Shares of Rent-A-Center, Inc. RCII have been plunging. Year to date, this Zacks Rank #4 (Sell) stock has nosedived approximately 57%. Moreover, shares have plummeted roughly 42% following its last earnings release on Oct 26, and also touched a 52-week low of $14.81 on Dec 18. It is evident that Rent-A-Center is no longer a favorite pick for investors. Let’s delve a little deeper to find out the reasons.
Although the rent-to-own operator continued with its positive earnings surprise streak for the third successive quarter, it missed on revenues and lowered its earnings forecast. This took a toll on the stock.
Rent-A-Center delivered quarterly earnings of 47 cents a share that beat the Zacks Consensus Estimate by a couple of cents or 4.4%. However, the bottom line declined 6% year over year due to an increase in cost of rentals and fees as well as cost of merchandise sold. Total revenue increased 3.6%, but fell well short of the Zacks Consensus Estimate.
Following disappointing third-quarter results, Rent-A-Center lowered its earnings outlook for the fourth quarter and full-year 2015. Management now projects full-year 2015 earnings in the band of $2.00–$2.10 per share. The company expects fourth-quarter earnings in the range of 52–62 cents a share. Earlier, Rent-A-Center anticipated full-year 2015 earnings in the band of $2.05–$2.20 per share. Also, the company had projected earnings between 63 cents and 72 cents a share for the fourth quarter.
Following Rent-A-Center’s discouraging performance and dull outlook, the Zacks Consensus Estimate witnessed a downtrend. Analysts polled by Zacks are now less constructive on the stock’s future performance. Over the past 60 days, the Zacks Consensus Estimate of $2.02 and $2.13 per share for 2015 and 2016 has declined 6.5% and 19.3%, respectively. Moreover, the Zacks Consensus Estimate for the fourth quarter has plunged 23.2% to 53 cents over the same time frame.
Nevertheless, management is focusing on a new labor model and supply-chain initiative that it believes will generate substantial cost savings in 2016. Moreover, Acceptance Now is gaining traction and the company is concentrating on a value-based pricing strategy.
However, with its share price plunging and estimates witnessing downward revisions, it would not be prudent to keep this stock in your portfolio at least for the time being.
Stocks to Consider
Investors interested in the retail space may consider better-ranked stocks such as American Eagle Outfitters Inc. AEO, sporting a Zacks Rank #1 (Strong Buy), J. C. Penney Company, Inc. JCP and Foot Locker, Inc. FL, both carrying a Zacks Rank #2 (Buy).
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