Oppenheimer Upgrades Conn's, Notes Shares Trading At 'Intriguing' Level

In a report published Tuesday, Oppenheimer analyst Brian Nagel upgraded shares of CONN'S, Inc. CONN to Outperform from Perform with a newly established $39 price target as a combination of "solid" retail growth prospects and softer credit trends is likely to improve sentiment for some time.

"Our rating upgrade to Outperform from Perform reflects a short-term, speculative call on shares and is predicted on our view that the market is currently under-pricing the potential for Conn's to successfully divest its loan portfolio," Nagel wrote.

Conn's previously indicated that it has conducted an extensive review of various strategic alternatives, resulting in its board of directors authorizing management to actively explore the sale or other refinancing of all or some of the company's loan portfolio.

Nagel said his forecast of Conn's earning per share power ex. Credit could climb as high as $2.60 or more versus a current forecast of just $2.00. The analyst added that investors could award shares a multiple in the mid-to-upper teens if the company were to exit its credit operation, an improvement from the current forward four-quarter P/E multiple of 14.

In fact, Nagel estimated a successful sale of Conn's credit portfolio could propel shares as high as $42 to $50 while no sale suggests a valuation range of $20 to $24 while the analyst's $39 price target assumes a 70 percent chance of a sale.

Finally, Nagel also noted that investor sentiment is "decidedly downbeat" as short interest as a percent of float continues to track near 50 percent and at multi-year highs.

Bottom line, Nagel views a divestiture of Conn's credit portfolio as "more likely than not," and the after such an event, the market will look "far more constructively" at the company's retail operation.