BofA Initiates Rent-A-Center With Buy Rating, Analyst Bullish On Virtual Lease-To-Own

Rent-A-Center Inc RCII shares traded higher by 1.8% on Wednesday following some bullish Wall Street commentary on the stock.

The Analyst: Bank of America analyst Jason Haas initiated coverage of Rent-A-Center with a Buy rating and $85 price target.

The Thesis: In the initiation note, Haas said Rent-A-Center’s recent acquisition of Acima sets the company up to be the number two competitor in the high-growth virtual lease-to-own industry.

Haas said only 10 of the top 40 retailers of furniture and appliances currently offer lease-to-own financing options, but he is anticipating more companies will follow to drive same-store sales growth.

Acima is currently in the process of rolling out several new LTO products, including Acima Marketplace, Browser Extension, the LeasePay Card and a mobile app. Haas said these launches have the potential to drive annual revenue growth above the company’s long-term target of 20% to 25%.

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“Some growth in virtual LTO could cannibalize the traditional LTO industry, however we see the Rent-A-Center Business as relatively well-insulated given its focus on lower-credit quality customers than the virtual channel,” Hass said.

Overall e-commerce sales growth and the closing of between 20% and 30% of Aaron's Company Inc AAN stores could also offset Rent-A-Center store headwinds.

Haas said investors appear to be overlooking the potential growth in the LTO industry given Rent-A-Center shares trade at around nine times his projected 2022 earnings. He said much of that skepticism comes from misguided investor concerns over regulatory risks and subprime credit risk.

Benzinga’s Take: There is always risk when it comes to a business that relies heavily on lower-credit quality customers, but Rent-A-Center navigated the 2008 financial crisis relatively well. Plus, any stock trading at just nine times forward earnings should have some major valuation support to the downside.

Photo by Glenn Carstens-Peters on Unsplash