Aaron's Appears Overvalued, Warns Raymond James

• Shares of Aaron's, Inc. (NYSE: AAN) have risen more than 24 percent year-to-date.
• Raymond James’ Budd Bugatch has downgraded Aaron’s from Outperform to Market Perform.
• Bugatch believes that while the stock now offers a more balanced risk/reward profile, the increase in valuation leaves limited room for upside.

“Our positive view on company prospects and management remains intact,” Bugatch elaborated, while adding that the estimates for the company were already higher than the consensus and at the higher end of the guidance range.

Management had raised its 2015 EPS guidance at the time of the Q2 earnings release, while maintaining its headline revenue guidance. The company also expects its core comps to improve sequentially through the remainder of the year.

According to the Raymond James report, the increase in the EPS guidance was driven by “cost savings from closed core stores, a positive contribution from early 2015 price increases, and mid-2015 chain-wide rollout of eCommerce.”

Bugatch also expressed optimism regarding the opportunity at Progressive Leasing (a wholly owned subsidiary of Aaron’s), while stating that revenue was expected to grow at a “healthy pace,” as Aaron’s “signs more retailers, increases the active door count, and improves performance in recently enrolled retailers.”

However, Bugatch also cautioned that it was challenging to estimate Progressive’s revenue growth, “given the lumpy nature of door growth and our inability to gauge the slope of penetration gains for recently enrolled retailers.”

Editor's note: A previous version of this article incorrectly mentioned Progressive Corp (NYSE: PGR).