Rent-A-Center Inc. (RCII), one of the largest rent-to-own operators, recently delivered better-than-expected third-quarter 2011 results.

Street analysts had nearly a week to ponder the news. In the subsequent paragraphs, we will cover the recent earnings announcement, analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation on the stock.

Earnings Report Review

The quarterly earnings of 60 cents a share beat the Zacks Consensus Estimate of 58 cents, but dropped 3.2% from the prior-year quarter due to higher operating expenses.

Rent-A-Center’s total revenue, comprising store and franchise revenues, grew 6% to $704.3 million from the year-ago quarter, attributable to higher revenue from the RAC Acceptance business, partially offset by the discontinued financial services business.

Total revenue was way ahead of the Zacks Consensus Estimate of $699 million. Comparable-store sales for the quarter inched up 2%.

(Read our full coverage on this earnings report: Rent-A-Center Beats Estimate)

Agreement of Estimate Revisions

Clearly, a mixed sentiment is evident among analysts, following the earnings release. In the last 7 days, 4 out of the 10 analysts covering the stock increased their estimates while 5 lowered the estimate for fourth-quarter 2011. For first-quarter 2012, 1 analyst revised the estimate in the upward direction, while 1 chopped the estimate in the last 7 days.

For fiscal 2011, 5 analysts have increased their estimates in the last 7 days, while 2 lowered the projection. For fiscal 2012, 2 analysts revised their estimate in the upward direction, while 4 lowered the same.

Magnitude of Estimate Revisions

In the last 7 days, the Zacks Consensus Estimate inched down by a penny to 81 cents for the fourth quarter of fiscal 2011, while it came down by couple of cents to 91 cents for first-quarter 2012.

For fiscal 2011, the Zacks Consensus Estimate inched up a penny to $2.88, while it decreased by 6 cents to $3.22 for FY12, in the last 7 days.

The current Zacks Consensus for fourth-quarter 2011 is pegged from a low of 78 cents to a high of 84 cents. For fiscal 2011, the estimates range from $2.85 to $2.91.

Our View

With an extensive network of more than 3,000 stores, Rent-A-Center is the largest rent-to-own operator in the U.S.The sheer geographic reach enables the company to effectively penetrate into its target markets and gain a competitive advantage over its competitors.

The company’s new business model called RAC Acceptance is gaining traction as it enhances consumers shopping experience. When the consumer is denied credit financing for a particular product from the retailer, Rent-A-Center under its RAC Acceptance program acquires that product from the retailer and offers it to the consumer under a rental-purchase transaction.

However, Rent-A-Center’s business is seasonal in nature and typically generates stronger sales during the first quarter characterized by federal income tax refunds, which are used by the company’s customers to exercise early purchase option on the existing rental agreements. As a result, the company is exposed to significant risks if the quarter fails to deliver expected operating performance.

Moreover, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their discretionary spending, and in turn, the company’s growth and profitability.

Currently, we have a long-term Neutral rating on the stock. Moreover, Rent-A-Center, which competes with Aaron’s Inc. (AAN) and Advance America, holds a Zacks #3 Rank, which translates into a short-term Hold recommendation.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/

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