The case for turning incrementally bullish on Rent-A-Center Inc RCII is "unmistakably clear" after management spent the past few years improving the business, according to Raymond James.
The Analyst
Raymond James' Budd Bugatch upgraded Rent-A-Center from Outperform to Strong Buy 1 with a price target lifted from $25 to $27.
The Thesis
Rent-A-Center deserves credit for not only improving its business over the years but the underlying financial status, Bugatch said in a note. For example, debt peaked at $1.04 billion at the end of 2014 and has since been lowered to $540 million. Management also indicated it's likely to finalize a refinancing of its two relatively high coupons (4.75 percent due 2021 and 6.25 percent due 2020).
Bugatch said the Street may be overlooking the rent-to-own retailer's financial condition, which can support a cash dividend payment as soon as the fourth quarter. By 2022 the company should be able to hit a 30-percent payout ratio although this would still be short of its historical peak of around 50 percent in 2014.
Rent-A-Center should become net-cash positive by the end of 2021 with no visible debt on the balance sheet in the two years to follow, the analyst wrote in the note. In fact, "very few" investors acknowledge this outlook which "gets little, if any," recognition in the stock's current share price.
Price Action
Rent-A-Center's stock traded higher by nearly 5 percent at $22.40 per share Monday morning.
Related Links:
Benzinga's Top Upgrades, Downgrades For April 22, 2019
What's Next For Rent-A-Center?
Photo courtesy of Rent-A-Center.
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