The price target decrease is "largely due to our more conservative view of the Acceptance Now segment as the recent margin pressure and elevated charge-offs have clouded the long-term picture," the firm said in an analyst note.
The Plano, TX-based rent-to-own company provides rental purchase agreements to obtain ownership of products, such as consumer electronics, appliances, computers, furniture and accessories. The company operates in four segments: core U.S., Acceptance Now, Mexico and franchising.
The subprime consumer may be stretched as the overall subprime market is expanding and customers may be taking on more higher-priority debt, Cantor Fitzgerald noted.
Shares of Rent-A-Center closed up by 2.13% to $15.32 on Tuesday.
Separately, recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:
We rate RENT-A-CENTER INC as a Hold with a ratings score of C. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and a generally disappointing performance in the stock itself.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Despite its growing revenue, the company underperformed as compared with the industry average of 4.3%. Since the same quarter one year prior, revenues slightly increased by 3.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The debt-to-equity ratio is somewhat low, currently at 0.65, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels.
- The gross profit margin for RENT-A-CENTER INC is currently very high, coming in at 88.34%. Regardless of RCII's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of -0.51% trails the industry average.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Specialty Retail industry. The net income has significantly decreased by 115.8% when compared to the same quarter one year ago, falling from $25.93 million to -$4.09 million.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. In comparison to the other companies in the Specialty Retail industry and the overall market, RENT-A-CENTER INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- You can view the full analysis from the report here: RCII