Conn's stock is recommended as a buy with a 12-month price target of $50 per share, up from its current price of $25.53. Key factors supporting this recommendation include Conn's undervaluation relative to its peers and growth potential given signs of recovery in the US economy and consumer spending. While winter storms recently dampened sales, spending is expected to pick up again soon.

1.  Ticker: CONN
 Recommendation: BUY ↑
 Reported price: $25.53
 Price Target: $50.00
 Time Frame: 12 Months
Loyola University Chicago
Rambler Investment Fund

2. Highlights
 Conn’s Inc. stock price is currently under-performed which stood at a low of 52-week range $14.02 - $51.99
 The oil price is at a low figure, currently standing at $49.29. Due to the low oil price, it promotes excess cash for consumers to purchase
other goods. However, a lag is expected.
 The consumer optimism plunged in early February due to the concern over employment and wages, as well as concern regarding the U.S
economy in general. According to the statistical data from Reuters and Michigan on Consumer Sentiment Index, the current data still shows
a recent higher consumer optimism measurement than any other data since January 2007.
 Favorable forecast shows personal consumption expenditures will grow by 3.3% by 2015.
 Because of the unusual winter storms transpiring across the Northeast and Midwest, there was a decline in consumers. However, this is
expected to recover shortly.
 U.S. GDP has improved sharply since 2006, with an annual rate of 2.6% in the fourth quarter of 2014. Real personal consumption
expenditures increased 4.3% in the fourth quarter, compared to an increase of 3.2% in the third.
 U.S. GDP growth slowing down in Q4 is reflected by a reduction in government spending. Nevertheless, there are increased imports,
exports, personal consumption expenditures, etc. in this quarter.
 U.S. Initial Jobless Claims fell more than expected— at 317 in January 2015 comparing to 283 as the current rate.
 U.S. Unemployment Rate fell sharply, according to the data on April 2014 (6.7%), compared to 5.7% currently.
 Stifel Financial Corporation upgraded CONN to “Hold → BUY”.

3. Business Description
Conn’s Inc. is a specialty retailer with approximately 3600 full-time employees and 90 retail locations in Arizona, Colorado,
Louisiana, Mississippi, Nevada, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee and Texas. Conn’s Inc.
businesses consists of selling furniture and related accessories for the living room, dining room and bedroom, as well as
traditional and specialty mattresses; home appliances, including refrigerators, freezers, washers, dryers, dishwashers and
ranges; some other variety of consumer electronics, including LCD, LED, 3-D, Ultra HD and plasma televisions, Blu-ray players,
home theater and video game products, digital cameras and portable audio equipment; and home office products, including
computers, tablets, printers and accessories. Conn’s Inc. also offers a variety of products on a seasonal basis. Unlike other
competitors, Conn’s Inc. provides flexible in-house credit options for their customers in addition to third-party financing
programs and third-party rent-to-own payment plans.

4. Conn’s Businesses
23%
22%
20%
8%
6%
17%
1%
3%
21%
Consumer Electronics Home Appliance Furniture and Mattress
Home Office Repair service agreement commission Finance Charges and other
Service Revenues Other

5. Consumer Discretionary Sector
 Conn’s Inc. is currently under-performed in comparison to
S&P 500, Consumer Staples Select Sector (XLP),
Consumer Discretionary Select Sector (XLY) and its
competitors. That being said, however, Conn’s Inc. is
recovering after its drawdown, bringing the gross profit
margin for Conn’s Inc. to stand at 52.43%.
 Specialty Retail Industry in Consumer Discretionary
presently stands at +37.47% in one year, which has the
highest growth percentage among other industries in the
same sector.

