Conn's Prospects Are Bright, Boosted By Younger Stores, KeyBanc Says

Conn's Inc CONN reported its second-quarter earnings ahead of expectations.

Over the next couple of years, the company’s performance is likely to be boosted by a ramp in younger store comparisons, according to KeyBanc Capital Markets.

The Analyst

KeyBanc’s Bradley Thomas maintained an Overweight rating on Conn’s while keeping the price target unchanged at $41.

The Thesis

Although Conn’s faced tough comparisons in Hurricane Harvey markets, the negative impact of this was offset by a sequential improvement in non-Harvey markets, Thomas said in the note.

The company delivered an EPS beat in the second quarter, backed by retail sales growth driven by new store openings. Earnings were also boosted by continued strength in the credit segment, which generated a strong portfolio yield of 21.9%.

Management plans to open 14 stores in 2019 and expects to enter the Florida market with several new stores in 2020. The company reiterated its long-term targets of low-single-digit same-store sales and 8-10% annual sales growth in the retail segment, the analyst said.

“Fundamentally, CONN’s credit business turnaround has been a success, benefiting from higher portfolio yield, better underwriting and lower static loss rates, lower cost of funding from the ABS (Asset Backed Securities) market, and better utilization with their new RTO (Rent to Own) partner,” Thomas wrote in the note.

The company’s efforts to drive store growth acceleration could be supported by the contribution from younger stores entering the comparisons base, the analyst said. He added that this should become a tailwind in 2020 and 2021 and could add 2-3%to same-store sales.

Price Action

Shares of Conn’s were down 3.23% to $23.08 at the time of publishing.

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