Conn's 'Asset Light' Strategy Is Working

Stephens’ Rick Nelson upgraded the rating for CONN'S, Inc. CONN from Equal-Weight to Overweight, while raising the price target from $27 to $29.

Accessing The Securitization Market At Attractive Rates

Conn's has returned to the securitization market, with a new transaction, which indicates the company’s ability to “execute an "asset light" business model,” analyst Rick Nelson said.

Conn's announced an agreement to securitize $705 million of retail installment contract receivables. The contract has a 70 percent advance rate on the outstanding receivables, which totals $494 million. The Class A notes of $423 million, which Fitch is expected to rate as BBB, would carry an investor coupon rate 4.68 percent.

The Class B notes of $70.5 million, which Fitch is expected to rate BB, will carry a coupon of 8.96 percent. The Class C notes and residual equity would be retained by the company.

Credit Operation Is On Track

“Our analysis of monthly securitization filings, static pool information, and recent delinquency data suggests the credit operation is on track. We doubt the Company would be able to return to the securitization market without this stabilization in the credit book. We think the residual equity is performing in line with expectations,” Nelson wrote.

Other Advantages

• Same-store sales comps ease going ahead
• The company has a differentiated business model, including credit, which provides a competitive advantage
• Growth of the furniture/mattress category is expected to result in margin expansion
• Conn's represents “one of the best growth stories in the retail sector,” the analyst mentioned.