BNPL And Leasing Expansion Will Create Opportunities Amid Headwinds

Key Takeaways

• Focus on digital and direct-to-consumer channels, with strong PROG Marketplace growth, could expand revenue in leasing and BNPL sectors.
  
• Proactive leasing decision adjustments may stabilize write-offs, supporting earnings stability amid potential sustainable revenue growth.
  
• Loss of a major partner, retail challenges, and macroeconomic factors could hamper revenue and profitability, requiring new strategies and partnerships for growth.

Catalysts

A financial technology holding company, provides payment options to consumers in the United States.

• The growth initiatives at Four Technologies, a BNPL (Buy Now, Pay Later) platform, are continuing to show strong performance with triple-digit revenue growth, which could positively impact future revenue growth.
  
• Improvements in Progressive Leasing’s gross leased asset balance and increased 90-day purchase activity indicate potential for sustainable revenue growth despite current headwinds.
  
• The expansion of active doors and growth with new and existing partners, along with targeted marketing efforts, could drive further lease application volume and revenue growth.
  
• The focus on digital and direct-to-consumer channels through the PROG Marketplace, which saw double-digit growth, suggests additional avenues for revenue expansion in both leasing and BNPL segments.
  
• Proactive adjustments in leasing decisioning and portfolio management are expected to maintain write-offs within the targeted range, potentially preserving net margins and supporting earnings stability.

PROG Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming PROG Holdings's revenue will grow by 1.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 8.4% today to 5.6% in 3 years time.
• Analysts expect earnings to reach $146.0 million (and earnings per share of $4.24) by about April 2028, down from $210.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.1x on those 2028 earnings, up from 5.1x today. This future PE is greater than the current PE for the US Consumer Finance industry at 10.0x.
• Analysts expect the number of shares outstanding to decline by 6.53% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.0%, as per the Simply Wall St company report.

PROG Holdings Future Earnings Per Share Growth

Risks

• The termination of a large retail partner, Big Lots, due to bankruptcy, led to a significant decline in GMV (Gross Merchandise Volume) by approximately $30 million in Q1 2025 and could continue to negatively impact overall revenue if not offset by other partnerships.
  
• A challenging retail environment and reduced consumer confidence, exacerbated by macroeconomic factors such as inflation and trade policy shifts, could further suppress revenue growth and consumer spending on high-ticket items.
  
• Lower lease approval rates year-over-year due to tightened credit measures could limit Progressive Leasing's ability to expand its revenue base, affecting overall profitability.
  
• Increased SG&A expenses as a percentage of revenue indicate potential inefficiencies that may pressure profit margins in an environment demanding cost discipline.
  
• Uncertainty regarding tariffs and inflation poses risks to consumer spending power and retail partner pricing strategies, which might adversely impact revenue and earnings stability.

Valuation

• The analysts have a consensus price target of $36.667 for PROG Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $45.0, and the most bearish reporting a price target of just $29.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.6 billion, earnings will come to $146.0 million, and it would be trading on a PE ratio of 10.1x, assuming you use a discount rate of 8.0%.
• Given the current share price of $26.36, the analyst price target of $36.67 is 28.1% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.