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Conn’s Inc. (NDQ:CONN) - Oct. 26, 2009 $7.12
52-week range: $4.64 - $17.67

Conn’s was founded in Beaumont, Texas in 1890 as a plumbing company, started selling appliances in 1937 and expanded to a second storefront in 1959. Currently the company operates 69 stores with 22 units in Houston, 17 in Dallas-Ft. Worth, 10 in San Antonio, 4 in Beaumont, 5 in Austin, 3 in the Texas Rio Grande Valley, and 1 in Corpus Christi, Texas. They also have 6 stores in Louisiana and one in Oklahoma City. Conn’s came public via an IPO on November 25, 2003.

Conn’s has shown consistent profitability in each year since its IPO. EPS peaked with the housing boom in 2005 – 2007 before slipping in 2008. Right now it appears likely that earnings for 2009 will be slightly better than last year but well off the previous highs.

Here are their per share numbers as reported by Value Line:
FY*
Sales
C/F
EPS
B/V
Avg. P/E
Range
2003
19.90
1.18
1.10
3.01
N/A
N/A
2004
21.61
1.37
1.22
6.11
13.0x
14.00-16.50
2005
24.37
1.67
1.27
8.63
12.7x
13.79-19.18
2006
29.75
2.22
1.71
10.85
15.1x
15.29-39.93
2007
32.17
2.22
1.66
12.37
16.3x
17.61-44.99
2008
36.83
2.33
1.68
13.61
14.5x
16.10-32.19
2009
39.69
1.71
1.14
14.89
12.8x
4.64-25.27
* FYs end Jan. 31

Consensus views for FY 2010 and 2011 are now running $1.22 and $1.47 after a recent announcement that the seasonally weak Q3 might show a loss. Even those reduced estimates put CONN’s multiple at< 5.9x this year’s and 4.9x next year’s expectations.

Conn’s has no short-term debt and long-term debt is just 27% of capital. Unless the economy worsens much further their survival does not seem at issue. Management has taken steps to deal with their customers’ credit related problems. The extremely low P/E accompanied by record high sales and book value may make for a very substantial rebound in share price once things start to pick up again.

Notice the 52-week price ranges from the six previous years that CONN has been publicly traded. Even the worst of the highs would be better than double Monday’s quote.

The shares are quite volatile. Last December’s low touched $4.64 before a rebound to $17.67 by March 2009.

At Monday's afternoon’s $7.12/ share the upside seems to far outweigh the risk. If you want a lower break-even point, consider selling some April 2010 $7.50 puts for $1.60 /share. That would drop your net purchase price to $5.90 /share (if put) or give you a very nice payment should the puts expire worthless (as I expect they will).

Disclosure: Author went long CONN shares and sold CONN puts Monday.
Source: A ‘Conn’ that’s Good for You