Why One Analyst Sees Another 50% Upside at Conn’s

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Shares of Conn’s Inc. (NASDAQ: CONN) saw a handy gain on Friday after one analyst changed its tune on the electronics store. While most retailers have suffered through a tough year so far, Conn’s stands out with its stock more than doubling in this year alone. In fact the stock has practically tripled in the past six months.

Oppenheimer’s Brian Nagel and David Bellinger upgraded Conn’s to an Outperform rating from Perform, with a price target of $40, implying an upside of 56% from the most recent closing price of $25.65.

The brokerage firm also lifted its full year (January 2018) pro forma EPS forecast to $0.70 from $0.22, which compares with a current Wall Street estimate of $0.65. Next year’s earnings estimate was raised to $1.80 from $0.40, versus a consensus figure of $1.38. Oppenheimer is introducing an “intermediate-term” EPS power estimate of $3.00.

Average sales per store at Conn’s have declined to about $10 million from a 2014 peak of nearly $14 million. Conn’s is now “lapping” the impacts of tighter lending standards. As a result, Oppenheimer is optimistic that now subdued unit volumes afford the chain and its forthcoming retail initiatives “room to run.”

At the same time, Hurricane Harvey has the potential to weigh upon retail and credit trends at the Texas-centric Conn’s in the near term.

Oppenheimer detailed in its report:

The past several years proved tumultuous for Conn’s, as the company struggled to balance its credit and retail operations, amid a fluid macro backdrop. We have stayed very close to the Conn’s story. In our view, now under the direction of new CEO Norm Miller, and his freshly assembled team of senior leaders, the Conn’s credit business is on a much more solid footing, and supportive of a return to expansion in retail. The market appears to meaningfully underappreciate the nearer- and longer-term EPS power of a better functioning Conn’s business model. Conn’s ranks with Lumber Liquidators (LL) as one our favorite speculative, small-cap turnaround plays in the Hardlines sector.

Shares were last seen up 7% at $27.50, with a consensus analyst price target of $26.25 and a 52-week range of $7.75 to $28.35.