5 Reasons To Love Aaron's

In early 2009, Aaron's (NYSE:AAN), the world's largest lease-to-own furniture and electronics store, announced it was expanding across Canada to meet the needs of middle-income earners there. Not only was this a great move for consumers, but investors should take note, as well. Here are five reasons to love Aaron's.

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Insider Ownership
Charles Loudermilk, Sr., the founder of the company back in 1955, owns 61% of the voting shares. Many investors dislike dual-class ownership structures; I'm not one of them. Evidence exists proving that high insider ownership, whether a dual-class or single-class shares structure, translates into excellent shareholder returns.

Canadian Stores
In early 2009, when it announced its Canadian expansion, it had 23 stores here with over 100 franchise deals in the works. It had 28 stores at the end of 2009. Today, it has 32 locations with more to come. Its biggest competition here is EasyHome (TSX:EH), which has 213 Canadian locations. Some might think of this size disadvantage as a real negative. However, with more than 50% of Canadian households earning less than $50,000 a year, the need for Aaron's products and services is real. There is plenty of room for two major players in the Canadian marketplace. If anything, the competition will make both better businesses, and that's good news for consumers.

Made in America
In 2009, its McTavish Furniture division produced $72 million in furniture for its store system, from 11 facilities in five states. By maintaining vertical integration, it's able to better control quality, costs and supply. Most importantly, it's creating American jobs rather than outsourcing to China. With all the labor unrest there, it doesn't hurt to be able to circumvent supply problems where possible.

Financial Strength
At the end of the first quarter, it had $112.7 million in cash and just $56.6 million in debt. Shareholder equity increased 4% from the end of December due to a 4.5% increase in revenues to $495.3 million from $474.0 million and a 4% increase in operating profit before income taxes to $59.6 million from $57.2 million. With the exception of retail sales (represents the sale of items rather than lease), which saw a 5% decline, three of its four main revenue streams saw increases in the first quarter including 13.9% from franchise royalties. Its not spectacular growth but it's plenty in this type of business. As CEO Robert Loudermilk said in the Q1 announcement, "We have a very predictable, annuity type business that has performed well over the years in all sorts of economic climates."

Stock Performance
Aaron's has outperformed its bigger competitor, Rent-A-Center (Nasdaq:RCII) over both five- and 10-year periods. In the past five years, its stock's average total return was 4.2% versus -0.8% for Rent-A-Center and -1.7% for the S&P 500. Over 10 years, it outperformed its competitor by 650 basis points annually. Part of the reason for its strong performance is the consistency mentioned above. In the past 10 years, it has always increased revenues while earnings have grown in nine of 10 years. Investors love stability.

Aaron\'s and Peers Valuation
Company	Forward P/E	P/B	P/S	P/FCF
Aaron\'s (NYSE:AAN)	11.3	1.7	0.9	9.2
Rent-A-Center (Nasdaq:RCII)	7.7	1.1	0.5	5.9
Ryder System (NYSE:R)	17	1.7	0.5	16.5
Amerco (Nasdaq:UHAL)	10.9	1.3	0.5	55.2
Avis Budget Group (NYSE:CAR)	9.1	5.0	0.2	0.8

The Bottom Line
The business of furniture rental is not sexy, but it performs consistently and it even pays a dividend. What's not to like? (For more, see Rent To Own; Own To Rent.)

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