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Aaron's Hits 52-Week High: Business Segments Aid Growth

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Shares of Aaron's, Inc. (AAN - Free Report) touched a 52-week high of $51.77, before closing the session a tad lower at $51.25 on Sep 10. Clearly, the company has been gaining from significant growth at the Progressive segment and notable improvement in the Aaron’s Business division. Recently, the company bought 90 Aaron's-branded franchised stores, which are expected to strengthen its omnichannel capabilities.

Also, improvements in average ticket size, customer retention rates and collections drove the company’s second-quarter 2018 results. Meanwhile, management reiterated its guidance for 2018. Markedly, the stock gained 5% since the announcement of its quarterly results on Jul 26. (Read: Aaron's Beats on Q2 Earnings & Sales, Retains '18 View)

In the past three months, this Zacks Rank #3 (Hold) stock has rallied approximately 21%, outperforming its industry’s and S&P 500 index’s growth of 7.1% and 2.4%, respectively.

Further, Aaron’s price to book ratio of 2 compared with that of industry’s 4.1 indicate that the stock has enough upside potential. A more-or-less similar picture emerges when comparing EV/EBITDA ratios. Aaron’s holds the edge here with an EV/EBITDA ratio of 2 lower than 5.1 for the industry.

Moreover, impressive estimate revision trend for the current and next year buoys optimism. Over the past 60 days, the Zacks Consensus Estimate has moved up by 7 cents and 9 cents to $3.41 and $3.94, respectively.

Factor’s Anchoring Growth

Aaron’s Progressive segment, which covers the virtual lease-to-own business, is performing exceedingly well since last several quarters. Notably, robust growth in number of active doors, invoice volume and a solid customer base led to the impressive performance. In second-quarter 2018, the segment’s revenues surged 29.5% year over year backed by a 24.7% increase in invoice volume owing to a 6% improvement in active doors and 17.6% growth in invoice volume per active door. As of Jun 30, 2018, this division had 758,000 customers.

As a result, revenues at the Progressive division are estimated to be between $1.95 billion and $2.05 billion in 2018, significantly up from $1.57 billion last year. This, in turn, should drive top-line growth and boost profitability.

In the meantime, the company’s Aaron's Business looks promising. In the second quarter, sales at the segment edged up 0.3%, marking an improvement from the trend of posting sales decline in the preceding quarters. Further, the segment’s lease revenues and fees grew 5.1% from the year-ago period number. In July, the company bought Aaron's-branded franchised stores to strengthen the company’s omni-channel capabilities. These efforts are likely to enhance the Aaron’s Business segment’s performance and raise confidence in the company.

Moving ahead, these factors are likely to continue favor the stock and help retain the momentum.

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