© Stocksak. BofA downgrades Aaron’s AAN (AAN) due to increasing big ticket item demand
By Sam Boughedda
BofA stated Monday that it downgraded Aaron’s (NYSE 🙂 to Underperform, and lowered its price target for the stock from $6.50 to $6.50 per ounce.
Analysts at the firm said in a research paper that it had downgraded its stock based on its belief that the subprime consumer’s financial health and their desire for large-ticket items has worsened in recent months.
AAN will likely see lower foot traffic, lower collections, higher write-offs, and lower collections. The analysts wrote that they heard many retailers pointing out the softness of big-ticket items, especially for low-income consumers, during our Charleston store tours. “We’ve also seen Aaron’s closest competitors, Rent-A-Center and Conn’s (NASDAQ) pre-announced negative results.”
BofA has therefore reduced its estimates to reflect the fact that it believes Aaron’s will report revenue misses and reduce 2022 guidance.
“We are particularly cautious about AAN’s BrandsMart segment. This is a ten-store, big-box consumer electronics retailer that AAN bought on 4/1 for $230mn. AAN maintained guidance for the segment on its 2Q earnings conference (7/26) and now it appears that a cut is in order as demand has significantly worsened. We will also be closely monitoring AAN’s corporate section, which AAN created during its 2Q earnings call to place $50mn annual costs (230bp Margin). Analysts stated that they expect write-offs to accelerate to 8.6% in 3Q22, and reach the high-end Aaron’s 6-7% guidance by FY22.”