AAN
Aaron's Inc
Consumer, Finance/Real Estate, Event Driven/Special Sit
09/23/2020
Presented
| Date | 09/17/2020 |
| Price | $56.75 |
| Market Cap | $3.81B |
| Ent Value | $3.37B |
| P/E Ratio | N/A |
| Book Value | $22.66 |
| Div Yield | 0.34% |
| Shares O/S | 67.14M |
| Ave Daily Vol | 734,969 |
| Short Int | 4.01% |
Current
| Price | $10.09 |
| Market Cap | $0.32B |
| Aaron's, Inc. retails consumer electronics, computers, residential furniture, household appliances, and accessories. It engages in the lease ownership, lease and retail sale of products such as widescreen and liquid crystal display televisions, computers, living room, dining room and bedroom furniture, washers, dryers, and refrigerators. The company operates through the following business segments: Progressive Leasing, Aaron’s Business and Vive. The Progressive Leasing segment provides lease-purchase solutions on a variety of products, including furniture and appliance, jewelry, mobile phones and accessories, mattress, and automobile electronics and accessories. The Aaron’s Business segment offers furniture, home appliances, consumer electronics and accessories to consumers with a lease-to-own agreement. The Vive segment offers a variety of second-look financing programs originated through third-party federally insured banks to customers of participating merchants and, together with Progressive Leasing, allows the Company to provide retail partners. The company was founded by R. Charles Loudermilk, Sr. in 1955 and is headquartered in Atlanta, GA. |
Publicly traded companies mentioned herein: Aaron’s Inc (AAN), Best Buy Co Inc (BBY), Lowe’s Cos Inc (LOW), Rent-A-Center Inc/TX (RCII)
Highlights
The presenter is long shares of Aaron’s Inc (AAN), the provider of lease-to-own solutions to underserved and lower credit customers. AAN is comprised of two businesses: the legacy business is Aaron’s, which is an owned and franchised network of stores focused on selling lease-to-own financing solutions for mostly large ticket consumer durables (e.g., furniture, washing machines, computers, TVs); Progressive, which AAN acquired in 2014, offers software solutions to take the lease-to-own subprime leasing model out of stores and onto retailers’ POS systems in order to further penetrate the large subprime consumer market. In his opinion, this investment is timely because the company has announced its intent to separate the two businesses by way off a tax-free spinoff of Aaron’s by the end of 2020. He notes that this separation will be positive for both businesses, as well as AAN’s stock price. After the separation, Progressive will have a clear path for strategic growth, while Aaron’s will also have a value creation opportunity. In terms of valuation, the presenter states that AAN (~7x 2021 consensus EBITDA, ~11.5x 2021 consensus earnings) trades like a brick and mortar or declining consumer finance business, when in reality it is growing its customer base, growing transactions per customer, and maintaining strong unit economics. This leads him to expect material upside as management executes on the near-term opportunity.
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