Conn's Stock Drops After Increasing Credit Concerns Prompts Analyst Downgrade

By Tomi KilgoreMarketWatch Pulse

Conn's Inc.'s stock dropped 6.6% in morning trade Tuesday, after the consumer goods retailer was downgraded at Stifel Nicolaus, citing increasing concerns over lingering credit issues. Analyst John Baugh cut his rating to hold from buy. Besides selling durable consumer goods, the company provides credit financing for its core, credit-constrained customers. Baugh said Conn's stock is more a function of the company's credit performance than its retail performance. While the retail operations have improved, Baugh said he's troubled by the continued rapid growth in average account balances and continued worsening trends in 60+-day delinquencies. "Unfortunately, if the company cannot stabilize its charge-offs and past dues, the [improving] retail figures are somewhat meaningless as profits are booked upon the issuance of the loan in the retail segment, but the money has to be collected through time," Baugh wrote in a note to clients. "We have some concern that Conn's is selling certain products...that are generally too expensive for this demographic although it clearly enhances the retail profit reported. The stock, on track to close at a six-month low, has plunged 36% over the past three months, while the S&P 500 has declined 5.7%.

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