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Why Adding Rent-A-Center May Hurt Your Portfolio's Return
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Rent-A-Center, Inc. has been struggling to find a place in investors’ portfolio of late. Why is it so? Share price of this rent-to-own operator has declined roughly 24% so far in the year compared with the Zacks categorized Consumer Discretionary industry’s 8% gain. Moreover, the company currently carries a Zacks Rank #5 (Strong Sell). This implies that analysts covering the stock are not convinced about the company’sperformance in the near future.
Why is the Stock Out of Favor Now?
Rent-A-Center has been witnessing a downtrend in estimates, in spite of an earnings beat in third-quarter 2016. We noted that total revenue fell short of the estimate for the fifth consecutive quarter. Further, both the top and bottom line declined year over year.
The company posted adjusted quarterly earnings of 11 cents a share that beat the Zacks Consensus Estimate by a couple of cents but decreased from 47 cents reported in the year-ago period. Total revenue tumbled 12.3% to $693.9 million, due to a decline witnessed across the Core U.S., Acceptance Now and Mexico segments, somewhat compensated by enhanced revenue from the Franchising segment. Further, revenues fell short of the Zacks Consensus Estimate of $698.4 million.
The technical snags and outages after the execution of new store information management system within Core U.S. stores adversely impacted the operating results. The decrease in the top line is attributable to a decline witnessed across the Core U.S., Acceptance Now and Mexico segments.
Subdued Outlook Triggered a Downtrend in Estimates
Following the murky performance, management lowered its previously issued outlook for 2016. Rent-A-Center now projects Core revenues in the band of $2,065–$2,100 million and Acceptance Now revenues in the range of $805−$835 million. The company expects adjusted earnings between $1.05 and $1.15 per share for the full year. Management had earlier projected 2016 earnings per share to be in the range of $1.65–$1.85.
Analysts polled by Zacks are skeptical about the stock. Over the past 60 days, the Zacks Consensus Estimate of $1.11 for 2016 and $1.21 for 2017 has declined 63 cents and 53 cents, respectively. Moreover, the Zacks Consensus Estimate for the fourth quarter has dropped 35 cents to 11 cents over the same time frame.
Burlington Stores delivered an average positive earnings surprise of 25.6% in the trailing four quarters and has a long-term earnings growth rate of 19.9%.
Big Lots delivered an average positive earnings surprise of 83% in the trailing four quarters and has a long-term earnings growth rate of 13.5%.
Ross Stores delivered an average positive earnings surprise of 5% in the trailing four quarters and has a long-term earnings growth rate of 11.4%.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 ""Strong Buy"" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 ""Strong Sells"" and other private research. See these stocks free >>
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Why Adding Rent-A-Center May Hurt Your Portfolio's Return
Rent-A-Center, Inc. has been struggling to find a place in investors’ portfolio of late. Why is it so? Share price of this rent-to-own operator has declined roughly 24% so far in the year compared with the Zacks categorized Consumer Discretionary industry’s 8% gain. Moreover, the company currently carries a Zacks Rank #5 (Strong Sell). This implies that analysts covering the stock are not convinced about the company’sperformance in the near future.
Why is the Stock Out of Favor Now?
Rent-A-Center has been witnessing a downtrend in estimates, in spite of an earnings beat in third-quarter 2016. We noted that total revenue fell short of the estimate for the fifth consecutive quarter. Further, both the top and bottom line declined year over year.
The company posted adjusted quarterly earnings of 11 cents a share that beat the Zacks Consensus Estimate by a couple of cents but decreased from 47 cents reported in the year-ago period. Total revenue tumbled 12.3% to $693.9 million, due to a decline witnessed across the Core U.S., Acceptance Now and Mexico segments, somewhat compensated by enhanced revenue from the Franchising segment. Further, revenues fell short of the Zacks Consensus Estimate of $698.4 million.
The technical snags and outages after the execution of new store information management system within Core U.S. stores adversely impacted the operating results. The decrease in the top line is attributable to a decline witnessed across the Core U.S., Acceptance Now and Mexico segments.
Subdued Outlook Triggered a Downtrend in Estimates
Following the murky performance, management lowered its previously issued outlook for 2016. Rent-A-Center now projects Core revenues in the band of $2,065–$2,100 million and Acceptance Now revenues in the range of $805−$835 million. The company expects adjusted earnings between $1.05 and $1.15 per share for the full year. Management had earlier projected 2016 earnings per share to be in the range of $1.65–$1.85.
Analysts polled by Zacks are skeptical about the stock. Over the past 60 days, the Zacks Consensus Estimate of $1.11 for 2016 and $1.21 for 2017 has declined 63 cents and 53 cents, respectively. Moreover, the Zacks Consensus Estimate for the fourth quarter has dropped 35 cents to 11 cents over the same time frame.
Stocks that Warrant a Look
It would be prudent for investors to look beyond Rent-A-Center,at least for the time being. Investors may consider better-ranked stocks such as Burlington Stores, Inc. (BURL - Free Report) flaunting a Zacks Rank #1 (Strong Buy), while Big Lots Inc. (BIG - Free Report) and Ross Stores, Inc. (ROST - Free Report) both carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Burlington Stores delivered an average positive earnings surprise of 25.6% in the trailing four quarters and has a long-term earnings growth rate of 19.9%.
Big Lots delivered an average positive earnings surprise of 83% in the trailing four quarters and has a long-term earnings growth rate of 13.5%.
Ross Stores delivered an average positive earnings surprise of 5% in the trailing four quarters and has a long-term earnings growth rate of 11.4%.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 ""Strong Buy"" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 ""Strong Sells"" and other private research. See these stocks free >>