Why Stifel Says Rent-a-Center May Go For $10.50 Per Share In A Sale

Rent-A-Center Inc RCII has been under pressure from activist investors to explore a sale, and said in early April it plans on reaching a decision by the second quarter. In the meantime, valuing the stock in a takeover scenario is "difficult," according to Stifel.

The Analyst

Stifel's John Baugh maintains a Hold rating on Rent-A-Center's stock with an unchanged $9 price target.

The Thesis

Valuing Rent-A-Center in a takeout scenario is difficult to quantify for three primary reasons, Baugh said in a research report. They are:

• The company has been "mismanaged" for some time.
• Rent-A-Center could generate "considerable cash" through shrinking its store count and franchising initiatives.
• The rent-to-own model faces a "secular attack," as consumers can seek out satisfactory lease payment options at traditional retailers.

Nevertheless, the analyst's math values the company as follows:

• Core business (7x EBITDA multiple): $980 million.
• Acceptance Now business (7-8x EBITDA multiple): $465 million.
• Mexico business (0.5x revenue multiple): $20 million.
• Corporate expense (5x multiple): negative $375 million.
• Net debt: negative $525 million.
• Implied market capitalization: $565 million.
• Implied share price: $10.46.

Baugh's calculations imply a rough price of $10.50 per share if the company sells itself, he said. The retailer would be worth more if an acquirer splits up the company with different turnaround strategies instead of keeping it in its current form, the analyst said. 

Price Action

Shares of Rent-A-Center were trading  down nearly 3 percent at the time of publication Thursday morning. 

Related Links:

What You Need To Know From Rent-A-Center's Guidance

Aaron's Outlook Improves As Rent-A-Center Woes Persist

Photo by Jeff Bedford/Wikimedia.