Rent-A-Center (Nasdaq:RCII) may be one of the safer companies to own through the recession and financial crisis, as its businesses will see increased demand during an economic downturn.

Rent-A-Center owns a chain of stores offering consumers the ability to rent and then own major products including electronics, appliances, computers and furniture. The company also began offering financial services in 2005 at certain locations. The services provided include loans, check cashing and money transfer services.

It has grown mostly through acquisitions and operates 3,045 stores as of September 30, 2008.

The company is the largest rent-to-own operator in the U.S., with a market share of more than 40%. Its next largest competitor is Aaron Rents (NYSE:RNT), which has only half as many stores. It is conceivable that during an economic downturn, more consumers will seek to rent consumer items due to an inability to purchase one outright, thus increasing the company's addressable market.

The items that the company rents are distributed across different product categories, thus diversifying its revenue stream and protecting it from a drop in business in any one area. The product breakdown is:

Product Category Portion of Revenue
Electronics 35%
Furniture 33%
Appliances 16%
Computers 16%

Financial Services
The company began offering financial services several years ago, and this business will probably also grow during a recession as consumers' borrowing and short-term credit needs will no doubt increase. This new business will put it into competition with Cash America International (NYSE:CSH) and EZCORP (Nasdaq:EZPW). In EZCORP's most recent quarter it saw an earnings per share increase of 46% to 38 cents, which shows a resilience to the recession. It has had a great 2008 with an increase in stock price of 39%. Rent-A-Center saw a 19% increase in EPS in the third quarter to 44 cents and a 2% increase in share price in 2008.

Risks
There are several risks to the Rent-A-Center story. Although demand for the company's services will rise during a recession, so too will its loan delinquencies as the ability of its customers to pay back loans and keep current on contracts will diminish. Whether the higher delinquency rates will offset increased volume remains to be seen.

Late November saw protesters voice their opinions on the fees charged. CEO Mark Speese quickly responded by reiterating the benefits of renting rather than taking on the risk of debt. A company's public perception is always important which is why this can be considered a risk. Also, the company reports same-store sales just like a regular retailer, and growth here may stall during a recession.

Financials
Rent-A-Center reported results for the third quarter ending September 30, 2008, in October, and results held up surprisingly well. The market, however, trashed the stock, since the company lowered its outlook for the final quarter of the year. The stock had lost 22% on October 28, the day of the release. The company reported earnings of 44 cents per share on revenue of $709 million. Same-store sales were up 3.4%.

The company is also sound financially, and has reduced its debt to $994 million from $1.2 billion at the end of the third quarter of 2007.

Bottom Line
Rent-A-Center may see its business hold up better during a recession thus making it a safer place to invest during the bear market.

Read more on down market investments in Recession-Proof Your Portfolio.

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