Canaccord Genuity lowered its price target for the shares of CONN’S, Inc. (NASDAQ:CONN) after the specialty retailer of consumer durable goods reported weak financial second-quarter results. As a result, the stock price of the company declined further.
Last Tuesday, the shares of CONN’S, Inc. (NASDAQ:CONN) dropped almost 31% to $31 per share. Today, the stock is trading at $29.44 per share, down by more than 3% at the time of this writing, around 12:00 P.M. in New York.
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In a recent note to investors, Canaccord Genuity analysts Laura Champine and Jason Smith lowered their price target for the shares of CONN’S, Inc. (NASDAQ:CONN) from $71 to $40 per share. The analysts explained that their action was prompted by a reduced long-term credit segment outlook that pushed their EBIT estimate 30% lower on average annually.
Champine and Smith also reduced their full year 2015 EPS estimate for the company to $2.80 from $3.54 primarily due to a higher provision for bad loans.
“This adjustment reflects 30% yr/yr growth in the average portfolio balance in FY15 and elevated delinquencies in 60-day-plus accounts. Late-stage delinquencies increased 70 bps sequentially in Q2 and another 50 bps in August,” according to the analysts.
Furthermore, Champine and Smith raised their full-year bad debt provision forecast for CONN’S, Inc. (NASDAQ:CONN) by 310 bps to 12% citing the reason that the company failed to string together successive quarters of improvement in the credit segment since its execution issues started in Q2/14.
The analysts maintained their Buy rating for the shares of CONN’S, Inc. (NASDAQ:CONN)), but they emphasized that they “need to see more consistency on the credit site to revive their conviction.”
CONN’s chairman answers delinquency issues
During a conference call with analysts, Theo Wright, chairman, president and CEO CONN’S, Inc. (NASDAQ:CONN) stated that the customers of the company became more delinquent for more than 60 days, and they are not resolving the problem at the same rate as expected. He explained that the ability of customers to pay are under pressure caused by several factors such as the inflation of rents, and increased subprime issuance for vehicle purchased
When asked about the promotional receivables of CONN’S, Inc. (NASDAQ:CONN), Wright explained that the company’s decision to remove the six-month cash option and to cut back on the 12-month has nothing to do with delinquency. He said, “Delinquency on those accounts is better than average. The reason we are reducing the use of no interest receivables is to increase the yield.”
Wright expressed that the early-stage delinquency (1-60 days) is declined in August, which gives them confidence in the short-term that there shouldn’t be additional upward pressure on 60-days plus delinquency.
Greenlight Capital, a hedge fund headed by David Einhorn is one of the largest shareholders of CONN’S, Inc. (NASDAQ:CONN). The hedge fund invested in the company based on its belief that the stock has an upside potential of 15% to 20%.