Point-of-Sale (POS) financing is surging, especially in the retail sector, as an accessible lending method that allows consumers to make purchases with diverse and manageable payments. This is thanks to solutions like those provided by fintech company PROG Holdings (NYSE:PRG). The company has recently beaten revenue and earnings expectations, and its shares have climbed over 20% in the past year. While long-term growth may be promising, Investors may want to hold off investing in the shares until there is more clarity on the impact of Fed rate decisions on the company.
This is because robust consumer spending over the past few quarters has been wind on the company’s back, and it’s unclear how it will perform if or when higher rates eventually weigh on consumers’ balance sheets.
PROG Holdings Addresses a $31B Market
PROG Holdings is a fintech holding company that offers consumer financial products with transparent and competitive payment options to market segments typically underserved by traditional finance methods. The company’s target demographic includes low-income consumers with poor credit scores. Management has estimated the near-term total addressable market for potential new customers at $22-$31 billion.
The company operates mainly through its segments: Progressive Leasing, Vive, and Four. Progressive Leasing partners with traditional and e-commerce retailers, fitting into the point-of-sale processes as a consumer leasing option. It provides lease-purchase solutions for various merchandise, ranging from appliances, furniture, and electronics to automobile accessories. The Vive segment provides revolving loans via private label and Vive-branded credit cards, while Four leverages a proprietary platform to offer additional payment solutions to PROG’s customers and partners.
PROG’s Recent Financial Results & Outlook
The company recently reported Q1 2024 financial results. Revenue was $641.87 million, surpassing the consensus of $633.36 million, while EPS of $0.91 beat the estimated $0.82. Progressive Leasing realized a Gross Merchandise Value (GMV) of $418.5 million, maintaining a steady year-on-year result.
The company finished the quarter with $252.8 million cash on the balance sheet and gross debt of $600 million, resulting in a net leverage ratio of 1.24 times trailing 12-month adjusted EBITDA. They remain undrawn on a $350 million revolver. PROG also paid a quarterly cash dividend of $0.12 per share and repurchased 781,000 shares at a weighted average price of $31.31 per share. They have $475.6 million remaining under a recently authorized $500 million buyback program.
Management has issued an optimistic perspective for the next quarter and increased its full-year consolidated revenue and earnings outlook. For Q2, Prog Holdings anticipates revenues to range between $550,000 and $575,000 and net earnings between $26,000 and $29,000. Adjusted EBITDA is projected to land between $58,000 and $63,000, while EPS is expected to be between $0.65 and $0.75.
Is PRG Stock a Buy?
Analysts following the company have been mainly bullish about the stock. For instance, TD Cowen analyst Hoang Nguyen recently raised the price target from $38 to $40 while reiterating a Buy rating on the shares, noting the Q1 beat and its improving leasing volume.
Overall, PROG Holdings is rated a Strong Buy based on the recommendations and 12-month price targets four Wall Street analysts have issued over the past three months. The average price target for PRG stock is $37.33, which represents a 9.54% upside from current levels.
Shares of PRG have climbed over 11% in the past 90 days and now trade in the middle of their 52-week price range of $26.39-$44.81. The stock continues to demonstrate positive momentum, trading above the 20-day (32.68) and 50-day (31.76) moving averages.
Investors May Want to Wait for Clarity
Retail sales are evolving, and POS lending is playing an ever-larger role. PROG Holdings is well-positioned to continue growing with this expanding market. While shares of PRG could continue their positive momentum in the near term, longer-term investors may want to wait for more clarity on how consumer spending will be impacted by Fed decisions before entering a position.
