Aaron's Reports 4Q EPS And Revenue Beat, Sterne Agee Remains Neutral

Sterne Agee has published a research report on Aaron's, Inc. AAN after the company reported a 4Q EPS and revenue beat. In the report, Sterne Agee writes "AAN beat 4Q estimates by $0.04 ($0.38 versus $0.34 consensus) and raised FY11 guidance by $0.07 or 4%. SSS trends appear to have accelerated from recent quarters. Management acknowledged it is testing a new smaller store concept called Homesmart (the concept is similar to a Rent-A-Center store) and early results have been positive. Only a dozen stores are expected by year end so we don't expect this to move the needle for AAN or to have much of an impact on RCII (RCII - $32.04 – Buy) yet. On the other hand, Aaron's management is not keen on the store-in-a-store (kiosk) model that competitor RCII has embraced as a key growth initiative. AAN also briefly mentioned its desire to expand internationally, although this is only in discussion stages currently. Overall, the rent-to-own business appears to be benefitting from an improving economy in which credit remains tight. From a valuation perspective, AAN shares are trading at 13x and 12x our CY '11 and CY '12 EPS estimates, respectively. AAN's forward P/E multiple over the last 1, 2 and 5 years has averaged 10.5x, 10.5x and 12x, respectively." Sterne Agee maintains its Neutral rating on Aaron's, which closed yesterday at $20.37.