My latest column is up at RealMoney.

I think Rent-A-Center (RCII) can benefit from the slowdown in consumer spending and the tightening of credit standards.

If Rent-A-Center were to receive the same price-to-book multiple as Aaron Rents, it could trade above $28 per share today. While I don’t believe that will happen overnight, over the next five years Rent-A-Center could see high-single-digit earnings per share growth and also expand its price-to-book multiple to the 1.9 level. The combination of earnings growth and valuation expansion could generate annual returns averaging 15% or more.

Here’s how the company scores on the Stock Market Beat models:

• Earnings momentum: Positive
• Earnings quality: Positive
• Price momentum: Neutral
• Free cash flow: Positive
• Return potential: Positive

Disclosure: At time of publication, William Trent has no financial position in the companies mentioned in this article.

Mid Cap Watch List (Track at Marketocracy) member Rent-A-Center, Inc. (RCII) announced revenues and earnings for the quarter ended June 30, 2007. Total revenues of $724.2 million marked a $140.6 million increase from the same period in the prior year but were slightly below the consensus estimate. Diluted earnings per share were $0.58, an increase of 3.6% from the same period in the prior year but below the $0.60 consensus. According to management:

“Although our second quarter financial results for revenue and earnings per diluted share were within our guidance range and our same store sales increased 2.7%, the business environment has been very challenging as of late,” commented Mark E. Speese, the Company’s Chairman and Chief Executive Officer. “We believe that the financial challenges facing our customers have increased recently, resulting in a softer outlook for the balance of this year. As a result, we are lowering our guidance for the remainder of 2007.”

This is becoming a habit for Rent-a-center, which lowered guidance the last time they reported as well.  The new guidance of $2.905 - $2.935 billion in revenue and $2.06-$2.14 in EPS compare to the prior lowered EPS target of $2.24-$2.32 and a consensus estimate of $2.31.

As a general rule, I prefer companies who keep revising guidance in the other direction.

With the end of the first quarter approaching, it is time to adjust the names in my Watch Lists. I will price all the new lists as of the close on Friday, June 29.

Today I present my planned updates to the Small Cap Watch List. There was a fairly high level of turnover to the list. 12 of the 24 names from the previous run made it to the current list, which was also 24 names. Performance-wise, the list created in March has returned an unweighted average return of 2.6% through June 28, with 80% of the stocks in positive territory. All of the money-losers from the previous list fell out of consideration.
So without further ado, the names on the chopping block from the previous list are: PW Eagle (PWEI), Insteel Industries (IIIN), Allied Defense (ADG - Annual Report), Hartmarx (HMX), Parlux (PARL), Hansen Natural (HANS), FirstFed Financial (FED), Young Innovations (YDNT), ITT Educational (ESI), Rent-a-Center (RCII), Valassis (VCI), and Travelzoo (TZOO). The castaways include four of the five money losers from the previous portfolio (HMX, PARL, YDNT and TZOO) as well as the biggest gainer (ESI).
The new list is:

I will continue to track both lists on StockPickr.

Small Cap Watch List (Track at Marketocracy) member Rent-A-Center (RCII) reported earnings:

The Company reported total revenues for the quarter ended March 31, 2007 of $755.3 million, a $148.3 million increase from the reported total revenues of $607.0 million for the same period in the prior year. This 24.4% increase in revenues was primarily driven by the Rent-Way acquisition that closed on November 15, 2006, and a 2.9% increase in same store sales.Reported net earnings for the quarter ended March 31, 2007 were $15.1 million, when including the Perez litigation charges discussed below, a decrease of $25.2 million from the reported net earnings of $40.3 million for the same period in the prior year. Reported diluted earnings per share were $0.21, when including the Perez litigation charges discussed below, a decrease of $0.36 from the reported diluted earnings per share of $0.57 for the same period in the prior year.

Adjusted net earnings for the quarter ended March 31, 2007 were $47.3 million, when excluding the Perez litigation charges discussed below, an increase of $7.0 million, or 17.4% from the reported net earnings of $40.3 million for the same period in the prior year. Adjusted diluted earnings per share were $0.66, when excluding the Perez litigation charges discussed below, an increase of $0.09, or 15.8% from the reported diluted earnings per share of $0.57 for the same period in the prior year.

