Rent-A-Center, Inc. Goes on Sale
Rent-A-Center, through rent to purchase agreement, sells name brand appliances, furniture, electronics, particularly cell phones, computers and other durable goods to consumers.
These consumers tend to be low to middle income with low credit scores. With the way the real economy is trending, we may see a lot more RCII customers soon.
On Feb. 1, after the market closed, RCII reported their fourth quarter earnings of $0.54, a 2 cent beat over Capital IQ consensus of $0.52. Revenue fell year over year by 4 % to $793.8 million versus $806.33 Capital IQ consensus.
RCII also incurred a $1.17 billion goodwill impairment charge that reduces their GAAP earnings to a $17.20 per share loss. Wow, what an opportunity.
A goodwill write-off involves no money. The company has incurred no new monetary loss. The number freaks out investors, but doesn’t change the profitability of the company.
FY17 earnings are estimated to come in at $2.04. At this writing (2/9/2016), RCII closed at $11.13 with a forward P/E of 5.4. XRT, the retail ETF, has a P/E of 16 currently. Although I don’t expect RCII to return to the 30’s anytime soon, I do expect it to hit $17 within 6 months and $25.00 within two years.
I know many traders and investors shy away from stocks with horrible news and the attending reaction in the stock price.
As we all know, this impending goodwill impairment has been hanging over RCII for some time now. Now it has no impending bad news overhang. Since the overhang is gone and didn’t change their sales or cash position, there is nowhere for RCII to go but up.