For Rent-A-Center, Kiosks Will Drive Growth

In a report issued Thursday, Cantor Fitzgerald analysts Laura Champine and Jason Smith explained that Rent-A-Center’s stock remains attractive to them as its labor and supply-chain initiatives remain on track, setting the company up for considerable cost savings next year.

What Cantor Likes

In addition, they assure Acceptance Now should drive sturdy top-line momentum in the near term. In fact, they estimate Acceptance Now same-store sales growth will surge 29 percent in the second half of 2015 and continue to grow at double digits through 2017.

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Products are now shipping through the company’s five distribution centers, and the analysts’ quarterly store visits and surveys suggest the shift to a flexible labor model is moving fast.

Cantor continues to model for combined annual cost savings of approximately $50 million for the aforementioned initiatives, starting next year. Moreover, the experts believe this will lead to even further savings over time, as labor hours are optimized.

Looking Forward

Champine and Smith expect the kiosk business to be the main top-line growth driver over the years to come, but do not envision a deterioration in core same store sales, despite the fact that the segment has “lapped the July 2014 launch of smartphones.” In fact, they think “there is plenty of room for both manned kiosks and a virtual RTO platform to co-exist.”

Taking all this into account, Rent-A-Center’s stock certainly looks alluring. Trading at only 8 times Cantor’s 2016 EPS estimate and 5 times 2016 EV/EBITDA estimate, valuation does not seem to reflect the company’s long-term margin expansion potential.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.