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Rent-A-Center Stock Gains 9% After Rejecting Buyout Offer

Zacks

Shares of Rent-A-Center, Inc. RCII gained 8.9% yesterday, following the company’s rejection of a buyout offer by Private equity firm, Vintage Capital. The company in the recent past was offered $15 per share, which was 35% above the Monday’s closing price of $11.10. The value of the deal would have been nearly $800 million.

Rent-A-Center stated that Vintage offer "significantly undervalues the company". The company further added that the strategic initiatives which it has taken will deliver better value to shareholders than the Vintage’s offer.

Management has undertaken initiatives to strengthen the performance of its Core U.S. segment. In an attempt to augment cash flow generation from Core U.S. business, the company is focusing on rates, terms and purchase options that are much more aligned with the customer’s needs. The company is also optimizing product mix, increasing the average ticket price, upgrading workforce, concentrating on lowering delinquency rates and rationalizing existing stores as well as contemplating on new ones.

The company’s new business model called Acceptance Now is also gaining traction. Management is focusing on optimizing strategic retail partnerships in order to enhance service and profitability. Further, it is centralizing account management to tackle operations more effectively and execute risk assessment polices across all locations.


Rent-A-Center is investing in enhancing omni-channel platform so that customers can experience a seamless approach across channels, markets, retailers, products and brands. The company is increasing e-commerce offerings and mobile applications, and leveraging cloud-based point-of-sale platform to manage orders more efficiently, lower losses and cut operating costs.

However, we noted that despite yesterday’s gain, the stock is still down 3.7% in the past one month, underperforming the Zacks categorized Consumer Services – Miscellaneous industry’s increase of 7%. We remained concerned about this Zacks Rank #4 (Sell) company’s top and bottom line performance, which has been declining year-over-year. Moreover, total revenue has also missed the consensus mark for the seventh straight quarter.

Key Picks

Better-ranked stocks worth considering in the retail space include G-III Apparel Group, Ltd. GIII, Tilly's, Inc. TLYS and The Children's Place, Inc. PLCE. All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

G-III Apparel Group has an impressive long-term earnings growth rate of 15%.

Tilly's has long-term earnings growth rate of 13% and also surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average earnings beat of 120.4%.

The Children's Place has reported earnings beat in the trailing four quarters, with an average of 36.6%.

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