6. SWOT AnalysisStrengths
 Conn’s Inc.’s in-house financing programs offer its customers a financing choice that other institutions and retail stores may not be able to.
 When analyzing Conn’s Inc.’s store locations across the U.S., it is evidently proven that they are using a strategy which acquires sales by providing a more affordable financing program to those
located in regions known to be credit constrained.
 Conn’s Inc. offers a selection of diversified retail stores in many different regions across the U.S., which stock varied retail products from a multitude of industries, such as consumer
electronics, furniture, home office, financing programs, repair services, and others.
 Low-prices and bargaining powers are guaranteed to their customers because of the company’s relationship with numerous manufacturing businesses. Since Conn’s Inc. has a large number of
its suppliers in electronics and furniture manufacturing, they are not only able to assure they will get the best price available (In order to provide the best price to their customers, as well as
to maximize their profits), but also will have a wide range of substitute suppliers, if necessary.
 According to the U.S. Department of Commerce, over the past five years, the retail industry has outperformed and is increasing sharply along with the U.S. economy.
 Conn’s Inc. has passed Growth, Profitability, Solvency and Efficiency analyses.
Weaknesses
 Conn’s Inc. is a mid-cap company in a very competitive pool among its peers (Best Buy, Wal-Mart and Sears).
 The company failed to meet earnings expectations as well as its solvency ratio.
Opportunities
 Low oil prices provide an enormous advantage to the retail industry, especially Conn’s Inc.
 Conn’s Inc.’s stock price is within a low-fluctuation in 52wk Range. Based on GPSE analysis, Conn’s Inc. has proved to be very profitable and is growing radically.
 The U.S. economy is recovering from the economic crisis of 2008 which result in the stimulation for consumers to purchase products in retail stores.
Threats
 The threat of new company entering the retail businesses is moderate, but the threat of an online retail store is much more prominent because there are already numerous competitive
online retail store that provides an easier way for consumers to shop. Also, the e-commerce industry is growing sharply along with the rise of technology.
 Consumer credit’s threat of entry for Conn’s Inc. is comparatively low, since some companies are unable to offer a sufficient fund of their own to provide an in-house financing program.
Furthermore, Consumer Credit Company is required to have a reputable character.
 According to the U.S Business cycle, the U.S. economy is currently in an expansion stage, and a new recession is coming soon.

7. GPSE Analysis
-200
0
200
400
600
800
1000
1200
2011 2012 2013 2014
Millions
Growth Analysis
Revenue Net Income
Growth Ratio
Revenue Net Income
2014 1.19B 93.45M
2013 865.03M 52.61M
2012 792.3M (3.72M)
2011 790.52M (1.01M)
Increment
Revenue Net Income
2013 → 2014 ↑153.97
M
↑40.84M
2012 → 2013 ↑72.73M ↑45.17
2011 → 2012 ↑1.78M ↓2.71M
 Since 2011, Conn’s Inc. has grown dramatically. According
to growth analysis model, a bullish trend in the growth
ratio has developed and Conn’s Inc. is expected to grow
approximately double its current size.
 Revenue from 790.52M to 1.19B
 Net Income from (1.01M) to 93.45M

8. Profitability
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
2011 2012 2013 2014
Gross Profit Margin Operating Profit Margin Net Profit Margin
Return on Equity Return on Assets
2014 2013 2012 2011
Return on Sales
Gross profit margin 50.2% 46.7% 40.8% 37.8%
Operating profit
Margin
13.6% 11.6% 3.7% 3.6%
Net profit margin 7.83% 6.08% -0.47% -0.13%
Return on Investment
Return on equity (ROE) 17.57% 12.71% -1.05% -0.29%
Return on assets (ROA) 8.47% 6.21% -0.46% -0.14%
 Conn’s Inc.’s gross profit margin elevated from 2011 to 2014 with an increment rate
around 4.13% a year.
 Conn’s Inc.’s operating profit margin slightly increased from 2011 to 2012 with an
increment of 0.1%, but then significantly improved from 2013 to 2014 with an
increment of more than triple the rate of year 2012.
 Conn’s Inc.’s net profit margin deteriorated from 2011 to 2012 but outperformed itself
from 2013 to 2014. During 2012 to 2013, Conn’s Inc.’s Net profit margin increased
significantly from -0.47% to 6.08% which is a 5.61% gain. From 2013 to 2014, its net
profit margin has improved for roughly 1.75%.
 Conn’s Inc.’s ROE deteriorated from 2012 to 2013 with an increment rate of -0.76%
but then improved dramatically from 2013 to 2014, exceeding 2012’s level by more
than 17%.
 Conn’s Inc.’s ROA deteriorated from 2012 to 2013 with an increment rate of -0.32%.
However, from 2013 to 2014, Conn’s Inc.’s ROA has outperformed itself, and in 2014, it
stood at 8.47% - an 8.61% gain since 2011.