The Perez litigation charges reflect a settlement for alleged usury. Analysts had been expecting the company to earn $0.65 on $756 million in sales, and the estimates for next quarter averaged $0.58 on $723 million in revenues. The company’s guidance of $719 million to $734 million in revenue and $0.57-$0.63 in EPS would normally seem more than adequate. However, the full year guidance appears to come up short. The company expects EPS of $2.24-$2.32, compared to a consensus estimate of $2.31. The revenue guidance range is also mostly below the consensus target.

It will be interesting to see why the company expects lower revenue and earnings than analysts had, given an in-line first quarter and a likely better than expected second quarter.

With the end of the first quarter approaching, it is time to adjust the names in our Watch Lists. We will price all the new lists as of the close on Friday, March 30. Today we present our planned updates to the Large Cap Watch List (Track at Marketocracy).

Though less than the Small Cap Watch List and Mid Cap Watch List (Track at Marketocracy), there was still relatively high turnover in this list. 14 of the original 33 names made the cut for the new list (which was trimmed to just 26 names.) Part of the reason for the turnover was to reduce overlap between the lists. One third of the Mid Cap Watch List (Track at Marketocracy) names appear on each of the Small Cap and Large Cap Watch List (Track at Marketocracy)s, but there is no longer any overlap between small and large.
So without further ado, the names on the chopping block from the previous list are:

3M (MMM); Continental (CTTAY.PK); Mitsui (MITSY); Anheuser-Busch (BUD); ConocoPhillips (COP); Helix Energy (HELX); IndyMac Bancorp (NDE - Annual Report); Barr Pharmaceutical (BRL - Annual Report); Quest Diagnostics (DGX); Public Storage (PSA); ITT Educational Services (ESI); Equifax (EFX); Rent-a-Center (RCII); Kroger (KR); Ricoh (RICOY); First Data Corp. (FDC); Expeditors International (EXPD); and Keyspan (KSE).

The new list is:

With the end of the first quarter approaching, it is time to adjust the names in our Watch Lists. We will price all the new lists as of the close on Friday, March 30. Today we present our planned updates to the Mid Cap Watch List (Track at Marketocracy).

As with the Small Cap Watch List (Track at Marketocracy), we were surprised at the amount of turnover in our screens. Only 7 of the original 29 names made the cut for the new list (which comes in at only 24 names.) Part of the reason for the turnover was to reduce the overlap between the Small Cap and Mid Cap Watch List (Track at Marketocracy)s. Now there is only one-third overlapping names rather than two thirds. Furthermore, given the level of outperformance we saw in the first quarter (actually just two months) and the fact that much of those gains were achieved early, perhaps the turnover is warranted.

So without further ado, the names on the chopping block from the previous list are:

Silgan Holdings (SLGN - Annual Report); Middleby (MIDD); Olin (OLN); Vector Group (VGR); Sanderson Farms (SAFM); Tesoro (TSO); Downey Financial (DSL); Waddell & Reed (WDR); Gamco (GBL); Apria Healthcare (AHG); Quest Diagnostics (DGX); ITT Educational Services (ESI); Equifax (EFX); Delhaize Group (DEG); Papa John’s (PZZA); Rent-a-Center (RCII); Cato Corp (CTR); Dassault Systemes (DASTY); Ingram Micro (IM); Energy East (EAS); South Jersey Industries (SJI - Annual Report); and American States Water (AWR).

The new list is:

With the end of the first quarter approaching, it is time to adjust the names in our Watch Lists. We will price all the new lists as of the close on Friday, March 30. Today we present our planned updates to the Small Cap Watch List (Track at Marketocracy).

Frankly, we were surprised at the amount of turnover in our screens. Only 9 of the original 29 names made the cut for the new list (which comes in at only 24 names.) Still, given the level of outperformance we saw in the first quarter (actually just two months) and the fact that much of those gains were achieved early, perhaps the turnover is warranted.

