On Friday, TD Cowen initiated coverage on Upbound Group (NASDAQ:UPBD), bestowing an Outperform rating and setting a stock price target of $43.00. The firm highlighted the long-term growth potential of the lease-to-own (LTO) industry, despite its cyclical nature due to the discretionary aspect of high-ticket LTO categories.
Upbound Group, which partially operates in the virtual LTO space through its Acima business, was praised for its potential for faster long-term growth compared to traditional store-based LTO operations. Acima's strategy of expanding partner locations with a robust sales force is expected to bolster Gross Merchandise Volume (GMV).
The company's store-based LTO business, Rent-A-Center (NASDAQ:UPBD), has also shown a strong performance, outpacing its peers over the past few years, including during the pandemic, across all relevant metrics. Upbound's profitability was noted, with a Return on Equity (ROE) in the 30% range, which is the highest among its peers.
TD Cowen also pointed out the potential upside from Upbound's partnership with Concora, which could significantly contribute to earnings per share (EPS) in the future. Still, the firm acknowledged that Upbound's Acima business is currently facing regulatory challenges with state Attorneys General and the Consumer Financial Protection Bureau (CFPB), issues that existed prior to Upbound's acquisition of Acima.
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