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Rent-A-Center Gains 26% in a Year: Can This Sustain in 2021?

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Continuous expansion of technology with a resilient business model and focus on innovation poise Rent-A-Center, Inc. (RCII - Free Report) well for growth. The company is making digital investments and is on track to widen its target-customer demographic and customer retention. It is on a path to end 2020 on a solid note given the healthy lease portfolios as well as robust underlying trends at virtual and omni-channel businesses.

The Plano, TX-based company’s shares have increased 26.4% over the course of a year versus the broader Consumer Discretionary sector’s 14.7% growth and the industry’s 13% decline. Meanwhile, the S&P 500 Index has gained 17.2%. Given the aforesaid robust strategies, we expect the stock’s momentum to continue in 2021.

Additionally, analysts look optimistic about the company. For 2021, the Zacks Consensus Estimate of $3.58 for earnings and $2.96 billion for revenues suggest year-over-year growth of 4.3% and 5.4%, respectively.

 

Deeper Analysis

Rent-A-Center has been making investments for enhancing the omni-channel platform so that customers can experience a seamless approach across channels, markets, products and brands. Management is optimistic about its digital efforts to expand the overall presence. The company is also on track to launch a broad digital offer across the Preferred brand. The Preferred Dynamix will support the latest technology and products within Preferred Lease, Preferred Digital and Preferred Marketplace.

Notably, the company believes that virtual lease-to-own is an important underserved opportunity and hence targets accomplishing $1.2 billion in Preferred Lease revenues by 2022-end. Further, it said that e-commerce penetration is likely to reach 30-40% over the next two years. Management has also been using technology to facilitate frictionless retail-partner onboarding, with the integration to retail partner e-commerce channels. Apparently, e-commerce transactions at rentacenter.com increased 71% during the third quarter of 2020.

Additionally, revenues at Preferred Lease segment grew 9.3% during the last reported quarter of 2020 buoyed by virtual retail-partner growth and higher invoice volumes. The segment is expected to keep driving the company’s overall performance. Management expects the Preferred Lease portfolio to grow about 9% year over year in 2020 and invoice volumes are likely to increase 25%. The portfolio is expected to continue benefiting from higher credit tightening in such a competitive landscape.

Rent-A-Center’s shareholder-friendly moves are encouraging too. Recently, the company’s board increased quarterly cash dividend per share to 31 cents from 29 cents for the first quarter of 2021.
 
All in all, Rent-A-Center appears to be a prudent investment option, given the aforementioned strengths. The VGM Score of A for this Zacks Rank #2 (Buy) stock further speaks of its inherent potential.

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