So without further ado, the names on the chopping block from the previous list are:

Silgan Holdings (SLGN - Annual Report); Steel Dynamics (STLD - Annual Report); NVR (NVR - Annual report); Middleby (MIDD); Vector Group (VCG); Sanderson Farms (SAFM); Downey Financial (DSL); Waddell & Reed (WDR); Wilshire Bancorp (WIBC); Harrington West (HWFG); Gamco Investors (GBL); Apria Healthcare (AHG); Papa John’s (PZZA); Cato Corporation (CTR); Meredith Corporation (MDP); CSG Systems (CSGS); Energy East (EAS); Dynamics Research (DRCO); Ingram Micro (IM); and Dade Behring (DADE).

The new watch list will be:

Yes, we know it has only been two days since the Watch Lists were priced, but they were a nice two days. In fact, despite our complaints that some stocks were going up dramatically between the time we announced the watch list and the time we priced it, several names had nice earnings reports Wednesday night and got an immediate boost to their at-the-close official pricing.

The small cap watch list was up 1.31%, significantly better than the 0.50% and 0.58% posted by the Russell 2000 and S&P small cap indices over the two day period. The performance was driven by particularly strong results from Silgan (SLGN - Annual Report), Landstar (LSTR - Annual Report), Rent-a-Center (RCII) and NVR (NVR - Annual report). The worst performers were Vaalco Energy (EGY) and Apria Healthcare (AHG).

The mid-cap watch list turned in 1.58%, compared with just 0.46% for the S&P mid-cap. Due to significant overlap, the same names accounted for the gain. However, Vaalco is not in the mid-cap watch list so the second-worst performance came from Equifax (EFX).

The 0.49% return for the large cap watch list was also sufficient to beat the S&P 500’s 0.28%. Positive stocks were fairly evenly dispersed, but the performance was held back by poor returns from Freeport McMoRan (FCX - Annual Report), TJ Maxx (TJX) and Ricoh (RICOY.OB).

We’ll also continue to track the original all-cap watch list against the S&P 500 and our own portfolio. Embarrassingly, the only negative performance this week was our own portfolio.

We asked, but no one answered. So we are taking our own counsel and breaking our Watch List into three portfolios: Small Cap, Mid Cap and Large Cap. Each will be tracked against the relevant S&P index going forward from their collective inception date of January 31 (priced at the close of market trading that day.)

For your viewing pleasure, the Large Cap Watch List (Track at Marketocracy) (to be measured against the S&P 500) follows.

Astute observers will notice less overlap between this watch list and the names in the Small Cap Watch List and Mid Cap Watch List. This was not for lack of overlap, as the smallest S&P 500 name has a market capitalization of $600 million, which would allow for complete overlap with the Mid Caps if we chose. Instead we selected an arbitrary low of $2 billion for large-cap names, which cuts off five names that are actually in the S&P 500.
In addition, we will provide a “quick and dirty” analysis of each name, with a goal of one such analysis per day. As the name implies, the quick and dirty analysis will be incomplete. We are hoping you will join in the debate and fill the gaps in our analysis.

We asked, but no one answered. So we are taking our own counsel and breaking our Watch List into three portfolios: Small Cap, Mid Cap and Large Cap. Each will be tracked against the relevant S&P index going forward from their collective inception date of January 31 (priced at the close of market trading that day.)

For your viewing pleasure, the Mid Cap Watch List (Track at Marketocracy) (to be measured against the S&P 400) follows.

Astute observers will notice a significant overlap between the names in the Small Cap Watch List and this one. In fact, of the 29 names on the Small Cap Watch List (Track at Marketocracy), 19 are included among the 29 names in the Mid Cap Watch List (Track at Marketocracy). The main reason is that we ran our screens against the criteria in the relevant indices rather than the names in the indices. Since the largest market cap in the S&P Small Cap is $3.5 billion and the smallest market cap in the S&P Mid Cap is $600 million, there is room for a good deal of overlap if one is willing to accept it.

In addition, we will provide a “quick and dirty” analysis of each name, with a goal of one such analysis per day. As the name implies, the quick and dirty analysis will be incomplete. We are hoping you will join in the debate and fill the gaps in our analysis.