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Why Rent-A-Center Stock Rose 12% in March

By John Ballard – Apr 6, 2019 at 5:50PM

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Cost savings efforts are leaving investors more optimistic about 2019.

What happened

Shares of Rent-A-Center (RCII -0.22%) gained 12.1% in value last month, according to data from S&P Global Market Intelligence.

The company announced better-than-expected earnings results in late February that sent the shares soaring. Investors have gotten bullish on the stock, given the ongoing momentum in the business and the rosy outlook for 2019.

A flat screen television sitting on a wooden table against a white brick wall.


So what

The company posted 9.1% growth in comparable-store sales in last quarter, building on the momentum from previous quarters. While total revenue increased just 3.5% last year, the improvement on the bottom line has investors more excited about the near term. Last year, non-GAAP pre-tax earnings were $22.4 million, compared with a loss of $38.6 million in 2017.

Investors loved that management sees room for further earnings growth in 2019. Management's full-year guidance calls for adjusted earnings per share to be in the range of $1.75 to $2.15, representing year-over-year growth of 85% over 2018. 

There was also good news on the legal front. Rent-A-Center has been involved in a legal dispute over its merger termination with Vintage Capital Management. Last month, a Delaware court ruled that Rent-A-Center properly terminated its proposed merger with Vintage Capital. The company is awaiting word on whether it's entitled to receive $126 million in breakup fees as a result of the failed deal. 

Now what

CEO Mitch Fadel expects 2019 to be a strong year for the company: "In 2019, we expect to further benefit from the full-year impact of the cost savings initiatives implemented in 2018, which are expected to reduce costs year-over-year by approximately $50 million. Customer demand is also on a positive trajectory, and we will continue to refine our value proposition with a strong focus on execution in 2019."

Analysts expect Rent-A-Center to report $1.87 in adjusted earnings per share this year, which would represent a huge improvement over the $1.06 in adjusted earnings last year.

John Ballard has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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