaron's Company

The Aaron's Company, Inc. AAN completed a spin-off from its former parent company this week and is now trading as an independent company. Two sell-side analysts offered their takes on the new company. 

The Aaron's Analysts

KeyBanc Capital Markets analyst Bradley Thomas initiated coverage of The Aaron's Co. stock with a Sector Weight rating.

Raymond James analyst Bobby Griffin initiated at Market Perform.

KeyBanc: On Aaron's Deal Details

The legacy Aaron's spun itself into two entities — the new Aaron's business entity and the RemainCo called PROG Holdings PRG, Thomas said in a Tuesday initiation note.

Related Link: Benzinga's Top Upgrades, Downgrades For December 2, 2020

The Aaron's Co. comprises the company-operated and franchised rent-to-own retail business; the furniture manufacturing division, Woodhaven Furniture Industries; and Aarons.com, the analyst said.

The PROG business includes the Progressive Leasing segment and the company's subprime credit provider Vive Financial.

Aaron's could benefit from the ongoing digitization of the business and growing omnichannel capabilities, he said.

This will help the company reach more customers at a lower cost, Thomas said.

A store reduction count of 20% to 30% implies the potential for improving EBITDA by default of a smaller store base, the analyst said. 

Investors are likely waiting for evidence that management's new plan is generating improving financials, according to KeyBanc. 

Why RayJay Is Sidelined On Aaron's

Aaron's "shrink to grow" strategy is a difficult proposition for investors to get excited about, so investors may want to "prefer to start off on the sidelines," Griffin said in a Wednesday initiation note.

The biggest area of concern relates to near-term operational risk tied to major store closures, the analyst said.

Aaron's customers also seem to overlap more with the virtual channel than its main rival Rent-A-Center, he said. 

2020 EBITDA margins "clearly" benefited from government stimulus payments, and this will give the company "challenging" comparisons next year, Griffin said. 

"These aspects account for the reason behind our Market Perform rating." 

AAN Price Action: Shares of Aaron's were trading lower by 4.41% at $17.55 at last check Wednesday. 

Photo by Dwight Burdette via Wikimedia.