9. Solvency
0
2
4
6
8
10
12
2011 2012 2013 2014
Debt/Equity Debt/Capital Interest Coverage
2011 2012 2013 2014
Debt/Equity 1.37 1.22 0.92 1.20
Debt/Capital 0.57 0.55 0.48 0.55
Interest coverage 1.00 0.83 5.88 10.59
 Conn’s Inc.’s debt-to-equity ratio fell during 2011 to 2012
and 2013, but increased back to 1.20 level in 2014.
 Conn’s Inc.’s debt-to-capital ratio deteriorated from 2011 to
2012 and 2013 but restored back to the 0.55 level in 2014.
 Conn’s Inc.’s interest coverage ratio decreased 0.17 from
2011 to 2012, but increased significantly from 2012 to 2013
with a 5.05 increment rate. It almost doubled in 2014.

10. Efficiency
0
50
100
150
200
250
2011 2012 2013 2014
Cash Turnover Inventory Turnover
Accounts Receivable Turnover Accounts Payable Turnover
Cash Conversion Cycle (Days)
 Conn’s Inc.’s Cash Turnover ratio increased to almost triple its original size from
2011 to 2013, with an average rate of 76.405 a year, but deteriorated from
2013 to 2014 with a rate of -17.
 Conn’s Inc.’s Inventory Turnover elevated from 2011 to 2012 at a rate of 1.54
but deteriorated from 2012 to 2014 with an average rate of -1.275.
 Conn’s Inc.’s Account Receivable Turnover has stayed stable without any critical
differences within an average range of 2.04 to 2.20 for the past 4 years.
 Conn’s Inc.’s Account Payable Turnover improved from 2011 to 2012 but
deteriorated from 2012 to 2013 and stayed stable from 2013 to 2014.
 Conn’s Inc.’s Cash Conversion Cycle decreased from 2011 to 2012, generating a
good sign for investor but has increased sharply since 2012.
2011 2012 2013 2014
Efficiency Ratio
Cash Turnover 71.87 126.57 224.68 207.68
Inventory Turnover 5.78 7.32 6.06 4.77
Accounts Receivable Turnover 2.10 2.20 2.04 2.06
Accounts Payable Turnover 8.25 10.23 6.42 6.96
Cash Conversion Cycle (Days) 193.00 180.05 182.26 201.68

11. Risk
 Price risk – Conn’s Inc. faces a high degree of risk when dealing with the issue of significant increases in online. In recent years, online retailers
have become much more prevalent in society, as the more convenient approach to shopping, not to mention the low prices these retailers also
advocate. These online low prices have negatively impacted “brick-and-mortar” retailers, as they are forced to compete with this new-age style
of retail. In turn, this is negatively influencing Conn’s Inc., which is forced to decrease their prices, and therefore their margins.
 Consumer credit risk – Conn’s Inc. in-house financing program is one of their strength. However, Conn’s Inc. is exposed into a higher risk of
consumer credit. Furthermore, Conn’s Inc. revenue mostly comes from sales and financing and if their customers have trouble with their
payments, the company’s cash flows will be in greater risk.
 Inventory risk – Conn’s Inc. inventory turnover rate has decreased to 4.77 so it put the company into a greater risk as a consumer retail company.
Moreover, a lower rate of inventory turnover means that Conn’s Inc. is experiencing difficulty in selling their product, thus the company will have
to reduce the price in order to sell their overstock inventory.
 Weather risk – Conn’s Inc. is mainly located in the South region of the U.S. which Southern U.S. region is more likely to experience natural
disaster than other region of the U.S.
 Regulatory risk – Conn’s Inc. is operating in America and it must obey both the local state law and federal regulations. Moreover, the law could
hurt Conn’s Inc. because according to the federal consumer protection regulations, a consumer retail company cannot over-charged their
customer based on their loans contract.
 Foreign currency exchange risk – Conn’s Inc.’s suppliers are mostly international company outside of the U.S. which Conn’s Inc.’s payment to their
supplier will be in different foreign currency than U.S Dollars. Currency exchange will negatively impact to the company’s balance sheet because
of the process of exchange one currency to another.

12. One Month Performance