Rent-to-own retailer Rent-A-Center (NASDAQ: RCII) is working on a first-stage base after resetting its base count in June.
The stock is forming a textbook cup-with-handle pattern. At this juncture, a potential buy point is above the handle’s high of $65, reached on August 13.
Shares are up nearly 11% since the company’s second-quarter report on August 4.
The stock climbed out of a sloppy base in early June, clearing a buy point above $64.79 in heavy turnover. However, after briefly rallying higher in the next session, then sank 14.77% the following week, in 131% normal weekly volume.
It dropped to a low of $49.48 on July 19 before reversing higher to etch the right side of the cup.
Rent-A-Center is a mid-cap, with a market capitalization of $4.184 billion. It has 65.6 million shares in the float, so there’s potential for some volatility. However, its current beta is 1.08, so there’s not significantly more volatility right now than the broader market, as tracked by the S&P 500.
Second-quarter earnings grew by 104% to $1.63 per share. Earnings growth accelerated in the past two quarters and has been increasing at double- or triple-digit rates for the past eight quarters.
Year-over-year revenue growth also accelerated in the past two quarters, from 7% to 75%. Revenue came in at $1.194 billion in the most recent quarter.
Among the earnings highlights:
- Much of the second-quarter revenue growth was due to the company’s acquisition of Acima Holdings, which closed in the first quarter. Acima is a digital lease-to-own platform.
- The company cited strong organic growth in both the Rent-A-Center and Acima segments.
- Adjusted EBITDA in the second quarter was $181.9 million, a gain of 41% year-over-year, led by solid growth and strong profitability in both the Rent-A-Center Business and Acima segments.
- For the six months ended June 30, the company generated $250.5 million of cash from operations, and ended the second quarter of 2021 with $145.1 million of cash and cash equivalents, $1.32 billion of debt outstanding, $608 million of liquidity including $463 million of undrawn revolving credit, and a pro-forma net debt to Adjusted EBITDA ratio of 1.7 times.
- Rent-A-Center’s board approved a new share repurchase program for up to $250 million of the company’s common stock, replacing the company’s previous share repurchase program.
In the earnings release, CEO Mitch Fadel said, “The integration of Acima, which we acquired during the first quarter this year, is on track with our plans, and after the first full quarter owning the business, we are even more enthusiastic about the significant strategic value and growth opportunities.”
Earlier this month, Rent-A-Center issued a press release with details about its new virtual lease-to-own technologies through the Acima unit. According to Fadel, the company believes the new platforms “could potentially double Acima's total addressable market to a size approaching $100 billion. At the same time, our Rent-A-Center Business continues to perform exceptionally well, with mid-teens same-store-sales, generating highly profitable growth and a compelling evolving e-commerce platform."
The company boosted its full-year revenue guidance. It now expects revenue in the range of $4.550 to $4.670 billion.
Broken out, that’s revenue from Acima between $2.340 and $2.420 billion. For the Rent-A-Center segment, that’s seen coming in between $2.020 and $2.060 billion.
The company’s revenue grew from $2.26 billion in 2018 to $2.81 billion in 2020.
Analysts see earnings growing to $6.24 for the full year, a gain of 74%. For next year, that’s expected to grow another 14% to $7.09 per share.
So far this year, four analysts boosted the price target on Rent-A-Center or upgraded their rating. The consensus rating is “buy,” with a price target of $67.25, which represents a 6.58% upside.
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