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Here's Why Aaron's (AAN) Stock is a Solid Investment Pick

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Aaron’s Inc. (AAN - Free Report) has been displaying significant growth over the years on strength in its Progressive business as well as efforts to transform the Aaron’s segment. The Progressive business is benefiting from robust invoice volume growth and solid customer base, which also drove results in the most recent quarter. Further, smooth progress on the company’s strategies to bring the Aaron’s business back to growth bodes well.

The stock of this rent-to-own retailer has gained 5.6% in the past three months against the industry’s decline of 7.2%. Moreover, this Zacks Rank #2 (Buy) stock has rallied as much as 31.1% in the past year.

 



Factors Narrating Aaron’s Growth Potential

As already stated, momentum in the Progressive business has been the cornerstone for success of the company over the years. Notably, the segment continues to perform at a high level and is receiving positive response from retail partners. Robust performance at this virtual lease-to-own business is backed by robust growth in invoice volume and a solid customer base. Notably, the segment’s revenues have doubled from $1 billion in 2015 to $2 billion in 2018 while consistently generating strong profits.

In second-quarter 2019, the Progressive segment’s revenues gained 6.7% year over year. Invoice volume rose 20.4%, owing to 23.4% rise in invoice volume per active door, partially offset by 2.5% reduction in active doors. Aaron’s expects the momentum for the segment to continue in 2019, with estimated revenues of $2,100-$2,175 million and adjusted EBITDA of $275-$285 million.

Additionally, the company is leaving no stone unturned to boost the performance at the Aaron’s business. It is progressing well with its transformational plans for the segment over the past few years. These initiatives are likely to bring the segment back to sustainable long-term growth in revenues and earnings through investments in activities to improve customer experience, operating efficiencies, compliance and employee engagement.

Driven by the success of the pilots carried out in 2018, the company plans to expand the next-generation concept to 40 to 50 locations in 2019, which includes renovating existing stores, and repositioning to new and more attractive store locations. These new store concepts are poised to increase store level traffic and revenues. Additionally, the company’s e-commerce site (Aarons.com) has witnessed significant growth in the past few years, and is attracting new and younger customers.

Notably, revenues for the Aaron’s business improved 1.9% in second-quarter 2019 while lease revenues rose 8%. Lease revenues benefited from the continued investments in Aarons.com. The company expects revenues for the Aaron’s segment to be $1,775-$1,855 million in 2019.

Robust 2019 View

Encouraged by the robust second-quarter results and ongoing initiatives, the company raised its view for 2019. It continues to project total sales for 2019 to be between $3,905 million and $4,065 million. Adjusted EBITDA is now anticipated to be $430-$452 million compared with $415-$442 million mentioned previously.

Meanwhile, the company expects the Aaron’s business’s EBITDA to be front-end loaded due to significant investments in business transformation initiatives and real estate costs for the rollout of new store concepts. While Aaron’s expects these impacts to continue throughout the year, the greatest effect will be seen in the second half of 2019.

Further, management expects adjusted earnings to be $3.85-$4.00 per share, suggesting growth of 15-19% from the year-ago reported quarter. Earlier, management anticipated adjusted earnings of $3.65-$3.85 per share.

Overall, the company anticipates witnessing slightly higher revenues, adjusted EBITDA and adjusted EPS in the second half of 2019 compared with the first half. Moreover, it expects to witness highest revenue and EPS growth in the fourth quarter of 2019.

Wrapping Up

Clearly, this Atlanta, GA-based company has significant momentum left, driven by growth efforts and momentum in the Progressive business. This view is further supported by its impressive long-term earnings growth rate of 15% and a VGM Score of A.

Other Top-Ranked Stocks in the Retail Space

GameStop Corp. (GME - Free Report) witnessed positive estimate revisions for the current fiscal year in the last 30 days. Moreover, it currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Zumiez Inc. (ZUMZ - Free Report) also carries a Zacks Rank #1 at present and has expected long-term earnings growth rate of 13.5%.

Best Buy Co., Inc. (BBY - Free Report) , also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 8.8%.

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