The rental business is a very diverse and unique segment of the economy. People and businesses rent everything from televisions and video cameras to nail guns, bulldozers, semi-trucks and cars. Generally speaking, people tend to rent items they need whether or not there is a recession. After all, most rentals are used to perform an essential, but temporary task. Sure, there are instances where renting is done more out of a want than a need, but you’ll find more construction companies renting and leasing trucks than individuals borrowing Ferraris.
This article reviews five rental companies, plus we at Insider Monkey will glance at what some hedge funds have been doing with their holdings. Tracking hedge funds’ stock picks by looking at their recent 13F filings can help the average investor generate serious outperformance (Check out Insider Monkey’s market winning-strategy here).
First, let’s look at Rent-A-Center Inc (NASDAQ:RCII):
Rent-A-Center is the largest rent-to-own store chain in North America. As of 2011 they operated an estimated 47% of all rent-to-own stores in the United States and Canada. Recent years’ financial results show that after 3 years of slightly negative revenue growth, the company experienced revenue increases in 2010 and 2011 of 6% and .12% respectively. Additionally, Rent-A-Center’s net income has grown since 2007 by a compounded rate of over 20% due to lower interest payments, resulting from reductions in long-term debt. Their stock, however, is down a little over 8.5% since the beginning of 2011.
Roberto Mignone, the manager of Bridger Management, reported third quarter 13F holdings of 525,000 shares (see Roberto Mignone’s top stock picks). Rent-A-Center represents 1.32% of his portfolio and is his 28th largest holding. The largest fund holding comes from Adage Capital Management, reporting 1.75 million shares held in 3Q 2012 after increasing their stake in the company by 35%. Adage Capital typically beats the S&P 500 by an average of 4.5%.
Next, let’s check out Aaron’s, Inc. (NYSE:AAN):
Aarons is one of Rent-A-Center’s main competitors, specializing in leasing and retail sale of various consumer electronic, household appliance, residential furniture and other accessories. Aaron’s stock is up over 9.5% since the start of 2011 and has compounded annual revenue growth of almost 8% since 2007, with revenue increasing steadily each year. One thing that sticks out on Aaron’s balance sheet is an increase in long-term debt from an average of approximately $51 million over the prior four years up to $141.61 million as of 3Q 2012. This isn’t too concerning, though, considering they have over $1 billion in current assets.
Mark Travis’s hedge fund, Intrepid Capital Management, keeps 2.21% of his portfolio in Aaron’s, placing this stock in his top 20 holdings. Intrepid focuses mostly on the financial, services and technology sectors, and Aaron’s positioning indicates a very bullish vote of confidence from this hedge fund.
Third, we will discuss McGrath Rentcorp (NASDAQ:MGRC):
McGrath Rentcorp is a business-to-business rental company that focuses on renting and selling modular buildings, electronic test equipment, and liquid and solid containment tanks and boxes. Since 2007, McGrath has grown annual revenue at a compounded rate of over 5%, while growing their bottom line by almost 4%. The company’s stock is trading roughly around the same price as its opening price in 2011, which was around $29.78.
Which hedgies are invested in the company?