UPBOUND GROUP, INC. (UPBD) stock intrinsic value fair value estimate & owner earnings analysis

Upbound Group runs two lease-to-own businesses and a small consumer-finance app. Acima, the larger, sits inside the checkout of independent furniture, appliance, electronics and tire retailers and lets shoppers with thin or damaged credit take goods home on a lease they can end at any time or buy out. Rent-A-Center is the original chain of company-owned and franchised stores that rent household goods directly. Since January 2025 the company has also owned Brigit, a subscription app offering small paycheck advances and credit-building tools, and it runs a small lease-to-own business in Mexico. Customers are mostly working households living paycheck to paycheck, so the business makes its money by pricing for, and absorbing, high losses. Two things follow from that and never go away: the business is hit whenever the economy turns, and regulators will keep testing whether its products are really loans. We treat both as permanent features of every case below, not as events that end. How we measured the earnings. The most important accounting choice is the merchandise on lease. The company spends heavily every year buying goods to lease out and writes them off over the lease term; we leave that write-off in place as the real cost of the goods and treat only the change in the size of the merchandise book as a timing swing. The record supports that: over 2022 to 2025 the book shrank, grew and grew again, netting to a cash outflow of only about $23 million across the four years. We deduct bad-debt losses, which jumped to $75 million in 2025 once Brigit's cash advances came in. Stock pay is a cost, except about $412 million recorded in 2021 to 2024 on 8.1 million shares that were really part of the price paid for Acima; those shares are already in the share count, so charging them again would count the cost twice. Amortization of the acquired Acima and Brigit intangibles, $59 million in 2025, is added back as a sunk purchase cost, and because Brigit's technology and customer relationships wear out, we let the business shrink over time rather than treating that add-back as permanent. That add-back, together with about $47 million of tax deferred to later years in 2025, is why reported earnings per share sit close to the dividend while our measure covers it about twice. On this basis owners' cash earnings were $3.38 a share in 2022, $3.66 in 2023, $3.15 in 2024 and $3.40 in 2025. The earnings level. We measure from 2022, the first full year with Acima, Rent-A-Center and today's debt load together, and set aside 2021 (the acquisition year, with an inventory pull-back and pandemic stimulus). Adding back cash interest of about $105 million a year, the business produces about $302 million a year before paying its lenders, the median of 2022 to 2025. That is a normal year, not a bad one: in 2022, when inflation squeezed these customers, cash flow before interest ran about 11% below that level. Owner earnings grew about 8% in 2025; no case assumes growth anywhere near that fast in year one. What changed recently. Acima is shrinking for now: in the second quarter of 2026 its revenue fell about 2.5% from a year earlier and the dollar volume of new leases it wrote fell about 10.7%, as the company tightened approvals and demand for durable goods softened. That flatters cash flow for now: in the first half of 2026 the company spent about $114 million less buying merchandise than it wrote off, so roughly $114 million of that period's operating cash came from the lease book shrinking rather than from earnings. We exclude that; owner earnings were about $121 million for the half year. Acima also absorbed about $13.3 million of losses in the second quarter on leases the company itself reported as fraudulent, in an investigation the company says is ongoing. Brigit is now in court: on June 10, 2026 Minnesota's Attorney General sued it, alleging its advances are unlicensed payday loans with effective annual rates regularly above 300%, against a 50% state cap for short-term lenders; Brigit's position is that customers may choose not to repay. Brigit's second-quarter revenue rose 37% to $71 million, but its segment net earnings fell from $10.5 million to $7.5 million and its net advance loss rate rose a full percentage point to 3.6%. The District of Columbia matter was settled in July 2026 for $4 million in total relief and penalties plus disclosure, advertising and service commitments, with no price cap. The multistate attorneys general matter, led by Nebraska and covering the virtual lease-to-own industry, and New York's lawsuit, which argues Acima's leases are loans subject to New York's 16% interest cap, remain open. Federal policy has swung both ways: the Consumer Financial Protection Bureau sued Acima on the theory that lease-to-own is credit, lost a similar case against another lease-to-own provider, and dropped its Acima suit in March 2025; on paycheck advances it proposed in 2024 to treat most products as credit, then in December 2025 said certain advances are not credit, but only those repaid through payroll deduction using payroll data. We credit neither the current federal posture nor its opposite, because it has reversed twice since 2020. What the company owes. At the end of June 2026 the company owed about $1.44 billion: $450 million of 6.375% notes due February 2029, $868.4 million on a term loan due August 2032, and $120.0 million on an asset-backed revolver due June 2029. Cash was $105 million, of which we treat about $50 million as needed to run the business. We add $37.5 million for the unpaid installment of the $75 million deferred Brigit purchase price, an estimated $30 million for the Brigit earn-out (up to $60 million is payable on 2026 results; the company valued it at about $10.6 million when it bought Brigit, and Brigit has grown quickly since), the $60.2 million the company had reserved at the end of June 2026 for legal and regulatory matters, about $10 million for resolving the Minnesota case, and about $29 million for the term loan and revolver costing somewhat more than 6% for years. In total about $1.55 billion, or about $26.40 a share, ranks ahead of shareholders. Debt is a larger share of this company's total value than at its closest lease-to-own competitor, so any fall in what the business is worth falls harder on the shares. Base case: about $33.40 a share. Starting from the normal level of about $302 million before interest, the business shrinks about 1% a year for ten years: Rent-A-Center's store base keeps shrinking, Acima is writing fewer leases, and winning new retail partners is share-taking