'Dramatic Improvements': Stifel Goes Full Bull On Conn's

Furniture retailer Conn’s Inc CONN shares saw a strong recovery in June that bulls expect to continue through the next year.

The Rating

Stifel Nicolaus analyst John Baugh upgraded Conn’s from Hold to Buy and raised the price target from $35 to $45.

The Thesis

"Dramatic improvements” have been made in the yield on Conn’s loan portfolio and the stability of charge-offs, Baugh said in the upgrade note. (See the analyst's track record here.) 

A breakeven in the credit business isincreasingly feasible by mid-2019 as no-interest promotions are reduced, rates rise in the direct loan program and delinquency trends and collections improve, the analyst said. 

“We are increasingly comfortable that the new management team has invested heavily in the underwriting and collections side of credit and will be much better equipped to address changing fundamentals in this business when they occur,” Baugh said.

Stifel forecast that comp sales will grow in the low-single-digit range as Conn’s moves forward from stunting immigration and weather concerns. The sell-side firm's estimates suggest top-line expansion between 8 and 10 percent through 2019.

“Importantly, we don't believe that management has to loosen credit underwriting decisions to drive this growth,” Baugh said. 

Price Action

Conn's shares were trading up 0.28 percent at $36 at the time of publication Wednesday. 

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