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VINCATA EQUITY RESEARCH | 2 of 5 Stars BUY  | Price Objective $45 | 9/9/14

Investment Thesis

Market inefficiency is often created when good companies miss Wall Street's exuberant earnings expectation. Conn's, Inc. (NASDAQ: CONN) is an excellent example of the inefficient market, as the company recently experienced roughly 30 percent declined in share price due to the failure in meeting the analysts' consensus earnings estimate for the second quarter of 2014. Our research suggests that there is at least 50 percent upside of investing in Conn's, Inc. – a retailer operating in a niche market that serves an underserved population. The company has been posting robust revenue growth that is reflective of both same store sales growth (SSSG) plus the addition of new units. Moreover, the earning margins of 51 percent gross as well as 12.7 percent operating for the trailing twelve months (TTM) are substantial. All things considered, Conn's business fundamentals are strong; hence, we rate the stock a two-stars performer, and recommend investors to purchase common shares with the price objective of $45.

About Conn's, Inc.

Conn's, Inc. (NASDAQ: CONN) is an appliance retailer based in Woodland, Texas that focuses on the selling of furniture and mattresses. The company posted impressive same store sales growth (SSSG) for twelve consecutive quarters, and managed to open twelve additional units in just five short months. Nonetheless, Conn's posted 27 cents short of the estimated $0.75 earnings per share (EPS) by analysts' consensus. Moreover, the company reduced EPS outlook for the FY 2015 down to a range of $2.80 to $3.00, which accounts for future credit default by customers, as well as, the 7.25 percent senior note that the company issued back in July 2014.

Expansion of Core Business Having a Durable Moat

For the second quarter of fiscal 2015, Conn's reported 30.4 percent revenue increased or $353 million compared to Q2 of fiscal year (FY) 2014. Conn's SSSG also significantly improved by 11.7 percent for the same period. Interestingly, sales of their "bread and butter" business – furniture and mattresses comprising of 30 percent of total revenue – significantly jumped by 60.6 percent. The furniture and mattresses business operates in a niche market that helps the underserved population. Unlike many firms in the exciting tech industry that are often driven out of business from intense competition, Conn's has a durable moat due to the business of selling mattresses and furniture being highly boring and niche entrenching – two excellent combinations to deter competitors.

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