rather than a secured, repeatable process. Brigit's revenue growth is not credited at all, because its profits are falling while revenue grows and its core product is being challenged as a loan. We charge an extra $15 million a year, on top of what the starting level already carries, for new investigations, settlements and compliance, roughly doubling the recent run rate, because a business that prices for this customer will always draw them. We assume two downturns as deep as 2022 within ten years, each lasting two years, in years three and four and again in years nine and ten. Cash flow before interest therefore runs about $284 million to $287 million in the first two years, about $250 million in the first downturn, about $266 million to $275 million in the recovery, and about $232 million in the second downturn. Pending matters settle at roughly what is reserved, and Minnesota is resolved without other states following. After year ten, earnings fade about 3% a year, which has to absorb every later downturn and regulatory fight. The business is worth about $3.51 billion; less $1.55 billion owed, about $1.96 billion, or $33.40 a share. Bear case: about $11.30 a share. A downturn deeper than 2022, combined with regulators winning the argument that these products are loans, which a less favorable political climate in more states, or a revived federal push, would make more likely. We assume a downturn about twice as deep as 2022, about 20% for two years, because Acima depends on retail traffic for durable goods that falls in a recession. Business cash flow before interest falls from about $302 million to $240 million in year one. In year two it falls to $155 million as the regulatory losses arrive: New York's lawsuit forces lower fees across a meaningful part of Acima's book, and other states copy Minnesota, capping Brigit's pricing in enough of the country to remove roughly $25 million a year of its earnings for good. Together the regulatory losses permanently remove about $87 million a year, and with the same ongoing $15 million regulatory charge as the base case, the business recovers only to $200 million. A second downturn of the same depth cuts it to $160 million in years nine and ten, and it declines about 5% a year after year ten. We also assume the multistate settlement costs about $100 million more than reserved, Brigit pays about $25 million of restitution in the copycat states, and the 2029 notes refinance on worse terms, adding about $50 million. At the $155 million trough the business still covers its roughly $100 million of interest, and the large maturities do not arrive until 2029, so this case does not require a restructuring, but it leaves too little for the dividend in the trough years. The business is worth about $2.39 billion against about $1.72 billion owed, leaving about $0.66 billion, or $11.30 a share. Bull case: about $61.40 a share. Acima's improved credit holds, the remaining regulatory matters settle on terms like the District of Columbia's, and the combined business compounds about 2.5% a year from roughly $325 million, close to its 2024 to 2025 pace, less the same $15 million a year of ongoing regulatory cost. Even this case includes one downturn as deep as 2022, in years four and five. Cash flow before interest reaches about $391 million by year ten and then fades 2% a year. The business is worth about $5.15 billion; less $1.55 billion owed, about $3.60 billion, or $61.40 a share. The dividend. The company pays $0.39 a quarter, about $91 million a year. On our measure the dividend has been covered a little over twice in each year since 2022 (about 2.5 times in 2022, 2.4 in 2023, 2.1 in 2024 and 2.3 in 2025). Measured as operating cash flow less capital spending, the cash left over fell short of the dividend once, in 2024 (about $48 million against $82 million paid), when the company was rebuilding its lease portfolio. In the base case the dividend survives both downturns: owner earnings after interest stay at about $132 million or more even in the downturn years. A recession by itself has not threatened it; in the 2009 recession the old Rent-A-Center business grew its earnings, from $139.6 million to $167.9 million, while paying down about a quarter of its debt. The threat is a regulatory loss that permanently lowers what Acima or Brigit can charge. In the bear case owner earnings after interest fall to about $55 million in the trough year and settle near $100 million, below the dividend. The company has history here: Rent-A-Center paid $0.08 a quarter through mid-2017 and then stopped paying entirely in a year when the business's cash earnings went negative. The term loan also requires part of any excess cash flow to be used to repay it beginning with 2026, the $450 million of notes and the revolver come due in 2029, and management's stated goal is to cut leverage to 2.0 times earnings from 2.6 times, each a reason a board might trim the dividend to repay debt faster. Our reading: no cut is needed on the business as it is running today, but a broad regulatory loss before 2029 would very likely lead to a cut or suspension. Margin-of-safety price. How sure are we of the earnings level? Reasonably: four years on the current definition range only from $3.15 to $3.66 a share, including a genuine squeeze in 2022. Less sure of where it goes, because the same legal theory, that these products are really loans, is now aimed at both of the company's growth businesses at once, and because that pressure and the economic cycle never end for a business serving this customer. The worst plausible outcome no case fully models is a ruling that treats virtual lease-to-own as credit and caps its pricing in several large states at once, which would hit Acima at its core. The structure would bend but not break: the term loan runs to 2032, the notes and revolver to 2029, and even the bear-case trough covers interest. What we are most likely to be wrong about is the New York lawsuit, whether other states follow Minnesota, and how deep the next downturn cuts; getting all three wrong lands near the bear case, around $11. These matters could take years to resolve, so the price assumes a five-year holding period. The margin-of-safety price is about $16. From that price, if the base case plays out, the shares would need to reach about $32 within five years, with the dividend paid along the way, for a 20% annual return, just below what the business appears to be worth on that path; at $17 the same test falls short. The base case also has to hold for the dividend to keep coming; without it, $16 implies closer to 16% a year. If the bear case plays out, it implies a loss of roughly 29% from that price.