Piper Jaffray Still Loves Conn's

In a report published Monday, Piper Jaffray analysts maintained an Overweight rating on Conn’s Inc CONN, while raising the price target from $38 to $45.

Conn’s may sell its loan portfolio for about $1.2 billion. The analysts believe that the company may also be interested in setting up a "forward flow" arrangement to sell off all receivables immediately after underwriting.

“Doing so would effectively eliminate balance sheet risk from CONN, and likely allow for significant EPS and EBITDA multiple expansion as CONN would get valued more like a high growth retailer,” the analysts explained.

In the report Piper Jaffray outlined three ways in which investors could benefit from an investment in Conn's:

• An improvement in Conn’s credit portfolio will drive the company’s earnings even in the absence of loan portfolio sale or forward flow management.
• In case Conn's sells all or part of its portfolio but does not form a forward flow arrangement, it will be left with net cash of $400M-$500.
• If Conn's sells its portfolio and engages in a forward flow arrangement, all concerns relating to investor credit portfolio will be alleviated. This will also allow the company to focus on store growth and generate positive free cash flows.

“This relationship is a win-win for both companies as it improves Bluestem’s cash flows and allows them to focus on growing the business and allows Santander to generate a healthy return due to its lower cost of capital,” the analysts pointed out.