What's Next For Rent-A-Center?

Furniture and electronic goods rent-to-own retailer Rent-A-Center Inc (NASDAQ: RCII) terminated a merger agreement with Vintage Capital Management, which prompted an immediate sell-off in the stock.

An Upgrade

Raymond James' Budd Bugatch upgraded Rent-A-Center's stock rating from Market Perform to Outperform with a new $16 price target.

Rent-A-Center's decision prompted a sell-off likely to be "short-lived," Bugatch said in a note. Investors will be taking a closer look at Rent-A-Center's business, which started showing signs of improving in 2017 and continued into 2018. The termination of the merger hasn't changed much at the company level, which continues to be run by the same experienced management team that is running the correct strategic plan to improve profit.

Recent first-hand checks at retail locations validates a bullish stance that operational improvements are evident and should continue to see momentum, the analyst said. This view is likely to be echoed in management's Thursday presentation.

Cautious Amid 'Litigation Mess'

Vintage Capital is claiming Rent-A-Center's action in terminating the merger agreement is not valid and it will take action to enforce its rights, Tigress Financial Partners' Ivan Feinseth said in his daily newsletter. Investors can expect the situation to evolve into a "litigation mess" and a distraction to Rent-A-Center's management. As such, there's "little opportunity" for shareholders to profit from current levels.

Shares of Rent-A-Center have a downside potential below $10, which is where the stock traded at before it initially received a tender offer.

Price Action

Shares of Rent-A-Center were trading higher by 13.5 percent to $14.76 Wednesday afternoon.

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