Stifel Downgrades Conn's; Gives Three Reasons Why Headwinds Too Strong For Stock

Stifel issued a Hold rating from a Buy rating on CONN'S, Inc.

with a price target of $32.00 on Tuesday, delivering three distinctive reasons why the headwinds were considered "too strong" for the stock. In the firm's latest research note, Stifel indicated the combination of the company's exposure to Texas, CONN's reliance on capital markets to fund growth, and subprime consumer which is vulnerable to an economic downturn is "simply too much headwind." Aside from the company's steep share price contraction, Stifel sees investors as having little interest because of its "lack of cash generation" and "unstable credit performance." Stifel on CONN's Texas exposure... "Approximately 70 percent of the company's loan book resides in the state of Texas and we expect incremental pressures on some of this state's consumers in the coming months," noted Stifel. CONN's reliance on capital markets to fund growth remains in question. "Funding remains a long range question at Conn's as the cost of the recent securitization was too high to make long term sense. If the company is able to demonstrate it can tap the securitization market consistently at lower interest costs than the recent 9 percent plus initial securitization, we would be much more inclined to be bullish," Stifel commented. Although the company has borrowing power on its ABL, Stifel sees usage of this funding as restricting future growth. "In the last deep recession, the securitization market for Conn's type of paper essentially evaporated," the firm noted. Fallout from subprime consumers in oil leaves CONN vulnerable to an economic downturn. "Conn's recent Q3 credit deterioration was disappointing with a key measure of overall accounts receivable risk deteriorating further. While the company has made numerous changes to its underwriting standards and there are some early stage signals that credit is turning, the collapse in oil prices and the likely fallout from this on subprime consumers in oil impacted markets is at best a concern and at worst,a future additional drag, " the firm noted.