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Here's Why Rent-A-Center (RCII) Has Gained 70% in Past 6 Months

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Rent-A-Center, Inc. (RCII - Free Report) looks appealing on strength in its resilient model, continuous expansion of technology and focus on innovation. The company is making digital investments and is on track to widen its target-customer demographic and retain customers. Additionally, management is keen on enhancing its omni-channel platform to offer customers a seamless experience across channels, markets, products and brands. Strength in its Preferred Lease wing further acts as a catalyst. Impressively, the Plano, TX-based company’s shares have surged 70.4% versus the industry’s 17.6% rally over the past six months.

Additionally, analysts look optimistic about the company. For 2021, the Zacks Consensus Estimate of $3.78 for earnings and $2.98 billion for revenues suggest year-over-year growth of 10.1% and 6.3%, respectively. The VGM Score of A for this Zacks Rank #2 (Buy) company further speaks of its potential.

Let’s Delve Deeper

Rent-A-Center is one of the major omni-channel lease-to-own providers for credit-constrained consumers. The company has been expanding its e-commerce offerings and mobile applications, and leveraging its cloud-based point-of-sale platform to manage orders more efficiently, lower losses and cut operating costs. 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. Apparently, e-commerce transactions at rentacenter.com increased 71% during the third quarter of 2020.

The company’s Preferred Lease segment is benefiting from higher credit tightening amid such a competitive landscape. Revenues at Preferred Lease grew 9.3% during the last reported quarter buoyed by virtual retail-partner growth and higher invoice volumes. The segment is expected to keep driving the company’s overall performance. Going forward, the segment is also likely to benefit from the company’s strategic buyouts. Recently, management agreed to buy Acima Holdings LLC in a cash-and-stock transaction worth $1.65 billion. The deal is likely to conclude in the first half of 2021.

Markedly, Acima is a growing and profitable lease-to-own (LTO) fintech company. Notably, this buyout will enhance the company’s virtual LTO offerings. The combined business will be reported under the Preferred Lease segment. Through this, Rent-A-Center will be able to provide a frictionless LTO experience to its retail partners and customers through an integrated omni-channel strategy. It will expand the company’s virtual partner base and efficiently cater to consumers with a flexible LTO approach.

Furthermore, Rent-A-Center’s share-friendly moves are encouraging. Recently, the company’s board raised its quarterly cash dividend per share to 31 cents from 29 cents for the first quarter of 2021. The increased dividend is equivalent to a current annualized dividend rate of $1.24 a share versus the prior rate of $1.16. It has a dividend payout of 40.1%, dividend yield of 2.9% and free cash flow yield of 12.6%. With an annual free cash flow return on investment of 41.6%, ahead of the industry’s 19.3%, the dividend payment is likely to be sustainable.

Other Solid Consumer Discretionary Bets

SP Plus (SP - Free Report) has a long-term earnings-growth rate of 10% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

BJ's Wholesale Club (BJ - Free Report) has a long-term earnings-growth rate of 15.8% and a Zacks Rank #2.

Crocs (CROX - Free Report) , also a Zacks Rank #2 stock, has a long-term earnings-growth rate of 15%.

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