EZPW: Q3 Slight Miss, Growth On Track, Raising EPS & PT; Reiterate Buy We continue to believe EZPW’s long-term fundamentals are solid driven by unit growth across multiple countries and the launch of new products and services with their strategic partners. We further believe that near-term fundamentals remain compelling given the growth of income earnings assets and our belief that the current economic climate will drive consumers to seek alternative forms of short-term financing. Key Takeaways: n Q3 earnings were $0.53, $0.01 below our estimate and the consensus estimate primarily from higher than expected bad debt expense. n Total revenues increased 17% to $203 million driven by 21% increase in merchandise sales, a 16% increase in scrap sales, a 23% increase in pawn service charges and a 6.5% increase in Signature and Auto title loans. n Operating income increased 29%, significantly faster than revenues, indicating strong leveraging of infrastructure and fixed costs. n Key income earning assets were up considerably; pawn balances up 19% and Signature loan balances up ~36%, boding well for future results. n Although the consolidated credit loss provision increased 200 basis points from higher than expected bad debt expense on the installment loan product, management has adjusted various underwriting and collection practices. Moreover, as the installment product is relatively new, we expect the loss rate to moderate as the portfolio becomes more seasoned. n With 40 stores open in Mexico thus far, the company remains on track to have 60 new stores opened in FY2011. The company also announced that it had just closed on the acquisition of 6 more stores in Mexico in the states of Hidalgo and Tlaxcala. n New alliances such as the Cash Converters strategic alliance to introduce new financial services and products as well as EZPW’s purchase of the Cash Converters’ Canadian franchise rights create additional growth opportunities. n After a successful test, the company rolled out its reloadable debit card, “Change”, all company stores in Texas and as of June 30th, 69,000 cards had been issued. Earnings Guidance: Management reiterated its FY2011 EPS guidance of $2.55, representing a 30% increase over FY2010 results. Estimate: Raising Q4 to $0.71 from $0.68, FY2011 and FY2012 estimates to $2.55 and $3.03 from $2.54 and $2.99 respectively. Based on the company’s growth prospects and its valuation, we are reiterating our Buy rating and raising our price target to $46 from $38.
This stock will be out to sea for the next few months, but I agree, is still a great company and will grow. I think we may see better entry points in the next 3-8 weeks. The rapid run up is officially halted for now, but there will be more opportunities ;)