Conns, Inc. BUY Target Price $79

CONN : NASDAQ : US$53.67
Target: US$79.00

Conn’s is a specialty retailer selling home appliances, consumer electronics, furniture and mattresses, home office, and lawn and garden equipment. The company operates approximately 74 retail stores located primarily in Texas, as well as Louisiana, Oklahoma, Arizona, New Mexico and online. Conn’s provides its own proprietary in-house credit program, including sales of related credit insurance products.
All amounts in US$ unless otherwise noted.

Consumer & Retail — Specialty Retail
Investment recommendation
Shares have declined 21% since 9/5 when Conn’s reported Q2 earnings that included problems in its credit business as a result of a botched implementation of its new collections platform. Over the same span, both the S&P 500 index and the RLX index are flat. The home-related peer group is +3%. We view the pullback is a buying opportunity as we believe the implementation issue was a one-time hiccup, and indications are that Conn’s has already begun straightening out the impacted accounts. We updated our phone survey of the entire store base, which shows the company on pace to have the new store format in two-thirds of the chain by year end. Shares currently trade at 14x our CY2014 EPS estimate and 9x CY2014E EV/EBITDA, which we do not believe reflects the substantial long-term growth we project.
Investment highlights
 We are raising our FY14 EPS estimate by $0.04 to $2.65 and FY15 by $0.11 to $3.74. A lower interest expense rate lifts our H2 estimates, and our FY15 forecast moves higher as we raise our unit and square footage growth projections.
 Our price target moves from $73 to $79 based on an equal blend of a comparative multiple, our sum-of-the-parts valuation and our DCF model.




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