Zacks Investment Research downgraded shares of Rent-A-Center, Inc. (RCII) from NEUTRAL to UNDERPERFORM on April 08, 2013, with a target price of $32.00.
We downgraded our recommendation on Rent-A-Center to Underperform, following its lower-than-anticipated fourth-quarter 2012 results. The company delivered quarterly earnings of $0.81 per share that missed the Zacks Consensus Estimate of $0.83, and fell 4.7% from $0.85 earned in the prior-year quarter. Total revenue of $758.4 million came below the Zacks Consensus Estimate of $781 million. The sluggish recovery and a fragile job market are making customers reluctant to enter new rental-purchase deals. We also observe that higher cost of revenue kept the gross margin under pressure. Gross margin shrunk 60 basis points to 69.5% during the fourth quarter of 2012. Management forecasted a 50 basis points contraction in gross profit margin for 2013. A 4.3% rise in salaries and other expenses impacted operating profit. Operating profit fell 4.7% to $79.3 million, whereas operating profit margin contracted 80 basis points to 10.5%. We will continue with our bearish view on the stock until we find a catalyst triggering an upgradation.
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