Conn's (CONN) Crashes After Missing Lofty Expectations

Shares of big box retailer Conn's (CONN) plunged last week, after the company reported second quarter earnings that missed Wall Street expectations. Over the past year, Conn's had captured the attention of retail investors with its strategy of selling home electronics and appliances alongside furniture, a unique strategy that helped it outperform rivals like Best Buy (BBY) and RadioShack (RSH). Daily Chart

By offering furniture like beds and sofas -- which are not typically purchased online -- Conn's drew customers in, boosting same-store sales significantly last year.
Rising home sales and demand for new furniture, appliances, and electronics also made Conn's a more popular one-stop shop than Best Buy or furniture stores. Conn's also has a lending arm, which helps customers finance their big ticket purchases. However, with rising top and bottom line growth comes higher expectations. For its second quarter, Conn's earned $0.52 per share -- up from the $0.36 per share it earned in the prior year quarter but falling short of the $0.60 that Thomson Reuters analysts had expected. Revenue climbed 30.5% year-on-year to $270.70 million, topping the consensus forecast of $259.74 million. Conn's attributed its robust top line growth to higher sales of furniture and mattresses, as well as new store openings in the southwest United States. Same-store sales surged 31% from a year earlier. By comparison, same-store sales at Best Buy rose 8.3% last quarter. However, Conn's full year EPS guidance of $2.50 to $2.65 per share fell short of the consensus estimate of $2.66 per share. Shares plunged nearly 20% after its earnings announcement. Analysts are still fairly bullish on Conn's. Oppenheimer currently has a buy rating on the stock with an $85 price target. Analysts at B. Riley raised their price target to $73, while analysts at Suntrust also boosted their price target to $76. Looking forward, Conn's is trading at 15.8 times forward earnings with a 5-year PEG ratio of 1.21 -- signifying that it could be an undervalued growth stock. By comparison, Best Buy trades at 13.9 times forward earnings with a 5-year PEG ratio of 1.95 -- indicating much lower growth expectations. Although Conn's definitely let down some overly bullish investors, the stock is still up more than 100% over the past twelve months and 180% over the past five years. The stock is a rarity in the big box retail sector -- an industry plagued by disasters like Barnes & Noble (BKS) and Staples (SPLS) that have succumbed to persistent competition and price pressure from e-commerce giant Amazon (AMZN). Other News About CONN Why Conn's Shares Plunged Why did Conn's crash? Conn's EPS Beats, Sales Miss Are investors worrying too much about Conn's? Other Stocks in the News Is Google Health 2.0 Inevitable? Will Google take another stab at healthcare? Analyzing HP's Data Analytics Deal With Cerner What does HP's big upgrade of Cerner's networks mean for the healthcare IT giant? Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Sep 10, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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