Conns Inc. ( CONN - Snapshot Report ) , a Texas-based durable consumer goods retailer, recently announced that it has opened three new stores in the country – two in Texas and one in Arizona. The move reflects the company’s strategy to provide more space to its fastest growing product categories – furniture and mattresses – which recorded a year-over-year increase of 31.7% in the third quarter of fiscal 2012.

So far in fiscal 2013, Conns has opened 5 new stores and achieved its target of new store openings during the fiscal. While releasing its earnings for the third quarter of fiscal 2013, Conns announced its intention to increase the store base by 10 to 12 stores in fiscal 2014.

We believe that Conns’ continuous efforts to increase store counts, along with its flexible in-house credit options for its customers, will boost its top line.

On December 3, 2012, Conns reported record-high third-quarter fiscal 2012 financial results with adjusted earnings per share increasing nineteen-folds to 38 cents. The earnings also surpassed the Zacks Consensus Estimate of 27 cents. Moreover, during the quarter, total revenue increased 10.6% to $206.4 million on the back of a 12.6% hike in same-store sales.

Following the better-than-expected quarterly results, the company raised its fiscal 2013 guidance. The company now anticipates its earnings per share for fiscal 2013 to be in the range of $1.55–$1.60, up from the previously-forecasted range of $1.40–$1.50. Same-store sales are expected to increase in between 13% and 16%, instead of 10%–15% range projected earlier.

Apart from this, the company has provided the outlook for its fiscal 2014 in the range of $2.05–$2.15 per share on the heels of same-store sales growth of 0% to 5%.

Our Recommendation

Currently, Conns has a Zacks #1 Rank, implying a short-term Strong Buy rating. Moreover, we are maintaining our long-term ‘Outperform’ recommendation on the stock. We believe that strong same-store sales momentum, pricing power, margin improvement as well as the adding and remodeling of stores to drive top-line growth are the rank drivers for this stock.

Conns currently trades at a forward P/E of 21.18x, significantly above the peer group average of 9.10x. Also, on a price-to-book basis, the shares trade at 2.49x, reflecting a substantial premium of 102.4% to the peer group average of 1.23x. Given the company's strong fundamentals, the premium valuation is justified, and is supported by the long-term earnings growth projection of 15%, which is much higher than the peer group average of 8.7%.

However, one of the company’s peers, Best Buy Company, Inc. ( BBY - Analyst Report ) , which posted a 94% decline in its third quarter 2012 earnings per share now has a Zacks #5 Rank (Strong Sell). Best Buy’s earnings of 3 cents a share also missed the Zacks Consensus Estimate of 12 cents.