Upbound Group, Inc. (UPBD), which engages in the provision of furniture, electronics, appliances, and smartphones via flexible rental purchase agreements, delivered solid first-quarter 2024 results. The company reported revenue of $1.10 billion, beating analysts’ estimates of $1.05 billion. Its non-GAAP EPS came in at $0.79, compared to the consensus estimate of $0.77.

The company’s operating units include Rent-A-Center and Acima, which enable consumer transactions across a variety of store-based and digital retail channels, including more than 2,400 company-branded retail locations across the U.S., Mexico, and Puerto Rico.

At the Acima segment, GMV rose 19.9% year-over-year, primarily driven by a surge in merchant locations, merchant productivity, and its expanding direct-to-consumer offerings. The segment’s revenues were $561.30 million, up 16% from the prior year’s quarter, propelled by increases in both rentals and fees revenue and merchandise sales revenue.

At its Rent-A-Center segment, same-store sales grew 80 bps year-over-year, improving from a 1.6% decline in the fourth quarter of 2023. As of March 31, 2024, this segment owned and operated 1,836 locations.

Mitch Fadel, CEO of Upbound Group, said, “Our performance in the first quarter of 2024 was an extension of the positive trends we saw in the second half of 2023.”

“At Acima, merchant additions, increased productivity per merchant, and our expanding direct-to-consumer offerings drove strong GMV growth against the first quarter of the prior year. At Rent-A-Center, our digital investments as well as targeted promotions continued to support the segment’s performance, with same store sales increasing year-over-year,” Fadel added.

UPBD also confirmed revenue guidance for the full-year 2024 of $4 billion to $4.20 billion. The company also expects non-GAAP EPS of $3.55 to $4 and a free cash flow of $100 to $130 million.

Shares of UPBD gained marginally over the past nine months to close the last trading session at $29.71.

Let’s look at factors that could influence UPBD’s performance in the upcoming months.

Positive Recent Developments

On April 30, Acima Leasing, a business of UPBD, announced an exclusive LTO partnership with iFIT Inc. for iFIT’s interactive fitness products. By integrating Acima Leasing's proprietary technology solution, iFIT will offer its expanding community of members flexible and convenient access to its suite of industry-leading brands, including NordicTrack® and ProForm®.

Also on March 12, UPBD’s business unit, Rent-A-Center, launched a new, customer-centric national program called RAC Exchange, a flexible way for consumers to shop and engage with household goods and other items that improve their quality of life.

“RAC Exchange exemplifies Rent-A-Center's continued innovation in the rent-to-own industry and in the customer experience field,” said Ann Davids, UPBD’s Chief Customer Officer and Chief Marketing Officer. “By offering even greater flexibility and value, we aim to redefine the way consumers engage with products and experience the joy of taking their time to ensure they've found the right item for their home or personal needs.”

Solid Financials

For the first quarter that ended March 31, 2024, UPBD’s revenue increased 7.7% quarter-over-quarter to $1.10 billion. Its operating profit rose 10.6% from the prior quarter to $61.80 million. The company reported an adjusted EBITDA of $109.10 million, up 1.4% quarter-on-quarter.

Furthermore, Upbound Group’s net earnings and EPS came in at $27.70 million and $0.50, compared to net loss and loss per share of $11.30 million and $0.21 in the fourth quarter of 2023, respectively. Its free cash flow was $33.60 million, compared to negative $36.90 million in the previous quarter.

Impressive Historical Growth

Over the past five years, UPBD’s revenue has grown at a CAGR of 8.9%. Its EBITDA and EBIT have improved at 15% and 15.6% CAGRs over the same period, respectively. In addition, the company’s total assets have increased at a CAGR of 9.3% over the same timeframe, and its levered free cash flow has grown at a CAGR of 9.3%.

Optimistic Analyst Estimations

Analysts expect UPBD’s revenue and EPS for the third quarter (ending September 2024) to increase 5% and 20.6% year-over-year to $1.03 billion and $0.95, respectively. Moreover, Upbound Group surpassed consensus revenue and EPS estimates in all four trailing quarters, which is remarkable.

For the fiscal year ending December 2024, Street expects UPBD’s revenue and EPS to grow 5.6% and 6.2% from the prior year to $4.22 billion and $3.77, respectively. In addition, the company’s revenue and EPS for the fiscal year 2025 are expected to increase 4.5% and 16.2% year-over-year to $4.41 billion and $4.38, respectively.

High Profitability

UPBD’s trailing-12-month gross profit margin of 50.22% is 35.7% higher than the 37.01% industry average. Similarly, the stock’s trailing-12-month levered FCF margin of 31.70% is 476.1% higher than the industry average of 5.50%. Further, the stock’s trailing-12-month ROTC of 7.69% is 22.8% higher than the industry average of 6.26%.

Attractive Valuation

In terms of forward non-GAAP P/E, UPBD is trading at 7.88x, 47.6% lower than the industry average of 15.04x. The stock’s forward EV/Sales multiple of 0.74 is 36.1% lower than the industry average of 1.16. Likewise, its forward EV/EBITDA of 6.61x is 29.6% lower than the industry average of 9.40x.

Additionally, the stock’s forward Price/Sales multiple of 0.39 is 55.3% lower than the industry average of 0.86. Its forward EV/EBIT of 9.11x is 33.5% lower than the industry average of 13.70x.

POWR Ratings Reflect Promise

UPBD’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. UPBD has a B grade for Quality, in sync with its higher-than-industry profitability. It also has a B grade in Growth, consistent with its impressive historical growth and outstanding financial performance in the last reported quarter.

Within the Specialty Retailers industry, UPBD is ranked #4 out of 44 stocks.

Beyond what I have stated above, we have also given UPBD grades for Stability, Valuation, Sentiment, and Momentum. Get all UPBD ratings here.

Bottom Line

UPBD’s emphasis on effective execution, cost management, and strategic investments in key growth areas has led to solid financial performance in the first quarter, beating analyst expectations. Given its business trajectory and proven ability to navigate the uncertain macroeconomic landscape, the company is well-positioned to achieve its ambitious targets for 2024.

Considering its robust financials, high profitability, lower-than-industry valuation, and rosy growth prospects, it seems wise to invest in this stock now.

How Does Upbound Group, Inc. (UPBD) Stack Up Against Its Peers?

While UPBD has an overall grade of A, you may also check out these other stocks within the Specialty Retailers industry with an A (Strong Buy) rating: Next PLC ADR (NXGPY), Torrid Holdings Inc. (CURV), and Betterware de Mexico, S.A.B. de C.V. (BWMX).

To explore more A and B-rated retail stocks, click here.

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UPBD shares were unchanged in premarket trading Thursday. Year-to-date, UPBD has declined -10.57%, versus a 19.22% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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