On Friday, TD (TSX:TD) Cowen initiated coverage on PROG Holdings (NYSE: PRG), assigning the stock an Outperform rating and setting a price target of $37.00. The firm's analysis highlighted the company's position in the lease-to-own (LTO) industry and its potential for long-term growth that aligns with economic trends.
The LTO market is recognized for its cyclicality due to the discretionary nature of high-ticket items that make up a large portion of its categories.
PROG Holdings' Progressive Leasing platform was particularly noted for its virtual LTO model, which is expected to experience faster long-term growth compared to traditional store-based LTO models. TD Cowen underscored the company's stable performance relative to its peers throughout the pandemic, suggesting resilience in tougher market conditions.
Progressive Leasing's leadership in the LTO sector for enterprise accounts was also mentioned as a key strength. The firm's strong retention record with these accounts contributes to business stability, although it was noted that enterprise accounts typically have longer sales cycles. This aspect of Progressive Leasing's business model was seen as a positive indicator for the company's future performance.
Furthermore, PROG Holdings was recognized for its solid profitability, with a return on equity (ROE) in the low-to-mid 20% range. This financial metric indicates the company's efficiency in generating profits from its equity. Moreover, TD Cowen pointed out that, in their view, PROG Holdings has the strongest buyback algorithm among its peers, which could be an attractive feature for investors.
The firm's coverage initiation comes with a positive outlook on PROG Holdings, as the Outperform rating and $37 price target suggest confidence in the company's ability to outperform the general market or its industry peers. The analysis provided by TD Cowen offers investors a detailed perspective on the factors that could contribute to PROG Holdings' continued success in the LTO sector.
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