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A ‘Conn’ Job that’s good for you… - Conn’s Inc.

October 26, 2009 | About:
Conn’s Inc. [NDQ:CONN] - Oct. 26, 2009 $7.12

52-week range: $4.64 - $17.67


Conn’s was founded in Beaumont, Texas in 1890 as a plumbing company, started selling appliances in 1937 and expanded to a second storefront in 1959. Currently the company operates 69 stores with 22 units in Houston, 17 in Dallas-Ft. Worth, 10 in San Antonio, 4 in Beaumont, 5 in Austin, 3 in the Texas Rio Grande Valley, and 1 in Corpus Christi, Texas. They also have 6 stores in Louisiana and one in Oklahoma City. Conn’s came public via an IPO on November 25, 2003.


Conn’s has shown consistent profitability in each year since its IPO. EPS peaked with the housing boom in 2005 – 2007 before slipping in 2008. Right now it appears likely that earnings for 2009 will be slightly better than last year but well off the previous highs.


Here are their per share numbers as reported by Value Line:




FY*


Sales


C/F


EPS


B/V


Avg. P/E


Range


2003


19.90


1.18


1.10


3.01


N/A


N/A


2004


21.61


1.37


1.22


6.11


13.0x


14.00-16.50


2005


24.37


1.67


1.27


8.63


12.7x


13.79-19.18


2006


29.75


2.22


1.71


10.85


15.1x


15.29-39.93


2007


32.17


2.22


1.66


12.37


16.3x


17.61-44.99


2008


36.83


2.33


1.68


13.61


14.5x


16.10-32.19


2009


39.69


1.71


1.14


14.89


12.8x


4.64-25.27


* FYs end Jan. 31


Consensus views for FY 2010 and 2011 are now running $1.22 and $1.47 after a recent announcement that the seasonally weak Q3 might show a loss. Even those reduced estimates put CONN’s multiple at< 5.9x this year’s and 4.9x next year’s expectations.


Conn’s has no short-term debt and long-term debt is just 27% of capital. Unless the economy worsens much further their survival does not seem at issue. Management has taken steps to deal with their customers’ credit related problems. The extremely low P/E accompanied by record high sales and book value may make for a very substantial rebound in share price once things start to pick up again.


Notice the 52-week price ranges from the six previous years that CONN has been publicly traded. Even the worst of the highs would be better than double today’s quote.


The shares are quite volatile. Last December’s low touched $4.64 before a rebound to $17.67 by March 2009.


At this afternoon’s $7.12/ share the upside seems to far outweigh the risk. If you want a lower break-even point, consider selling some April 2010 $7.50 puts for $1.60 /share. That would drop your net purchase price to $5.90 /share (if put) or give you a very nice payment should the puts expire worthless (as I expect they will).





Disclosure: Author went long CONN shares and sold CONN puts earlier today.

About the author:

Dr. Paul Pricehttp://www.RealMoneyPro.com
http://www.MarketShadows.com
http://www.TalkMarkets.com

Visit Dr. Paul Price's Website


Rating: 4.0/5 (8 votes)

Comments

blendersoup
Blendersoup - 4 years ago


Did you notice that the company's sales are down 20% for a normalized September 2008 and first-half of October? Does that change your opinion?
Dr. Paul Price
Dr. Paul Price premium member - 4 years ago


That was noted before the write-up.

I believe it's in the price already.

The estimates I quoted are from after their latest announcements.
munger
Munger - 4 years ago
Well, it's very cheap so long as the retail business can stabalize and from what I have followed the shorts really love this stock (evident in the volatility). Could get a nice squeeze rally on this one.

I think for a deep value criteria, Conn's is a nice selection.

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