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On Wednesday, Jefferies analyst team downgraded PROG Holdings’ stock rating from Buy to Hold, significantly reducing the price target to $29 from the previous $58. The downgrade reflects concerns about a slower-than-anticipated recovery in the industry, as well as PROG Holdings’ exposure to retail segments facing challenges and inconsistent credit trends. According to InvestingPro data, the stock is currently trading near its 52-week low of $28.43, with analysis suggesting the shares are undervalued based on their Fair Value assessment.
The analysts at Jefferies expressed their continued belief that PROG Holdings would benefit from a market replenishment cycle. However, they noted the absence of clear indicators for such a trend. Trading at a P/E ratio of 8.1x and generating $416.4M in EBITDA over the last twelve months, the company maintains a "GOOD" financial health score according to InvestingPro metrics. While expecting that an economic trade-down would attract new customers, the analysts observed that this had negatively impacted margins without improving credit aspects.
In their detailed analysis, the Jefferies team pointed out a shift in their 2025 Progressive Leasing Gross Merchandise Volume (GMV) growth estimate, which has moved from around 7% to nearly flat. This change was influenced in part by the bankruptcy of Big Lots (NYSE:BIG). Furthermore, the analysts highlighted that the adjusted EBITDA margins were trending towards 10%, falling short of the 11-13% target range. InvestingPro subscribers have access to 14 additional key insights about PROG Holdings, including detailed margin analysis and growth metrics in the comprehensive Pro Research Report.
The report also mentioned that credit metrics have generally stabilized, but provisions as a percentage of revenue are hovering near the higher end of the 6-8% range. This remains a concern despite earlier expectations that the trade-down effect would enhance this aspect of the business. The downgrade by Jefferies underscores the cautious stance of the analysts based on the current financial trends and market conditions affecting PROG Holdings, though InvestingPro data shows the company maintains strong liquidity with a current ratio of 4.03x.
In other recent news, PROG Holdings reported fourth-quarter results for 2024 that exceeded expectations, with revenues and gross margins slightly above projections. The performance was at the higher end of the company’s guidance. However, the outlook for 2025 presented some challenges, influenced by the bankruptcy of Big Lots and increased marketing investments, alongside indications of consumer stress through a slight rise in delinquencies. Analyst Bobby Griffin from Raymond (NSE:RYMD) James adjusted the price target for PROG Holdings, lowering it from $48 to $40, while maintaining an Outperform rating on the shares. Despite the adjustment, Griffin noted the company’s strengths, including active door growth and the anticipated high single-digit growth in first-quarter Gross Merchandise Volume, excluding the impact of Big Lots. The company’s balance sheet and cash flow generation remain strong, offering potential for additional share repurchases. These developments reflect the current trading price, which is approximately nine times Raymond James’ 2025 earnings per share estimate, below the three-year median of about ten times and the one-year median of around twelve times.
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