Digital Expansion And Nonprime Demand Will Drive Powerful Long Term Earnings Upside

Catalysts

About Upbound Group

Upbound Group provides flexible lease to own and financial wellness solutions that give underserved consumers access to durable goods and short term liquidity.

What are the underlying business or industry changes driving this perspective?

• Accelerating digital innovation across Acima, Rent A Center and Brigit, including AI powered underwriting, virtual lease cards and upgraded ecommerce platforms, is expanding addressable demand and is expected to support sustained double digit revenue growth and operating leverage in technology costs, which could boost earnings.
• Structural growth in nonprime and near prime consumers seeking affordable access to furniture, electronics and everyday liquidity is increasing the pool of customers who value low weekly payments and subscription based models. This is supporting higher GMV, stronger top line growth and more resilient net margins through cycles.
• Rapid Brigit scale with 27 percent subscriber growth, rising ARPU and new products like the line of credit product up to 500 dollars is deepening monetization per customer and diversifying profit streams. This is creating a high margin, recurring revenue base that can lift consolidated EBITDA margins and earnings stability.
• Expanding merchant ecosystem at Acima, highlighted by the 100,000th merchant location and new large retailers such as Living Spaces plus a fast growing direct to consumer marketplace, is increasing distribution without matching capital intensity. This is expected to unlock high single digit to low double digit GMV growth and improved ROIC driven earnings.
• Disciplined, data driven risk management with proactive underwriting tightening and enhanced identity tools is positioning loss rates to normalize near the top end of targets while preserving growth. This is setting the stage for margin recovery and improved net income as elevated 2025 vintages roll off.

Assumptions

This narrative explores a more optimistic perspective on Upbound Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Upbound Group's revenue will grow by 7.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 1.8% today to 7.3% in 3 years time.
• The bullish analysts expect earnings to reach $419.1 million (and earnings per share of $7.17) by about December 2028, up from $84.5 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $285.8 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 9.3x on those 2028 earnings, down from 12.5x today. This future PE is lower than the current PE for the US Specialty Retail industry at 20.2x.
• The bullish analysts expect the number of shares outstanding to grow by 0.84% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.5%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent macroeconomic stress on nonprime and near prime consumers, including cumulative inflation, slowing wage growth, rising unemployment and potential tariff driven price increases, could further erode disposable income and confidence. This could depress lease demand and payment behavior across Rent A Center, Acima and Brigit, which would weigh on revenue growth and elevate loss rates that pressure net margins and earnings.
• Acima’s need to repeatedly tighten underwriting in response to deteriorating vintages, higher early defaults in e commerce channels and lease charge off rates already running above the top end of the 9.5 percent target range points to structurally fragile credit performance in its customer base. If loss rates remain elevated or require sustained conservatism in approvals, GMV growth could slow while gross margins and segment EBITDA margins remain under pressure, limiting consolidated earnings expansion.
• The strategic mix shift at Acima toward jewelry and other categories with higher early purchase option utilization may structurally cap unit economics relative to furniture. If furniture demand does not normalize until at least late 2026 as indicated, the business could be locked into a less profitable category mix for an extended period, constraining gross margin recovery and keeping segment level EBITDA and consolidated net income below bullish expectations.
• Rent A Center is only just stabilizing after broad underwriting cuts and a deliberate product exit in 2024, with same store sales still negative and guided merely toward flat to slightly positive. If macro conditions weaken further or trade down dynamics fail to accelerate, the segment may struggle to return to a durable growth algorithm, which would cap top line expansion and free cash flow, undermining assumptions of materially higher consolidated earnings and deleveraging.
• Brigit’s rapid expansion, heavy testing of new products like the line of credit and experimentation in new marketing channels is already driving a higher cash advance loss rate and lower EBITDA margins. If competitive intensity in digital financial wellness and liquidity solutions increases or new cohorts prove riskier than expected, the long term outcome could be structurally higher credit costs and customer acquisition costs, limiting ARPU scalability and contribution to consolidated revenue growth and earnings diversification.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Upbound Group is $46.0, which represents up to two standard deviations above the consensus price target of $31.38. This valuation is based on what can be assumed as the expectations of Upbound Group's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $46.0, and the most bearish reporting a price target of just $24.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $5.7 billion, earnings will come to $419.1 million, and it would be trading on a PE ratio of 9.3x, assuming you use a discount rate of 12.5%.
  
• Given the current share price of $18.23, the analyst price target of $46.0 is 60.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.