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by Zacks Equity ResearchSeptember 13, 2012 | Comments : 0 Recommended this article: (0)
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Some of the bullish traits for this Zacks #1 Rank (Strong Buy) include strong same-store sales momentum, constant share gains in a tricky appliance market, its ability to charge higher price points compared to peers, strong margin improvement, unit remodeling and an increase in its credit portfolio balance.
Raised Fiscal 2013 Outlook
On September 5, Conns posted adjusted earnings per share of 36 cents for the second quarter of fiscal 2013, beating the Zacks Consensus Estimate by a penny. Earnings improved substantially from the year-ago level of 18 cents.
Net revenue increased 10.9% year over year to $207.4 million, outperforming the Zacks Consensus Estimate of $203.0 million. Same store sales increased 21.5% during the fiscal second quarter.
Conns raised its diluted earnings per share guidance for fiscal 2013 to between $1.40 and $1.50 per share from the range of $1.30 to $1.40 projected earlier. Growth in same stores sales are expected at 10% to 15%, while the company previously guided mid- to high-single digit growth. It also plans to open as many as five new stores for the full-year.
Guidance Drives Earnings Estimates
Earnings estimates for fiscal 2013 rose 4.3% to $1.47 per share in the last 7 days as all 6 estimates were revised higher. This represents potential for year-over-year growth of 113.3%. The Zacks Consensus Estimate for fiscal 2014 is up 6.4% to $1.83 per share over the same time frame as 5 of 6 estimates were revised upward, reflecting year-over-year growth of 24.6%.
Premium Valuation Justified
Conns currently trades at a forward P/E of 16.54x, implying a 91% premium to the peer group average of 8.66x. The company has a PEG ratio of 1.3 times. On a price-to-book basis, the company is at a premium of 86.5% with a 2.07 multiple compared with the peer group multiple of 1.11.
We believe that the premium is warranted given a higher long-term earnings growth rate of 13.0% compared with the industry average of 9.3%.
The sturdy escalation in Conns share price, recording a one-year return of 204.3%, signifies the companys favorable position as it is gaining from its earnings and sales momentum, in addition to expanding its credit portfolio.
Moreover, shares have continually traded above the 200-day moving average since September 6, 2011. Barring occasional pullbacks, the stock has also traded above its 50-day moving average since October 5, 2011. Additionally, the company has outperformed the S&P 500 Index since May 25, 2011.
Founded in 1890 and headquartered in Beaumont, Texas, Conns is a retailer of durable consumer products in the United States. The company deals in home appliances, furniture and mattresses, consumer electronics and home office products. Additionally, the company offers a variety of products on a seasonal basis, including lawn and garden equipment. The company also provides flexible in-house credit options for its customers, in addition to third-party financing programs and third-party rent-to-own payment plans. Conns has a market cap of 788.7 million.
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